German Retailers Conquer Hungary

From groceries to electronics to fashion to shoes, such names as Penny Market, Douglas, Media Markt, Praktiker, Hervis and Triumph demonstrate the dominance asserted by German firms among international retailers in Hungary. Faced with a sluggish market at home and in neighboring Western countries, German sellers of retail consumer goods have found receptive customers for their wares in Hungary. Some two dozen chains of shops and several logistics centers and manufacturing operations have followed the Danube's southeastward course since the early 1990s.

"German retailers sought to maintain growth by coming here," said Anita Csorgo, senior retail broker with real estate firm Colliers International. "The keys to their success were getting in early and building strong positions in the marketplace."

This has meant opening shops in high-traffic pedestrian areas and in major shopping plazas in each of Hungary's major towns and cities. Csorgo explained that measures taken by German plaza developer ECE Projektmanagement Budapest Kft, builder of Budapest's Arkád mall, along with plazas in Pécs and Gyor, has helped leading German retailers such as the Hamburg-based C&A Mode Kft find favorable locations.

According to Hungary's Central Statistics Office (KSH), it has been exactly those areas of retail trade where the majority of these German firms are active that have enjoyed the highest growth. Sales of footwear have enjoyed a steady two-year climb, achieving nearly Ft 10 billion in sales this past December, to the benefit of Deichmann Kft, the local subsidiary of Germany's largest shoe retailer, which has been an active retailer in Hungary since opening its first shop in autumn 2001. Today Deichmann has 14 shops.

"More expansion is planned," reads a recent company press release, "with about 30 branches to open across Hungary in the medium term."

Sales of cosmetics were nearly Ft 2 billion higher in the fourth quarter of 2004, compared with the same period a year earlier, good news for Douglas Holding AG, which owns the Douglas Parfumerie shops on Váci utca, Arkád and Mammut II and other locations. The leading cosmetics retailer throughout Europe, Douglas promised further expansion in its first quarter 2005 report to investors.

Retail sales of DIY products, building materials and paints have also gained steadily over the past two years, accompanying the growth of German-based Praktiker, which reported Ft 44 billion revenue in 2004, Ft 1.5 billion more than expected. Vitality in this sector has lured yet another German DIY, Bauhaus AG, expected to open its first store in the coming year in Dunakeszi, next to the Auchan supermarket.

Other German firms first came to Hungary as importers, but are deciding to lengthen their supply chains in Hungary by opening their branded retail outlets.

"With the decline of older Hungarian clothing retailers such as Skála and Aranypok," said Csorgo, "the trend is for German importers such as Triumph and Mustang to open branded stores, both in Budapest and in the municipalities."

More branded shops of German origin are on the way, Csörgö added, citing the expansion plans into Hungary of fashion retailer Bijou Brigette, jewelry giant Schmuck, and youth fashion boutique Orsay.

In the highly competitive fast-moving consumer goods (FMCG) sector, German-based discounter Lidl Hungary Kft has been aggressively implementing its foray into Hungary, opening 22 stores across Hungary since its entry here in 2004. An 8,000 square-meter expansion to Lidl's 30,000 square-meter logistics center in Székesfehérvár was reported in May, as were plans to increase its store total to 100 in the next few years.

Retail research group IGD reported on Lidl's prospects since its launch in Hungary last year with reference to German FMCG discount leader ALDI Einkauf GmbH & Co. oHG. "It has succeeded in gaining a substantial lead on Aldi, which has yet to prioritize Central and Eastern Europe as a target market," the report stated.

Aldi itself plans to enter the Hungarian market later this year, with its first store at the junction of motorways M0 and M1. The other German discount FMCG chain in Hungary is Penny Market, a subsidiary of German food conglomerate Rewe-Zentral AG.