Despite overall growth, small shops struggle

  • 2002-09-19
  • Sara Toth

Rein Tammesalu thought he was making a smart business decision nine years ago when he opened a grocery store on the edge of Tallinn's city center.

After years of work in a Soviet factory, he wanted his own business. And because he was selling food, he figured he would always have customers at his Paide store on Parnu street.

But his revenues have dropped 30 percent since 1998, forcing him to fire five employees.

Today, he resents the big supermarkets that seem to open every week - 105 chain supermarkets countrywide, according to marketing data firm Telema.

Estonia's retail market has increased 15 percent in the last year, selling 8 billion kroons' (53 million euros') worth of goods in this year's second quarter. Food stores drove this increase, accounting for about 40 percent of total sales in the retail sector, according to government statistics. While the overall number of food stores in the country has remained about the same for the last year, industry experts have attributed most of the growth to large grocery stores buying or replacing small, independent shops.

The Finnish food-retail chain Kesko opened its first Citymarket in February 2002 in Parnu. Now after opening additional Citymarkets and purchasing the local discount chain Saasta Market, the Finnish food retail chain owns 46 stores in Estonia.

Kesko will open two more Citymarkets this year and several next year, said Seppo Hamalainen, president of Kesko Food Baltics.

"The Estonian market is developing extremely fast," Hamalainen said. "The growth is much faster than in other places in Europe, but the Estonian market has major investors already. There is not that much room for newcomers."

Another Finnish grocery chain, Prisma, entered the Estonian market in 2000. Prisma now has three so-called "hypermarkets" and will open another in October.

"The competition is getting harder and harder," said Liisi Jauho, managing director of Prisma in Estonia.

Tammesalu guesses that most of his lost business has gone to the supermarket now owned by Prisma on Endla Street, about a kilometer from Paide. Until last month, this Prisma was known as Primo and was owned by an Estonian firm, but it has since been sold to the Finnish company.

"One of the main reasons for rapid growth is the increasing degree of retail networking," Timo Hamala, CEO of Kesko Eesti, told the Estonian business daily, Aripaev. "The example of Primo hypermarket shows that retailers that only operate one store cannot be successful."

Tammesalu said he knew that during the last few decades small shops have struggled to survive and often closed in the midst of supermarkets in Western Europe, but he thought this trend would be slow to emerge in Estonia.

"I didn't expect that these kinds of big supermarkets would come to us so soon," he said. "I thought at the beginning of Estonian independence that it was good to invest in a food store. I'm OK for now. But it will be worse if some big chain decides to build a store closer to us, then our business will be finished."

Most of Paide's customers are employees in nearby offices at lunchtime, elderly people who live in the wooden houses in the neighborhood and people who just buy one or two items that they forgot to pick up at the supermarket, Tammesalu said. The average purchase is between 30 kroons and 50 kroons.

Paide employees said they relied on personal and friendly service to hold on to their remaining customers."If they offer special service to their customers they can survive," Marika Merilai, of the Estonian Retailers Association, said. "But of course it's better to belong to a chain or a franchise."

Merilai said customers still liked small shops. An example of this is R Kiosk, which runs 200 booths in Estonia, she said.

"They are also small, but they are together," Merilai said. Chains don't necessarily harm the customer, she said. "The chains are different from each other. And they are competitive. And competition means better choices for customers."

Hamalainen of Kesko said that, based on his company's experience in Estonia, size didn't matter.

"People shop where they are comfortable," he said. "And Kesko provides a clean, comfortable environment with good service."

While Tammesalu worries about going out of business and having to rely solely on his second business - wholesaling socks imported from Latvia - he is also thinking positively about ways to maintain his store.

"If someone makes a good proposal, then I'll sell this store," he said. "But I really hope the kind of merchandisers like myself, maybe we can come together and make some kind of Estonian chain."