Georgians acquire taste for Carrefour

By bne IntelliNews March 27, 2013

Molly Corso in Tbilisi -

When French retail giant Carrefour opened its first store in Tbilisi last year, shoppers and economists expected the hypermarket to bring better a selection of goods, lower prices and a hook for more big name investors to the market. But six months on, it appears Carrefour's biggest impact so far has been on local Georgian supermarket chains: two have sold controlling stakes to a foreign fund and at least one more is rumoured to be shopping for a buyer overseas.

While plans to expand in Armenia have stalled after the company encountered problems with local competitors, Carrefour opened its first store in Georgia in 2012 and the people there have embraced the retailer and its hypermarket format. The move built on Carrefour's recent interest for emerging markets; the chain also has a presence in Romania and Bulgaria, though has sold out of the more developed Emerging European markets like the Czech Republic.

But Georgia's supermarket scene is already crowded, with a half dozen local chains competing for the country's reported GEL400m (€186m) grocery sector. With an estimated 80% of all grocery shoppers opting for bazaars and small mom-and-pop stores over the cleaner - but pricier - modern chain stores, the competition is stiff.

Stealing customers

On weekends, queues form as Georgians line up at Carrefour for deals on sugar or other consumer goods, undeterred by the store's distance from the centre of Tbilisi - a trend that appears to be taking its toll on local chains despite their greater accessibility for the capital's populace.

Populi, one of Georgia's oldest and largest supermarket chains, appears to have been the first notable casualty of Carrefour's arrival. The 45-shop retailer sold 88% of its shares to a competitor, Ioli, in February for an undisclosed amount. Ioli is 100% owned and operated by two foreign investment funds, SEAF and the Caucasus Growth Fund.

Meanwhile, Georgian media has also reported that Goodwill, Georgia's first local hypermarket chain, is shopping for a foreign buyer. Goodwill representatives did not respond in time for publication, although the chain's general director, Miheil Charkviani, has denied the store is suffering from Carrefour's ability to lower prices.

Esben Emborg, the managing partner at the Caucasus Growth Fund, stresses that Populi's decision to sell was due to poor management, rather then a Carrefour-inspired market crunch. "At any given time, the company has had different problems. It has been a chain that either was not supplying what was wanted... it was criticized for being too expensive, criticized for being a bad payer - there has always been something, but nevertheless it has been a successful chain for many, many years," he says. "We don't see them [Carrefour] in direct competition in that sense because it is a different format of stores, the hypermarket... We are an around-the-corner convenience store, which means we have a lot bigger network, much more shops... We believe that, even though there are new players on the market, there is still a lot of space to grow for everyone."

Jon Copestake, chief retail and consumer goods analyst at the Economist Intelligence Unit, notes that smaller stores often try to draw a distinction between their wares and Carrefour when the French retailer enters a market, in an effort to alleviate the blow to their customer base. He says Carrefour has typically had a "negative" effect on smaller local chains when it moves into a new market, with local stores trying to offset Carrefour's "deep pockets" and global distribution chain by offering products and services the retail giant does not. "Smaller stores try to compete with Carrefour by offering different products, different services. For instance, offering products Carrefour doesn't or offering more personal service," he says, adding, however, that it is "difficult" to compete with French chain.

SMART, another local Georgian chain, however, is optimistic about its future in a Carrefour-influenced market. With ten stores open across the country, the retailer is planning an additional seven or eight storefronts over the next year, according to SMART's press service. The chain's management believes its strategy of adding stores to its existing gas stations or opening fast food restaurants next to the grocery stores will help attract clients.

Rusudan Kbilashvili, the marketing manager for the chain's parent company Wissol Group, tells bne that SMART is counting on "western management standards" and a strategy based on consultations with foreign retail specialists to win over clients.

Traditional practices like poor relations with workers, ineffective handling of products and poor store design simply won't cut it as the Georgian market develops, warns the Caucasus Growth Fund's Emborg. "I think it is inevitable where the market is going to go - the market is going to go toward more controlled modern trade where the consumer has a better guarantee for fresh, clean environment. Eventually, we will compete on things like assortment, service, and accessibility," he says.

"I think what supermarket chains in Georgia need is real professional management. I think it is attention to detail in the shops, so that is how the shop is run - the client satisfaction of being in one of your stores. Is the service okay? Are the goods stocked right? ... Stuff like that, just basic, basic stuff," he says.

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