Practic S.A. · • Considering the elections period, there is a risk of new fiscal incentives or...
Transcript of Practic S.A. · • Considering the elections period, there is a risk of new fiscal incentives or...
Substantiation note of the budgetary projection for the financial
year 2020
Practic S.A.
Summary
1. Macroeconomic indicators forecast ............................................................................................................... 3
1.1. Conclusions on the impact of macroeconomic indicators on the activity of company Practic S.A. in
2020 ........................................................................................................................................................................... 8
2. Real estate market ......................................................................................................................................... 10
2.1. Supply ..................................................................................................................................................... 10
2.2. Demand ................................................................................................................................................... 12
2.3. Market analysis on tenant segments for street retail in 2020 ............................................................ 13
2.3.1. Banking sector ................................................................................................................................. 13
2.3.2. Gambling: Sports Betting & Casinos .............................................................................................. 14
2.3.3. Pharmaceutical Sector ..................................................................................................................... 15
2.3.4. Supermarkets ................................................................................................................................... 16
3. Rent level ........................................................................................................................................................ 17
3.1. Prime yields ............................................................................................................................................ 19
1. Prognosis of macroeconomic indicators
• IFM has revised the assessed decline of global trade with 0.9%, from 2.5% in 2019. The trade will
recover and increase with 3.7% in 2020, with around 0.2% less than in the previous forecast
• IFM considers that ‘’The main risk factor regarding the global economy resides in the adverse
developments- escalating commercial tensions between China and the USA, the new customs duties in
the automotive sector and an erratic Brexit, which might lead decrease the trust, investments, it might
loosen the supply chains and might significantly slow down the global economy compared to the
reference value’’.
• The eurozone is economically slowing down, mainly due to the placement of Germany at the edge of
recession, after an important contraction in the industrial field, where the decrease of the automotive
sector occupies the first position. But, even in under the external unfavorable circumstance, the COE
countries have maintained good growth rates, beyond their potential, due to diversifying the structure of
the economies in the last decade.
• The annual growth rate of Romania's economy has been revised for 2019 from 3.1% to 4%, and for the
year 2020, declining, around 3.5%, according to the latest statements of IMF representatives for Romania
in August 2019.
• The forecast for the end of 2020 has been adjusted to 3.8% with 0.4 % below the estimation from August
compliant to the statements of Mugur Isarescu, the Governor of the National Bank of Romania. For the
end of 2020, the annual inflation rate is forecasted to 3.1 % declining with 0.3%.
The Prognosis of annual prognosis of IPC prices and the associated uncertainty range
Source: National Bank of Romania
• The National Prognosis Commission maintained the forecast for the average leu / euro exchange rate
for 2019 of 4.74 lei / euro and 4.71 lei / euro for the year 2020 as shown in the "Medium-term
forecast 2018-2022, the summer intermediate variant”.
Source: The National Prognosis Commission
• Prediction for the evolution of leu / euro exchange rate for 2020
Source: https://walletinvestor.com/forex-forecast/eur-ron-prediction
• Considering the elections period, there is a risk of new fiscal incentives or returning to structural policies
that might decrease even more the competitiveness of Romania. Currently, the new pension law
represents a significant risk on long term to the fiscal stability. Externally, the main risk resides in the
slowdown beyond expectations of the external market, that might damage even more a current account
deficit that is already high and that might worsen the financing pressures, shows the report.
• Compliant to the ‘’Government Program 2018-2020’’ of the dismissed Government, the monthly
minimum gross wage per economy shall increase from 2,080 lei for 2019 for the staff without college
degrees to 2.260 lei in 2020 and for the staff with college degrees from 2.350 lei in 2019 to 2.620 lei in
2020. For the construction sector, namely the NACE codes indicated in according the G.E.O. 114/2018
with the updates for the year 2019, the minimum gross is maintained to 3.000 lei.
• The monthly minimum gross wage per economy is to raise starting January 1st, 2020, and the decision
shall be taken until the end of November 2019, according to the latest statement of the Chief of Prime
Minister Chancellery of Ludovic Orban, but he hasn’t indicated how big shall be the growth.
• According to a recent survey of the National Council of SME, most of the small and medium-sized
enterprises are against raising minimum wage (although many of them do say they would only bear a
raise of 50 lei), while the National Trade Union Block is asking for a raise of up to 2.495 lei.
• The Pay Well survey undertaken by PwC, which is assessing the wage levels and the remuneration
policies of the private companies of various activity fields, indicates wage raises with approximately 10%
of the employees’ wages in the private sector for 2019 compared to the previous year, due to the labor
shortage, but as well to the evolution of the wages in the public sector and the Government’s decisions on
the minimum wage per economy.
• In the same time, the NIS data indicates that the wages of the Romanian employees have raised with 14%
during the last year, the average revenue exceeding the amount of 3.000 lei in August 2019; revenue
raises are being estimated for at least 10% for 2020 due to the fact there is still a high demand of
candidates, but as well as due to the generous offers of the private sector, amid the labor shortage.
