Tesco Shrugs off Speculation to Remain Hungary’s Retail King
Tesco Hungary remained at the top of the local FMCG market with its gross turnover for the last year of HUF 769 billion, placing it ahead of Coop and Spar on the podium.
Although it is facing difficulties in delivering growth in its U.K. homeland, Tesco appears well poised to stay at the top of a Hungarian market that is seeing increasing demand for “free-from” products from customers who are increasingly eco-friendly.
The Hungarian unit of British-based supermarket chain Tesco remained the biggest retail chain in 2018 with an estimated gross turnover of HUF 769 bln, according to rankings by Hungarian retail publication Trade Magazin.
The top three was completed by Hungarian-owned franchise Coop and Dutch-based Spar (although the local business is owned by the Austrian branch) with turnover of HUF 627 bln and HUF 617.6 bln respectively.
Tesco had started the year faced with speculation about a possible withdrawal from the local Hungarian market, something the giant has categorically denied.
In 2015, the U.K. business reported the worst results in its then 96-year history with a record statutory pre-tax loss of GBP 6.4 bln (about HUF 2.3 trillion). At the beginning of this year, Tesco confirmed that up to 9,000 jobs of its 300,000 staff were at risk in the United Kingdom.
Nevertheless, Tesco said at the end of January that it plans no closures in Hungary; indeed, it said it would continue “intensive investments” in local stores in future.
In early February, Tesco Hungary said it will raise the gross monthly base salary for its lowest-paid workers. Although that same month it announced it would axe 30 jobs in its Budaörs branch, on the western borders of Budapest, due to reorganization spurred by changing customer habits, in mid-March it revealed plans to set up a business service center in the capital covering Central European operations and creating 800 jobs. At the time of publication, Tesco employs 16,000+ people in Hungary.
Coop says on its official website that it employs more than 30,000 people in 3,000 stores around Hungary. Spar employs approximately 13,000 people in Hungary, split between 381 its own stores and 174 franchise units. Lidl employs more than 5,000 people in its 181 stores, while CBA, which operates a franchise system, employs more than 30,000 people in more than 3,000 stores and units bearing the CBA logo.
Auchan has 45 stores in Hungary, employing a staff of 7,000+ (as of mid-2018), Penny Market in Hungary has 210+ stores employing more than 4,000 people, and Aldi operates 140 stores providing jobs for more than 3,300 people.
The Hungarian retail sector employs approximately 400,000 and is responsible for 10% of the country’s GDP, with sales worth more than HUF 11 tln, László Krisán, CEO of Kavosz, a company working to support entrepreneurial development, said in an interview with Hungarian publication Trade. Of that total figure, some 45% was realized in the FMCG sector.
Nevertheless, the number of retail outlets has been on the decline in the past half a decade, at the end of 2017 the number of stores fell below 125,000 in Hungary. This resulted in at least 16,000 people losing their jobs, Krisán added.
Tesco reigns in a market that sees stirring waters on the labor side (see Challenges Face FMCG Labor Market, Despite Growing Wages on page 13), and experiences high demand from increasingly eco-friendly customers toward local quality and free-from products
“Based on our experience, Hungarian customers always look for the highest quality and we compile our assortment accordingly,” Aldi told the Budapest Business Journal.
“[Our] consumers also tend to give a preference to food products purchased from Hungarian producers and suppliers. In response to this trend, we offer fruits and vegetables produced by local farmers and seek to cooperate with Hungarian meat suppliers whenever possible. Our wine offering is also focused on the products of local wineries. As a result, we offer our customers an increasing number of products with a high price-to-value ratio exclusively available from Aldi. We have been the first retail chain in Hungary selling only Hungarian milk and Trappista cheese in all kinds of packaging,” the smallest of the top ten retailers says.
Customers have also shown a rising demand for “free-from” products to suit their special dietary needs. “The offering of our retail chain includes nearly 70 gluten-free, 50 lactose-free and 50 sugar-free products,” Aldi notes, claiming that it keeps these products at “steadily low prices” in all its 140 stores.
In addition to this, Hungarian consumers also appear to be increasingly environmentally conscious and willing to make an effort to reduce the quantity of plastic used.
“As part of its strategy to reduce plastic consumption, Aldi will phase out several non-reusable plastic items from its offering, including plastic cutlery, cups, plates and straws in 2019,” the business tells the BBJ. The aim is to replace these with products made from renewable raw materials.
“It already offers cotton buds with stems made of alternative plastic which has reduced its annual plastic consumption by about 24 tonnes. As part of its action program running under the slogan ‘Remove. Reuse. Recycle’, it will use 100% recyclable packaging materials for all white label goods by 2025. By the same year, it also plans to reduce the number of packaging materials used in Aldi stores by 15%,” the company says.
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