Retail country in focus: Poland

B&Q owner Kingfisher announced its second quarter results last week and – with a contribution of 7.3% like-for-like growth year on year – Poland was identified by the DIY retailer as a key driver of the group's recent progress.

Gross margins from its Polish operation, which goes under the brand name Castorama, are expected to be up around 150 basis points year on year, reflecting strong trading that saw it generate £320 million in revenue in the three months ending 31 July 2016.

But while Kingfisher has experienced some significant growth in Poland over the last few months, there are concerns from the wider international retail community that a new sales tax set to be imposed in the country could start to stem profitability in the trading periods ahead.

In July the Polish lower house of Parliament approved a retail tax which means retailers in the central European country will pay 0.8% on monthly revenues between PLN17 million and PLN170 million, and 1.4% on sales over PLN170 million per month. The Polish government sees the move as a way of protecting local businesses, with some of the largest players in the market being international grocers such as Carrefour, Tesco and Aldi.

Revenues below PLN17 million per month will be tax free, and the levy is expected to come into force from September, once it has been approved by the Senate and signed into law by the Polish president. It is against this backdrop that Essential Retail has decided to pick out some of the major themes from the Polish retail and retail tech scene.

Retail overview and grocery's approach to Poland

Milos Ryba, head of central and eastern Europe (CEE) and discount at grocery research group IGD, told Essential Retail that international retailers such as Jeronimo Martins's Biedronka brand, Tesco, Carrefour, Auchan and Lidl "have a strategic approach to the Polish grocery market", which is the second largest in the CEE region, after Russia.

He says that the market is still fragmented in comparison to the UK, with the top five retailers covering less than 40% of total sales.

The UK's largest retailer, Tesco, which has scaled back or pulled out of a selection of its international markets in the last two years, is still committed to Poland – although with a different operating model to before. A restructuring of the management team for Czech Republic, Hungary, Poland and Slovakia was completed last year, which moved the retailer from operating as four individual countries to one single regional team.

A new Tesco distribution centre is being built at Segro Logistics Park in Poznań, with operations set to begin by the start of October. Deliveries to 140 retail outlets in northern and north-western regions of Poland will be fulfilled from this new central warehouse. 

Tesco already runs two other similar facilities in Teresin near Warsaw and in Gliwice, but the new site is said to be in a positive location for effective distribution in Poland and in western neighbouring countries due to the proximity of the A2 motorway.

Elsewhere, international retailers have been trying out new selling techniques in Poland with Biedronka trialling a 24/7 grocery vending machine at its store in Wroclaw selling essential items like milk, eggs and cheese. The logic is that it adds a new level of convenience for customers, while also providing an option for trade in areas where it is more difficult to open stores such as on university campuses or in train stations.

Carrefour, meanwhile, started an eCommerce site in December 2015 selling 800 non-food items for delivery and click & collect. It also operates a decentralised management structure in order to give managers of local branches greater independence to meet the needs of local customers.

Looking to future, Ryba added: "Although the region has undergone consolidation in the past decade, only a couple of international retailers have left Poland, and we believe well-established international retailers will continue to invest in the market. In the short term, however, they may focus more on operational efficiencies rather than expanding their networks.

"Small store formats such as convenience and discounters are the largest and fastest-growing channels, but the traditional grocery retail market still plays a significant role. Foreign retailers are the top leading grocers in Poland. For example, Biedronka is not only by far the largest retailer in Poland, but at the same time a discounter, which is unique in European retail."

Retail tech in focus

Findings from the annual ING International Survey – Mobile Banking 2016 report reveal that two thirds of people in Europe with a smartphone or tablet now use it to make purchases, with Poland (69%) and Italy having the joint second largest share of mobile shoppers behind Turkey.

Separate research from the two major card schemes in Europe, Visa Europe and Mastercard, shows that Poland is one of the fastest growing countries in terms of its usage of contactless card payments in stores. This time last year, Visa released a study that showed Poland had 14.5 million Visa contactless cards in operation, 354,000 NFC terminals in place and the nation was its second biggest contactless market behind the UK with 49.7 million transactions made in the month of March alone.

An increasingly important barometer for the strength of the retail technology scene and trends within it is RBTE – Europe's largest end-to-end retail solutions expo and conference – and there were three retail technology companies from Poland exhibiting at this year's event.

Elzab showcased its cash registers and mobile printers, Insoft displayed its in-store software, point of sale and retail chain management tools, and Optiguard – a manufacturer of security gates and other loss prevention products for retail chains – was also on the show floor.

Krakow-headquartered Comarch has already signed up to exhibit at next year's RBTE, which takes place 8-9 May at London Olympia. The business, which specialises in ERP systems, information security, CRM and sales support, and business intelligence, lists Carrefour, Ahold, L'Oreal and Metro Group as partners it has worked alongside in the retail space.

Aside from these players, which have looked to promote themselves to a European market in recent years, much of the noteworthy retail tech innovation currently seen in Poland centres on beacons and their capacity to pave the way for targeted communication in stores. Edward Bickel, an analyst at retail intelligence firm Research Farm, told Essential Retail that Estimote has had a "large impact on Polish retail" in this particular field by "providing retailers with opportunities to target shoppers with highly personalised ads".