• On the labor market, it is noticed a raise of the ratio for the value vouchers included in the salary
packages from 7 % to 14 %, highlighting the holiday, cultural vouchers, considering that these value
vouchers are subject to income taxation, compliant to www.wall-street.ro. In addition, up to this day,
there is a project of law in which it’s being requested the increase of the value for the food stamps from
15,18 lei/ stamp to 20 lei/ stamp.
• The unemployment rate will register 3.0 % in 2020, down from 4.8%, according to the National
Prognosis Commission, spring 2019 variant and NIS
Evolution of the unemployment rate
• The qualified and unqualified labor shortage in Romania shall continue to put pressure on the employers,
compliant to the preservation of a high level of emigration to the economically developed countries of
Europe and North America, which is highly superior to the return of some of the specialists who have
been trained outside the country and the non-EU labor contingents by the Romanian state, to which the
economic entities could resort. In addition, they are mainly channeled to the hospitality industry or
construction.
• On the contrary, the rush to increase the public revenue to the level of the EU developed countries has
caused, by consumption and macroeconomic imbalances, inflation pressures that affect the public
revenue in real time. The inflation undermines the competition as well and the decrease as far as public
and private investments are concerned has weakened the economic growth perspectives on long term.
These aspects are highlighted in the IMF report of August 2019, as well as in the periodic reports of
National Bank of Romania.
• The NBR monetary policy interest rate was maintained at 2.50% for 2019. For the year 2020, it is
estimated that the average interest rate on the monetary policy will still be 2,50%.
• The EURIBOR 1M, 3M, 6M interest rates are expected to remain negative in 2020 as well, as they have
been in 20189 at around (0.131) - (0.158).
• Estimated utility costs in 2020 based on data provided by ANRE and other state bodies:
- 10-15% increase in electricity price
- 7-10% increase in gas prices
- 5-10% increase in water price
- 25-30% increase in sanitation services cost
• Property taxes:
- 1.5% building tax in Bucharest Considering that on 31.12.2019, the company is reassessing the
properties for the natural entities as well, the reference for the tax establishment shall be of 1.060 lei/
sqm beyond, it’s possible this value is taken into account for the tax reporting, required by the
authorities;
- tax on land, whether built or not, differentiated tax according to the category area approved by the
decisions of the Municipal Local Councils. For Practic S.A. the tariffs for the areas A and B of
Bucharest are mainly applied and the tariffs per square meter will increase insignificantly in 2020
compared to 2019 (e.g. area A will increase from 1.0488 lei / sqm to 1.097 lei / sq m, and Area B will
grow from 0.8709 lei / sqm to 0.911 lei / sqm).
• The Government has established a series of cumulative criteria on the basis of which it may order to stop
the operation or use of buildings and premises arranged in buildings with an area of more than 200 square
meters, having the purpose of trade, culture and tourism. The regulations are included in G.O. no.
915/2015, in force as of 4th of November 2017, covering both buildings and premises authorized in terms
of fire safety as well as those which are not authorized.
• VAT rates applicable in 2020:
General VAT rate, applicable as of 01.01.2020 19%
Water supply and sewerage services, water supply for
agricultural irrigation
9%
Food, hotel, tourist, restaurant, medical services 5%
Books, cultural and sports activities, museum and
exhibitions entries
5%
House sales up to 450,000 lei, the first sale made by a
natural person
5%
Sale of properties between taxable legal entities in the
VAT framework
Reverse
charge
Capitalization of wood, metal, paper waste Reverse
charge
Sale of electronic equipment worth at least 22,500 lei
on one invoice, under the conditions of art. 331 Fiscal
Code
Reverse
charge
• Other fiscal measures with impact in 2020:
- the dividend tax will be maintained at 5%;
- the project on the amendment of the Company Law no 31/1990 and the Accounting Law no
82/1991 in which it is being highlighted the obligation of the economic entities not to place the
value of the equities below 50% of the share capital. The companies which for two years shall be
considered as non-performing compliant to the net asset shall be dissolved upon the request of the
National Agency of Tax Administration. Based on the annual financial statements, the Ministry
of Public Finance is drawing up until the end of the year which follows the year for which the
annual financial situations has been drafted, the list with the companies whose net asset has
decreased to less than a half of the value for the subscribed share capital, which it shall post on its
web page. The information included in the list shall be sent online to the National Office of Trade
Register for the registration in the trade register’’, as it is precisely indicated in the EGO project.
This amendment is not the only one targeting the financial obligation of the companies. The new
provisions proposed by the Executive in this EGO project also enter a new obligation for the
companies which have a net asset smaller than half of value of the share capital, forcing them to
increase their share capital with the debts the company has towards its shareholders. The entities
which shall not comply with the new obligation shall be sanctioned by the National Agency of
Tax Administration as the ordinance project introduces fines of 5% to 10% of the summaries
representing the value of debts that haven’t been converted into shares, although they should
have. The ordinance also sets forth that the fine can’t be less than 5.000 lei and that it shall be
paid by the Director/ Legal Representative of the company or by any other person who is liable
for the non-compliance of the legal procedures.
