Mercator sales returned to growth in 2017

Date : 08 May 2018

Mercator published a 2.5% increase in retail sales in 2017 to reach €1.6 bn. Slovenia, its home market, drove much of the revenue growth, while its performance was also boosted by a 6.1% growth in store numbers across all markets. At the end of its financial year it operated 1,055 non-franchise units. Mercator Group revenue declined by 2.2% to reach €2.2 bn with a net loss of €184m, double the size in 2016, as it focused on stabilising its business.

Slovenia drives sales growth, partly due to Value Creation Plan (VCP)

Retail sales in Slovenia grew by 1.7%, with much of the growth attributed to Mercator’s VCP that resulted in a growth of 1.3% in number of transactions. The VCP’s core goals includes roll out of new store concept and refurbishment programme, cost optimisation, and building on brand differentiation.

Retail increases share of group revenue

Mercator’s retail business increased its share of group revenue to 78% in 2017 from 74% in 2016, partly due to its re-entry into Bosnia-Herzegovina. But also, due to the decline in wholesale sales from the closure of centres in Serbia.

Serbia continues to slump

Mercator Serbia continued to show a decline in revenues due to the closure of stores, which was undertaken in compliance with the decision of the market regulator. In addition to that Mercator closed unprofitable Velpro centres, as part of the group’s restructuring programme. Also, Serbia suffers from tougher macroeconomic conditions when compared to its Balkan neighbours, with higher inflation and slower GDP growth. Mercator will likely refocus efforts in that market by applying its VCP to boost sales and profitability.

Emphasis on category management focus and customer segmentation in 2017

As part of the VCP, Mercator focused on shopper needs with use of category management to launch campaigns in the fresh category and locally sourced goods. The retailer also used its loyalty programme to support customer segmentation analysis, so to adjust offer, retail area, and marketing to the diverse shopper missions and needs. Some in-store activities are aimed at certain product categories, while others are based on retaining the loyalty via tailored offers.

Expansion of suppliers to develop ‘local’ offer

Mercator focused on its ties with suppliers as part of its stabilisation process in 2017. The retailer started to include more local suppliers, to boost its locally sourced offer. This was tied in with the ‘My Brands’ ('Moje Zhamke') campaign, an initiative that promotes local goods in dedicated areas in-store. Mercator will roll out this campaign across its operations outside its home market, starting with Serbia.

Group to grow in 2018 and further expansion in 2020-2022

Mercator Group expects to grow revenue in 2018 to €2.4 bn and to €2.5 bn in 2021. The retailer announced capital expenditure of €37.7m for 2018, with 47% of the investment to be used for new store openings and 20% for refurbishments. This is phase two of a three-part plan to finance a larger expansion plan between 2020 and 2022. Phase three will involve the financing of a new distribution centre, expansion of the store network, and even include some strategic acquisitions.

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Amin Alkhatib, Retail Analyst CEE, IGD International: based in London, UK, Amin is responsible for shaping IGD's research in Central and Eastern Europe; as well as contributing to IGD's broader European research programme. Follow me on Twitter @Amin_IGD for further insight on the region’s retail landscape.