For the first time in three years retail food chains refuse to actively develop

Food chains are revising their development strategies. Director of the research company GT Partners Ukraine Ihor Huhlya predicts that up to 400 grocery stores will be opened in Ukraine by the end of the year, which is 11.1% less than last year’s indicators. Such a situation is observed for the first time over the past three years. «Our company decided against active development, though by the end of the year we expect to open two stores,» says General Director of Pakko Holding (Pakko, Vopak chains) Oleh Marchenko. General Director of the Novus chain Ihor Landa says the retailer plans to open three new stores by the end of the year, although it had plans to open more stores.

Successful six months

The decline in growth rates could have been higher had it not been for the successful first six months of the year. Over the six months of 2014, 211 chain stores were opened in Ukraine, of which 144 were new and 67 changed their logos, says Huhlya. Just as last year, the ATB chain of discount stores remained the leader in terms of growth having increased its chain by 50 stores to 877 outlets. The Dnipropetrovsk chain Varus was second having opened 21 new stores in H1 2014. This dynamic development was thanks to two major deals: this year the retailer acquired the stores of the Spar and Perekryostok chains.

Nash Krai finished in the third place having opened 17 outlets and the chain is actively growing on a franchise basis.
In the first half of the year the retailers quickly developed. «This year we opened stores that were planned for last year,» says PR Department Chief of the ATB Corporation Anna Lichman. Managing partner at the consulting company Retainet Oleksandr Lanetskiy says preparations for opening an outlet take 6 to 12 months. This much time is required by specialists of the development department to find premises, sign an agreement with the lessor, purchase equipment, etc. For this reason, it is often difficult for a retailer to cancel opening of a new store at the last minute.

Pessimistic prognosis

Retail chains are experiencing a shortage of cash for rapid development. From the beginning of the year until July 21 the average receipts of customers of Novus increased by 9% thanks to an increase in the prices of food products, says Ihor Landa. In addition, changes in consumer preferences have a significant impact on the earnings of retailers. «Consumers are rejecting imported products, which grew in price by 50-100% in the first half of the year, preferring lower price segments of goods,» says Marchenko.
Mark-ups for them, however, are regulated by the government and cannot exceed 15%, while the mark-ups for imported products reach 30-40%. The share of lower-priced groups of commodities grew over six months by 5-15 percentage points and currently accounts for 10-30% of the chain’s turnover, depending on its target audience. «Profits of the store are sliding,» complains Marchenko, adding that the prices for refrigerating equipment and software also increased. As a result, the term of return of investment in points of sale, which last year was 3-5 years, has increased by 1.5-2 times.

Shutdown is on the horizon

Many retailers still have heavy credit burdens tied to the foreign currency, adds CEO of the Investment-Trust Bank Oleksandr Podolyanko. «Many of them cannot service their debts,» he admits, adding that the parties are forced to seek a compromise on debt restructuring. Lanetskiy believes that the situation is so complicated that some chains could go bankrupt or sell their business to competitors. He says that a similar situation was observed after the crisis in 2008-2009, when the owners of Arsen and Soyuz chains and others closed shop or were forced to sell their businesses.