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Maria Ciobanu sells just enough vegetables from her stall in a covered market in western Bucharest to cover her costs on a typical day.
Footfall has dropped off in recent years, say vendors at the market, as younger shoppers have drifted to the shiny malls and supermarkets sprouting up around the Romanian capital.
“I’m 80 years old and, I can tell you, this doesn’t get any easier,” she says.
Mrs Ciobanu is feeling the pressure from Romanian consumers’ shift towards western-style supermarkets and shopping malls. The trend has gained in pace but still has some way to go: independent traders — like Mrs Ciobanu — still account for 45 per cent of the Romanian market, according to analysts. The proportion in more mature central and eastern European countries — such as Hungary and Czech Republic — is closer to 10 per cent.
But change is coming fast, as Romania cements its position as the region’s fastest-growing economy, the country’s 20m consumers enjoy steadily rising incomes, which has given many a taste for international brands and big retail chains.
Once seen as part of the “wild east”, Romania’s growth story, combined with a higher risk appetite among investors, has made it an increasingly attractive investment destination.
“Many big players are prospecting the market or already preparing new developments or acquisitions,” says Sorin Ioan Blaga, general manager of Liebrecht & Wood Romania. The company, which develops and manages shopping centres, is developing a second Fashion House mall in eastern Bucharest this year as part of a €400m 10-year investment plan.
“We see strong potential for new retail brands to join the Romanian market,” Mr Blaga adds.
Confidence in Romania’s retail trajectory rests on the economy’s sustained economic growth. The country’s output is expected to increase by 4.4 per cent in 2017 and 3.7 per cent in 2018.
Added to this, the country’s statutory minimum wage has more than doubled since 2011 (see chart), boosting spending by low and middle-income workers, who generally spend a greater proportion of their disposable income on food and drink.
These trends have already encouraged some big deals, notably private equity firm Mid Europa Partners’ acquisition of supermarket chain Profi earlier this year in a deal worth €533m. “People view Romanian retail as about 5-10 years behind the Polish market. It’s the only other country of significant scale in the region, from a consumer point of view,” says Nikolaus Bethlen, a partner at Mid Europa.
Mid Europa has a record in CEE retail. The firm in February agreed a deal to sell Zabka, a Polish supermarket chain it acquired in 2011, to CVC Capital Partners for a reported €1.1bn.
Together with European buyout groups Cinven and Permira, Mid Europa in November bought Allegro, Poland’s largest e-commerce website, for €3.3bn, from South African media group Naspers, in an attention-grabbing bet on the rise of online retail in Europe’s emerging economies.
After Poland’s decade-long retail boom, Mr Bethlen believes Romania now holds the most potential for retail investment in the region: “We looked at Profi for three years — we were in discussions with the owner, we knew the management, we had done our due diligence, so we were intimately familiar with it.”
Romania’s regulatory climate compares favourably with some regional peers. While governments in Poland and Hungary have toyed with Sunday closing restrictions, taxes and regulations — all of which tend to weigh most heavily on multinational chains — Bucharest has eased burdens on retail. The rate of VAT on food and non-alcoholic drinks was cut from 24 per cent to 9 per cent in June 2015, helping to boost Romanians’ retail spending power.
This is spurring investments by international retailers such as Carrefour and Penny, the German supermarket chain, which are reportedly scouting greenfield sites for outlets in smaller cities around the country.
The country’s retail sector faces some macroeconomic risks, investors concede, pointing to expectations of rising global interest rates and knock-on worries about the danger of currency depreciation. Some caution that the government’s tax cuts and wage increases risk overheating the economy and widening the fiscal deficit beyond 3 per cent of GDP, which could force some eventual squeeze on consumer spending.
But this has not diminished the investment appetite for Romania’s international retail investors. Profi operates more than 500 supermarkets and shops across Romania, and its new owners expect to open at least 100 more in the coming years, says Mr Bethlen. “In the past, Romania was pitched as an emerging market which had some growth problems. Now it’s growing at a rate more than double the EU-average. That makes for a very interesting investment picture.”
The minimum salary graphic in this story was updated on May 8 2017 to reflect gross, not net, pay increases
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