Hungarians think twice before spending

Food

Hungarian consumers are still looking for cheaper options and special offers when shopping. 

The performance of the retail sector this year depends on purchasing power, household income and businesses’ ability to make payroll, according to the National Trade Association (OKSz). While the consumer market is seen as shrinking slightly in the first half of the year, how it does in the long run will depend on Hungary’s overall economic performance. 

“Turnover in the first couple of months of 2012 was low, but this period is traditionally weak in the retail sector,” Attila Fodor, head of communications at Hungarian supermarket chain CBA told the Budapest Business Journal. “Consumers think twice before spending and they are looking for the cheaper options and special offers. Thus, we have to closely follow other chains’ offers, deals and discounts.”

OKSz too noted that price continues to be the main factor in buying habits, as consumers still prefer cheaper products. Another decisive factor is inflation, especially the increase in fuel and food prices, according to the association.

Quality matters

At the same time, quality matters, too, with consumers looking for the highest possible value for money, according to Fodor. “For instance, they want to buy real chocolate bunnies for Easter rather than the cheaper fake chocolate option.”

”In 2012, we would like to maintain our top position after Tesco on the list of retail companies, but it is too early to provide an accurate annual revenue forecast in March, as in retail, the last two months of the year matter most,” Fodor said. “We hope that when the period of the early repayments of FX mortgage loans is over, both the frequency of shopping and the amount spent on one occasion will start to grow.”

Revenues at CBA reached HUF 565 billion in 2011, up 1.8% from the previous year’s HUF 555 billion.

The OKSz agrees that retail sales are strongly affected by what happens to FX loan holders, as these loans represent the greatest burden in Hungary’s consumer market. The market will also be influenced by the outcome of the talks on an international loan to Hungary. While the impact of a potential agreement cannot be estimated without knowing the details, it could strengthen Hungary’s consumer market through changes in the forint rates, both directly and indirectly. OKSz notes that an improvement in the international economic environment could also be beneficial for the market. 

As to consumer confidence, while views on the current state of affairs have hardly improved, the outlook on the future was noticeably better in February, according to economic think tank GKI. Breaking a trend of almost continuous decline during the last 18 months, GKI’s consumer confidence index rose in February, reaching a value slightly above its level in December 2011. The pessimism of households abated in almost every respect, GKI said, including their expected financial situations and saving ability, as well as the possibility of purchasing high-value durables. 

Ups...

- HUF 400 bln extra income as a result of the change in the personal income tax rate

- HUF 260 bln payment of real yields on private pension fund assets transferred to the state

- gross wages were up 5.2% and net wages increased by 6.4% on average

 

Downs...

- households’ burden of foreign currency denominated loans

- the sum of FX loans’ monthly payments exceeded HUF 400 bln in 2011, estimated to be at least twice as much as it was before the jump in forint rates

- the volume of early repayments reached HUF 620 bln in the last quarter of 2011

 - higher than average increase in fuel and food prices

 - due to a 15% increase in fuel prices, Hungarians paid HUF 160 bln more for 5% less fuel

- due to an average 7% increase in food prices, Hungarians spent an extra HUF 200 bln on        only 0.3% more food

 Source: National Trade Association (OKSz)

Plaza ban and new taxes

A recently introduced act placing a moratorium on new shopping mall and hypermarket developments will limit CBA’s room for maneuver, Fodor said. The act banned the construction of new outlets of more than 300 sqm of retail space or the equivalent expansion from January 1, 2012. The group has more than 3,300 shops, but had to close about 200 smaller units last year. Within the total, there are 103 high-end CBA Prima shops, and a handful of shops under CBA’s discount brand Cent.

The retail segment has also been strongly affected by the introduction of new taxes and an increase in existing ones, Roland Kanyó, the PR manager of drugstore chain dm drogerie markt Kft told the BBJ. He pointed out that this has inevitably led to price increases. The most painful tax changes in the retail sector are the introduction of the so-called ‘chips tax’, a levy on unhealthy food, higher excise taxes, a raise in the standard VAT rate to 27%, as well as an increase in environmental product fees. 

Dm foresees a 4% increase in turnover in its 2011/2012 business year following a 3.4% increase in the previous year ended on September 30, Kanyó said. The number of shops is expected to reach 260 by the end of the financial year.

The business aims to further strengthen consumer relations and intensify communication with its customers, Kanyó said. The number of registered users of the company’s ‘active beauty program’ exceeded one million last year. Dm has 22 private brands, of which the Balea label line is the biggest with 400 different items. In line with changing consumer habits, the drugstore chain now offers a wider range of organic food products. 

Retail turnover stagnant

After four consecutive years decreasing in value, the volume of retail sales stagnated at HUF 7.9 trillion in 2011, according to the figures of the Central Statistical Office (KSH). During the year, there was a slight increase in year-on-year sales in seven months and a drop in four months.

In terms of volume, sales have fluctuated at around the level of 2005 since mid-2009. Although consumers spent HUF 420 billion more in 2011 than in the previous year, inflation ate away the majority of the difference, said the National Trade Association in its comment on the 2011 figures. 

In 2011, non-specialized and specialized food, beverages and tobacco stores had the highest market share with 44.5%, followed by petrol stations (18.1%) and furniture and electrical goods stores (13.2%), while the remaining stores had a combined market share of 24.2%.

In December, traditionally the month with the greatest sales volume in the retail sector, sales accounted for HUF 823 billion, 1.5% more than in the same month of the previous year and equal to 10.4% of total annual turnover. In 2011, the most dynamic increase was seen in the network of mail order houses, which accounted for a small proportion of all sales, the KSH said, attributing this to the fast expansion in online sales.

Hungary Signs HUF 6 bln Tied Aid Deal With Kenya Analysis

Hungary Signs HUF 6 bln Tied Aid Deal With Kenya

Moldovan Pensions to be Increased as of April 1 World

Moldovan Pensions to be Increased as of April 1

Schoenherr Names Miklós Klenanc as Head of Local M&A Practic... Appointments

Schoenherr Names Miklós Klenanc as Head of Local M&A Practic...

Hungarian Wine Marketing Agency to Host Summit Drinks

Hungarian Wine Marketing Agency to Host Summit

SUPPORT THE BUDAPEST BUSINESS JOURNAL

Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.