On his list of prominent Polish retail and fintech companies, he also lists Kontakt, another beacon technology provider, alongside PR social networking platform Prowly, voice recognition ID vendor VoicePin, business intelligence firm Atsora and travel app AudioTrip.

Bickel said that Krakow is arguably more tech-focused than the Polish capital, Warsaw, as it is "more compact and highly networked". Although larger and therefore more fragmented, Warsaw could be set for more start-up activity in the coming years after the Google Campus opened there in 2015, he added.

"The Warsaw Google Campus is seen as the catalyst for innovation and putting Poland on the global startup map," Bickel commented.

"Poland is blessed with a rich pool of software developers and other tech talent driving innovation in the country. This is largely helped by a strong education system churning out highly educated graduates, a good level of English, variety of funding options and lower costs compared to Germany, UK and the US."

He added: "The challenge for most Polish start-ups is to step up scalability to attract the growth funding necessary to expand abroad especially. A criticism of Polish start-ups currently is that many are still too domestically focused and need to think globally.

"Poland is still way behind leading European hubs like London, Berlin and Lisbon but it is quickly catching up."

Allegro and Poland's growing online market

No in-depth look at the Polish retail scene can be complete without reference to the country's online marketplace and auction site, Allegro.

Reuters reported at the end of July that eBay, Alibaba and private equity firm CVC Capital Partners are all interested in acquiring the business, which has been under the ownership of Naspers – Africa's largest company by market value – since 2008.

And the attraction is clear: at Pentagon's Fashion Without Borders event earlier this year, key account manager for Allegro, Bozena Nawara, revealed that the site has a +50% share of the total Polish eCommerce market, selling around 770,000 items per day.

Allegro has nearly 14 million monthly users on average, owns its own payments system – called PayU – and has recently been identified as the most recognisable online shopping destination in Poland. The 'eCommerce in Poland 2016, Gemius for eCommerce Polska’ report, found that the brand dominates in the general online shopping category, as well individual sectors such as clothing and electronics & household appliances.

The OLX website ranked second, with Zalando, eBay and Ceneo completing the top five, but Marek Molicki from business consultancy Gemius said Allegro's dominance was not a surprise.

"After many years on the market, the brand has developed a solid position, strong enough to compete effectively with world leaders such as eBay," he noted.

"It could even be said of this platform that, just like Google is a synonym for online search engine, Allegro is a synonym for eCommerce in Poland."

As part of the study, internet users were asked for the names of websites which they associate with the sale of particular groups of products. The most recognisable brand selling grocery products was (mentioned by 18% of respondents), while the most popular response for the online pharmaceutical category was Dbam o Zdrowie (7%). Rossman and Empik were the most recognised in the online cosmetics and multimedia sectors, respectively.

Meanwhile, recently published research by the agency Oban Digital, which looked into the online retail space in central Europe, detailed how eCommerce in Poland has been growing rapidly, increasing by 25% to a gross revenue of €6.2 billion in 2014. According to the report, entitled Fashion eCommerce in Russia, Poland and Ukraine, it is predicted to expand to €25 billion by 2020.

Greig Holbrook, founder of Oban Digital, told this publication there are multiple factors driving fashion eCommerce growth in Poland, including the significant percentage of "young tech savvy customers with a lot of disposable income who love social media and online shopping".

"Poland is a market retailers often forget about, however it is a great target for fashion retailers," he explained.

"Polish people love UK brands and would like to see more of them available. At the moment only brands such as Marks & Spencer and Next have developed a focus on Poland. There is a big opportunity here, a lot of untapped demand wanting to shop from UK retailers."

Holbrook suggested the opportunity for British businesses to succeed in Poland is enhanced by the high numbers of Polish people that live and work in the UK.

"When they go back home, they wear UK brands new to their family and friends. They have a direct exposure and are familiar with UK fashion brands."

What now?

Right now, in Poland, it is the expected imminent arrival of a new retail tax that remains the hot topic.

EuroCommerce, a pressure group that describes itself as "the voice for retail and wholesale in Europe", says the levy is structured in a way that favours local businesses because large foreign retail chains will pay a "disproportionately large part of the new tax" – with foreign supermarkets set to pay up to five times more tax than local players.

The organisation calls it "discriminatory" and argues that it will stem retail innovation in Poland, by effectively deterring foreign retailers from investing in the market. EuroCommerce also said last month that it will investigate the possibility of filing an official complaint if, and when, the law is enacted.

Research Farm's Bickel said the tax could force larger chains to shutter unprofitable stores quickly, as Tesco and Metro Group have done with their respective Polish operations, while he also suggested that the higher operating costs will be passed on to customers and suppliers.

"Polish farmers and food suppliers already struggle with the Russian embargo on EU food imports and the higher costs which will be passed on to them from their retail partners will cause even more concern," he noted.

"So despite the Polish government's insistence this will help the small domestic producer, it could actually hurt them."

Bickel added: "Stores are already struggling from the threat of online and the fact that the new tax does not affect eCommerce players will be a further kick in the teeth for physical stores.

"Larger chains may therefore exploit a loophole by establishing franchises, largely outside the new tax rules, by signing up small independent stores under their brand."

Consumer ease with new technologies, significant eCommerce expansion potential and a fresh focus on general tech innovation sums up the retail scene in Poland today, but the impact of the new legislation – which is expected to be introduced as we move into the fourth quarter of 2016 – remains to be seen.