Croatian retailer Studenac on acquisition spree in market ripe for consolidation

Croatian retailer Studenac on acquisition spree in market ripe for consolidation
Studenac aims to become one of Croatia's top three grocery retailers and increase its market share to over 12% though a combination of organic growth and acquisitions. / Studenac
By Clare Nuttall in Glasgow March 7, 2023

Croatian retailer Studenac has been on an acquisition spree, growing from a local player in the coastal region of Dalmatia to a nationwide chain in just a few years after being acquired by private equity firm Enterprise Investors in 2018. 

Today the company is Croatia’s largest retailer by number of stores with a total of 1,100 across the country, and a 7% market share. It aims to become one of the top three Croatian retail networks by sales within the next three years, and grow its market share to over 12% through a combination of organic growth and more acquisitions. 

Studenac stands out from other Croatian grocery retail chains because of its proximity format; the company predominantly services a small basket of everyday shopping. Around 60% of Student’ stores have a sales area of between 60 and 180 square metres, and the average network size is around 120 square metres.

“We have developed and implemented a unique proximity retail model that makes us very different from other players in Croatia, and actually the only pure-play proximity format. We predominantly service a small basket of everyday shopping,” Michał Seńczuk, CEO of Studenac, told bne IntelliNews

“The keys to success include location, opportunities for your customers to save time, a product offering tailored to the local consumer and a good, neighbourly atmosphere. We are convinced that small-format stores are the future of retail in Croatia,” added Seńczuk. 

“We are flexible enough to fit into very small spaces – this gives us an advantage when moving into new urban territories,” he adds. 

Rapid expansion

Studenac’s founder Josip Milavic set the company up in the early 1990s as a family-owned business. Initially, the company focused on wholesale operations but gradually expanded to include retail activities, with food retailing becoming its primary revenue stream. As of the end of 2017, Studenac had a retail presence in 384 locations, most of them in coastal areas and islands. 

Enterprise Investors acquired 100% of Studenac through its Polish Enterprise Fund VIII in a deal announced in June 2018. The partner who led the investment, Michał Kędzia, said at the time of the deal that the firm expected Studenac to benefit from “favourable macroeconomics, a strong tourism industry and consumers’ preference for shopping close to work or home”. 

Rapid growth through a combination of acquisitions and new store openings followed, enabling Studenac to approximately triple its number of stores in the ensuing five years. It now has a presence in 15 of Croatia's 20 counties as well as the capital Zagreb. 

Its first takeover was the Istarski Supermarketi chain with 104 stores at the time, also on the coast but in the northern Istria area. It went on to seal four more major deals, taking over Sonik, Bure, Pemo and Lonia, as well as six smaller add-on/bolt-on acquisitions. The company opened 100 new locations organically last year and 193 over the past five years, as well as three dark stores through its partnership with Wolt. 

In total, over the five years of Enterprise Investors' ownership the company has invested more than €250mn in grocery retailing in Croatia, with most of this sum coming from Studenac's internally generated cash, as well as bank debt. 

Ongoing consolidation

Croatia’s retail market has followed a similar path to others in the region. Currently somewhat fragmented, there is a visible trend of consolidation in the sector. 

“The Croatian retail market is still quite fragmented. It is ripe for consolidation, but the process is only just getting under way, and it will continue for years to come,” said Seńczuk. “Ultimately, only flexible companies with a long-term vision and laser focus on customers’ needs will be able to successfully develop their businesses. As for what Studenac itself is doing, we have an ambitious plan to continue with this path of growth.”

Following its acquisition spree, Studenac now has plans for ambitious organic growth. In 2023 it intends to open 130 new stories, this will rise to 200 a year for the coming years. 

Commenting on the company’s future plans, Seńczuk said: "We are convinced that we have found a winning formula with our unique proximity concept, so the task now is to continue to roll it out further, both through organic growth and through acquisitions.”

He believes there is plenty of room in the market for expansion: “Based on our research on the market, we believe the potential is there to add another 3,000 stores in our proximity format, which is one of a kind in Croatia.” 

Digitisation shakes up retail sector 

The company intends to continue to use its digital centre of excellence set-up, as well as to build customer engagement, using tools such as the app it also launched last year.

“Digitalisation is shaking up retail around the world, and Croatia is no different,” said Seńczuk.

The centre of excellence uses advanced analytics to achieve three goals: improving internal processes and points of sale, enhancing the company’s position and supporting growth. Seńczuk says the first projects are beginning to bear fruit, though he warns: “Of course, when it comes to digitalisation, there is a constant threat of getting distracted by how cool the technology is. For it to succeed, you always have to ask how it helps your customers.”

Several turbulent years

The years since Enterprise Investors made its investment have been some of the most turbulent in recent history, with the pandemic in 2020 followed by Russia’s invasion of Ukraine, both events accompanied by major economic disruption. 

Croatians, like other shoppers across Europe, have been affected by rising inflation since the global economy started to emerge from the coronacrisis, and even more since Russia’s invasion of Ukraine a year ago. The latest data from the national statistics office shows Croatia’s annual inflation stood at 12.7% in January, down from a peak of 13.1% the previous month. 

“[C]onsumers are more selective and price-sensitive than before, in response to higher inflation. We are responding to their needs with initiatives including an expanded range of private-label products and wider range of promotional mechanisms,” said Seńczuk. “We are also seeing rising demand for convenience products that fit into a busy urban lifestyle, and we are expanding our To Go offering in markets such as Zagreb.”

Within Croatia, there was the significant step of entry to the eurozone on January 1, 2023, a major change for retailers in the country.

“Euro adoption affected every single employee, from the store staff who had to print out and put up more than 5mn new price labels, through the IT department who had to make sure our systems could handle the transition period where we were using two currencies, to the people in payroll and purchasing who had to ensure all of our payments were switched over correctly,” said Seńczuk. 

“The biggest effort started with the rollout of dual prices beginning in August and culminated in the first two weeks of January, when customers could pay in kuna but we gave change back in euros. That was a big cash-management challenge, a logistical problem.” 

There has also been controversy within Croatia over price increases, which the government and shoppers claim were unjustified, while retailers say they were based on high inflation. 

However, looking ahead, Seńczuk believes “the effects on our business are only positive”. “Euro adoption, combined with membership in the Schengen passport-free travel zone, makes Croatia more convenient for tourists, and thus even an even more attractive destination,” he said. “We are looking forward to welcoming more shoppers on the coast this summer – and as a nationwide chain, we are looking forward to the benefits for the entire Croatian economy.”