Located right along the northwestern city borders of the capital, Üröm ranks among the top three places by purchasing power parity per capita in Hungary year after year. Regardless of the abundance of folks with solid finances, it is the market-leading German discount food chain Lidl’s store draws most of the traffic. Its packed parking lot contrasts starkly with that of the local Coop unit, which apparently serves only a fraction of its rival’s customers. The two stores are just a few hundred meters apart.
Yet, the picture is much more nuanced if you look at the nationwide figures. As shown by the latest data published by Trade Magazin, although Lidl clearly leads the pack, Coop Group is the fourth-largest FMCG chain in the country in terms of revenue. The HUF 830 billion turnover in 2023 puts the 100% Hungarian-owned company just slightly behind Tesco.
Coop can also pride itself on having the broadest national presence thanks to its 2,150 stores in 1,450 dwellings nationwide. Even its slogan refers to being a “good neighbor.” Occasional sluggish sales at any given unit are compensated by the sweeping performance of just a handful of franchise members. The five biggest operations account for 52% of the total revenue.
As Coop Hungary Zrt. CEO Géza Tóth says last year was characterized by a constantly changing, hard-to-predict economic climate that posed a continuous challenge to the entire sector. It is worth recalling that 2023 saw 17% inflation while wages grew by just 11%. That drop in real wages of 6.5% ended up being the largest in the entire CEE region.
Against this backdrop, Coop maintained a stability that was manifested in a 10% revenue increase, year-on-year. Recent macroeconomic developments have helped keep up the effort: in May, sales in food-like mixed retail were up 6.8% compared to the year before.
However, one of Coop’s key weapons, widespread coverage, would be toothless unless coupled with strategic development.
“A large-scale store development program was completed last year whereby HUF 12 bln was spent to renew 461 facilities,” Tóth highlights. “The investment boosted by the government’s Hungarian Village funds improved the lives of 450,000 citizens residing in small places.”
In parallel, Coop customers now have access to postal services in 91 dwellings, and a range of nine non-prescription medicines can also be purchased. Coop stores further offer the comfort of picking up non-food online orders at 590 package delivery machines. The deal is sweetened further for regular Coop customers who can enjoy a discount of HUF 300 to HUF 500 on every Foxpost or Paketa order.
Regardless of population sizes, the company is betting heavily on going digital. The Coop Club membership has been available via mobile for three years; therefore, loyalty discounts, special offers and vouchers can be used digitally. The number of regular customers is well over one million today, with ever more using the club app.
Self-checkout is another path Coop has decided to follow. For now, 12 units offer the service. The power of online orders is harnessed as well. Partnerships with leading delivery services like Wolt help customers get their shipments, a service that is expanding across the country. Coop further considers pushing local products as a priority.
“The ratio of Hungarian products is over 80% in our case,” Tóth notes. “As far as fresh goods such as meat, poultry or locally grown fruits and vegetables are concerned, the rate is even higher.” In addition, an annual initiative called the Coop Rally engages industry stakeholders to showcase innovations that enhance the reputation of Hungarian producers and goods.
“We do everything in our power to keep up with our customers’ changing needs, and we will continue to build upon Hungarian products and sustainable practices,” Tóth insists. “After all, we lay the groundwork of the future of retail with the developments we carry out today.”
From time to time, bombastic news hits the headlines about how certain discount chains strive to lure people with substantial salaries and bonuses. Oftentimes we are talking about attractive figures by Hungarian standards, which raises a question about the extent to which the competition is ready to keep up with such offers. As Coop tells the Budapest Business Journal, franchise partners have discretion over wage issues, thus they are solely responsible for complying with relevant regulations. The larger ones offer a career path model for Coop employees, and the company also seeks to retain its roughly 16,000 employees through fringe and individual benefits as well as the funding of vocational training opportunities.
FMCG retail has been suffering from a special Hungarian sectoral tax since 2020. However, the 4.5% revenue-based rate appears to target foreign-owned chains disproportionally: Hungarian competitors operating under a franchise scheme often pay between nothing and 1% in extra tax. The issue was criticized by the European Commission in its country report in 2023. In the meantime, Spar has filed a complaint for discrimination and a breach of EU law. The Austrian company complains that it ended up in the red due to a special levy amounting to HUF 29.1 bln last year, without which a profit would have been realized. Aldi is in a similar situation. Penny and Auchan managed to be profitable regardless. Hungarian competitors such as CBA or Reál do not publish any relevant information. Coop, for that matter, did not wish to share sectoral tax-related details when asked, either.
This article was first published in the Budapest Business Journal print issue of July 26, 2024.
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