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Are there going to be takeover transactions in the Baltic retail sector?

A growing economy, money being withdrawn from the second pension pillar and mostly going to consumption, Statistics Estonia announces at the end of August that Estonia's retail sales have grown 10% annually. Those factors make the retail market in Estonia a hot topic. Newcomers in Lithuania are bringing competition and with Lidl, Aldi, Mere and Auchan entering the market there is a possibility of takeover transactions in Baltic retail market.

Based on last available data there has been a recovery in retail markets and even some growth in 2021. The government enforced moving restrictions and restricted opening times for shops and restaurants back in March 2020 have now been mostly soothed or even removed. After the decline in sales in March and April caused by enforced restrictions, the growth picked up as the suppliers adapted to the new environment and moved onto selling goods online. As physical shopping became more burdensome, consumers’ demand preference shifted from entertainment, fashion and travelling goods to leisure, electronics, e-food and e-medications products.


With the restrictions, consumers changed the way they buy groceries. In the pre-Covid days, people were used to roaming between aisles in the supermarkets looking for products – now most of that is done in online shops. For example, after Rimi successfully opened an online store in Latvia, they planned to open online stores in Estonia and Lithuania as well in April and May 2020. However, due to COVID-19 they had to speed up the process. Chain stores not only focused on their online stores but expanded the number of physical stores as well. For instance, Prisma started building a new store in Lasnamäe in April last year. Rimi, Selver and Maxima are following Prisma's lead and are also expanding their reach.


Estonia and Latvia retail market is waiting for the arrival of Lidl

Lidl is expanding their operations to Estonia and will offer some competition to Estonia's chain stores with low prices and offering a larger product range to their customers. Lidl is planning to build eight stores in Tallinn, Tartu, Pärnu and Narva - for two of the stores they have received a building license. Lidl entered the Lithuanian market in 2016 with 15 stores and now they have increased the number of stores to 53 and are still planning to broaden their operations. According to German Retail Blog, they intended to enter Latvia's market in 2019 but because the business was going great in Lithuania, they opened more stores there instead. Now, in 2021 January, Lidl finally reached Latvia with a logistics center – which serves the purpose of providing logistics for stores in Latvia and Estonia. Food division manager of market research company Pricer Lithuania, Petras Cepkauskas is optimistic for the future of the Baltic region, estimating there will be about 100 Lidl stores in Lithuania and 50 stores in both Estonia and Latvia.


Changes in retail sector start, as usual, from Lithuania with Mere present and Aldi and Auchan coming

Like Maxima, the leader of the Baltic retail market, newcomers start with Lithuania – the largest market in Baltic region. Seems like German chain store company Aldi, the main competition to Lidl, is planning to expand to Lithuania first. There are two ways of how Aldi can enter the market - either by building new stores or acquiring an existing chain store. As of now the most probable outcome is that Aldi enters by themselves, and they have ambitious plan to open at least 15 stores a year. Keeping in mind the second option – a rumour has it that Aldi is interested in acquiring Norfa, one of the largest chains stores in Lithuania. Right now, Aldi is aggressively expanding in Poland where they have 168 stores. At the end of 2021 their goal is to open additional 45 stores and hire more than 600 employees.

In 2020 Mere, a Russian chain store company that has 1,640 stores and sales around 2 billion euros opened their first store in Lithuania and later in 2021 in Latvia as well. Their strategy is to keep prices about 20% lower than their nearest competition. They can do it thanks to going straight to the producer and using minimal mark-up. In addition to minimal mark-up the consumer pays for the good and not for the brand name nor expensive packaging. Mere is also trying to expand aggressively in Latvia looking for rental space that is bigger than 800 square meters with parking lot that has space for at least 30 cars.

There are rumours about France chain store company Auchan also planning to expand to Baltic. Apparently Auchan doesn't plan to build or rent stores but rather acquire an existing chain. There is a rumour that Auchan is planning to buy Maxima but Maxima denies any plans to sell. Though Auchan has enough funds to make acquisitions - they have more than 4,000 stores all over the world with total revenue 31.6 billion euros in 2020.


Growth in online shopping is growing business for parcel machines

Based on data from Statistics Estonia, the total revenue of local retail market was 7.7 billion euros in 2020, which is 4% higher [PI2] compared to 2019 with constant prices [PI3]. There was growth in December 2020 - online retail sales increased 30% compared to the month before. Overall, the number of users in Estonia's online stores grew by at least 50%. In addition, the usage of parcel machines has grown significantly, which only confirms the latter statement. In April of 2021, there were almost 1.4 million packages in parcel machines, which is a 41% increase compared to the year before. With increasing package volume, Omniva is fast to react and is opening new parcel machines, most of them located in Harjumaa. Omniva's network manager compared amount of packages shipped in spring to numbers usually experienced during Christmas.


Latvian and Lithuanian parcel machine reach is also expanding. Cleveron started offering high quality parcel machines in the middle of 2020 to Latvian and Lithuanian enterprises. They mostly focus on small and medium sized enterprises because they saw market for that in Estonia. They are working with Pristis which is offering installation and maintenance. Cleveron also started working with Latvian Post. Together they offer parcel machine network for homeowners. For 9.9€ a month, a parcel machine will be installed in front of a client's home.


In Latvia, retail sector annual sales grew 1.5% compared to 2019. Sales grew most in medicine products 8.1% and the biggest decline was in clothing and footwear sector – -40.2%. In online stores, the biggest demand was for electronics, media, and fashion goods. E-commerce revenue in 2020, was 251 million euros, which was 0.85% of Latvia's GDP.

Sales growth in Lithuania`s retail market is slowing, sales with constant prices grew 2.1% year over year in April, which is significantly lower than the 4.7% recorded a month before. The biggest growth took place in textile, clothing, and footwear sectors, which grew 10.8% annually. Like in Latvia and Estonia, sales didn`t drop as much because of e-commerce. In 2020, Lithuania`s e-commerce grew 18% and the sales were 676 million euros which is 1.46% of their GDP.


All in all, making a future forecast there is reason to expect that the retail sector will keep growing as consumers go back to regular shopping in malls due to easing of COVID restrictions. Additional growth for the retail market is coming from online stores because the quality and quantity of these stores is going up and the volume of parcel machines is increasing. At the same time there is more competition in the food and consumer goods market with Lidl, Mere, Aldi and Auchan expanding their operations to the Baltic region.

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