Retail market braces for acquisitions

One of Lithuania's largest food retailers has announced that it is in merger negotiations with a foreign chain, signaling what is perhaps the beginning of a wave of intense expansion in the sector.

On May 22, the newspaper Respublika reported that Aibe, which claims 375 grocery stores across the country, was holding talks with Hungary's CBA Kereskedelmi, that country's second largest retail chain.

While the final terms of the merger have yet to be agreed upon, the prospects for cooperation between the two firms are high, said Egidijus Aleinikovas, general director of Aibe Mazmena, Aibe's parent company.

While Aibe, which operates a chain of neighborhood-style shops and is much smaller than its Hungarian counterpart, fulfills a different statistical profile from that of CBA, Aleinikovas was enthusiastic about the mutual benefits of collaboration.

"They are, of course, much larger than we are," Aleinikovas told The Baltic Times, explaining that the merger's potential was in simple mathematics.

"But what do you get when you add two to 10? You get 12, and 12 is bigger than then 10 you originally had. We will add to CBA's overall purchasing power, and by working together we will create a significant presence all over Eastern Europe," he explained.

CBA has already entered markets in Croatia and Romania, has a partnership agreement with a Slovakian retailer and is in negotiations with chains in Poland and Bosnia and Herzegovina.

While Aibe's deal with CBA would not be the first influx of foreign capital into the Lithuanian retail market, it could signal the start of a period of intense investment in a sector that has developed with remarkable speed and skill largely free from outside expertise.

"There's no other path but this. Competition is certainly not going to get weaker, and I think it will be very difficult to face new competition alone," said Aleinikovas.

Aibe's director was not alone in his sentiments. George Ortiz, general director of Iki, one of the country's largest chains, saw the interconnection of local retailers with foreign ones as inevitable.

"I think it will be a natural evolution following the EU referendum," said Ortiz.

"Foreign chains will enter Lithuania, either by buying out local chains or by opening new stores," he said.

Iki was not only the first retail chain in the country, but one of the first free enterprises founded after independence.

Since Iki's incorporation in 1991, the company has experienced tremendous growth, almost entirely within the country's borders and without investment from foreign chains, a situation that could soon change.

"We have been giving some thought to opening up outside investment for the past few months, and it is something we may be doing," admitted Ortiz.

The biggest foreign player on the local market is Rimi, a Norwegian company that first came to Lithuania in 1999.

Rimi currently operates 35 stores in the country under a variety of brands, and it is looking to expand.

Nonetheless, Rimi Lithuania general director Antonio Suarez noted that future foreign investment would have to be more strategically planned, saying that the time for foreign chains to break into the market without the partnership of an existing company has passed.

"In the Lithuanian market for retailers there is still space for high quality hypermarkets. But for new retail networks there's practically none left. This means that if a new retail network comes into the market the competition for lower quality networks would be very difficult," said Suarez.

While there may be little room left for foreign chains to start from scratch, the flip side to the "internationalization" of the sector is the potential for Lithuanian firms to expand abroad.

VP Market, which operates Maxima, Media, Minima and T-Market stores and is the country's largest chain in terms of volume of sales, announced last month that it plans to open hundreds of stores in neighboring Poland in the near future.

"The domestic market is approaching its natural limit," said Ignas Staskevicius, general director of VP Market.

"But if we compare it to the situation in neighboring countries, such as Latvia and Poland, there is still plenty of room for growth there," he said.

Like his counterparts at competing Lithuanian chains, Staskevicius was convinced that foreign capital would soon be flooding into the country.

"I think that serious competition from abroad will begin with the introduction of the euro in Lithuania. After that, it will be much easier to compare prices and harmonize information systems in all branches of an international chain," he said.

The Bank of Lithuania is currently targeting 2006 as the date of transition from the litas to the euro.