Conclusions on the impact of macroeconomic indicators on the activity of Practic S.A. in
2020
- The exchange rate that we propose when drafting the 2020 budget is of 1 euro = 4,80 lei.
- As Practic S.A.holds the majority of high street shops located in district 6 (Militari, Drumul
Taberei and Crangasi boroughs), premises serving the proximity trade (grocery stores, fruit and
vegetable stores, supermarkets, pharmacies) and certain categories of services (banking,
hairdressing, laundry, sports betting, etc).
- Practic S.A. holds office buildings type B or C as well, located in the 1st and 2nd districts, rented
mainly to state institutions: education institutions, cultural institutions etc.
- Based on the analysis of projections made by the National Commission for Prognosis, the actual
individual consumption of households, expressed as a percentage of the corresponding period of
the previous year, will have a relatively constant trend, from 6.1 % in 2019 and 6.0 % in 2020.
- Sales achieved and reported by Mega Image, Profi and Carrefour, tenants accounting for
approximately 30% of the Practic company's turnover basically, remained relatively constant
over the 2015-2019 period, for the commercial premises leased from Practic SA (“same stores”).
- We estimate that Practic SA’s tenant structure / mix will not change significantly in 2020 and the
sales made by them will have comparative values to 2018, therefore significant fluctuations will
not be noticed in the amount of the obtained revenues and the rate of their collection.
- We shall be confronted with the following requests from our tenants, out of which some can
extend the negotiation period:
• Obtaining the operating agreement from the homeowners’ associations;
• Settling the requests from the homeowners’ associations (for instance: charges for the neon sign);
• Fit-up works and improvement of premises (change of facades, AC), independent heating systems,
individual metering of the water and heating consumptions etc.;
• Obtaining Fire Safety Authorization;
• Rent free period for opening the business (1-6 months);
• Possibility of subletting a part of the premises or reducing the rented area;
• The rents to be set in lei;
• Rents should be set without any other adjustments (NBR + 2%, no HICP etc.);
• Rescheduling rent payments versus contract terms
• Discounts on rent or seasonal rents during the year, considering seasonality / specificity of the
commercial activity carried out;
• The possibility of early termination of the lease agreements, with a 30-to 60-day notice.
Regarding the road infrastructure works, the enlargement works for Prelungirea Ghencea shall start. These
works shall lead to pedestrian and car traffic change in the area and the small businesses shall
register decrease in sales, which shall cause the increase of the number of vacant commercial
premises.
- Also, given that small taxpayers (with a focus on family business) will continue to account for
approx. 22% of the total turnover of Practic company, in the context of the obligation to increase
the share capital with the loans granted by the shareholders and/ or to enhance their economic
performances, therefore their own equities to cease being negative for more than 50% of the
share capital, it can be registered a risk to get a fine for a part of them and even to cease their
activity.
- For these reasons, a 99% collection rate and a pro rata VAT deductibility of 58% were used to
develop the "cash-flow".
- The bank interest rate for the loan contracted from BLOM Bank France will be maintained at the
level of 2018 - 3.75% per annum as result of a negative rate of the 3M Euribor index in 2020.
The 3.75% share represents the minimum interest rate negotiated with the bank creditor.
- The concern about identifying and retaining a labor that might correspond to the requirements of
maintaining and developing the company’s business activity, within the context of qualified labor
shortage, as well as the increase of the minimum gross wage requires updates of the wage scale
which is being used within the company.
It is also considered in 2020 that the minimum wage is also the minimum gross wage negotiated
within Practic S.A., in the absence of an applicable JMC.
- The provision of 2015 for the immovable property located in 52, Maresal Averescu Avenue for
the amount of 3.179.715 lei shall be uphold, as the probability to transfer the ownership from the
promissory-seller Miu Margareta to the promissory -buyer Practic S.A is lowered during 2020 as
the legal dispute brought before the court against the promissory -seller Miu Margareta by which
we’re requesting to the court to make a decision to stand for a purchase and sale agreement and
which is the object of the case file no 36218/3/2017, shall not be irrevocably settled until the end
of this year ;
- The investment projects of Practic S.A. started during 2018-2019 shall be carried on and other
projects shall be initiated. In this regard, financial resources have been allocated needed to
perform specialized studies, feasibility studies, technical documents in order to obtain the Town
Planning Certificate, Building Permits, Regional Town Planning, organization of the construction
sites for the initiation of the new projects or the shaping of existent immovable properties for the
plots of land located at 44E Th . Pallady Street, 1, Primaverii Avenue., Poiana Mica, Brasov
County and the immovable property located at 103, Toamnei Street
- Financing the activities that have been listed above can be made using our own assets during
2020. If the pace of the works shall exceed the financial resources of the company, a dedicated
bank loan shall be required.
- For the plot of land located at 23 A, Biserica Amzei Street, it has been initiated in the 4th quarter
of 2018 the authorization process for the creation of a paid parking which should become
functional in the 1st semester of 2020 and to generate revenue starting July 2020.
- The drafting of the technical architectural documents step Technical Project and/ or submitting
the files supplemented with the documents required by the Inspectorate for Emergency Situations
for obtaining the Fire Prevention Permits for 13 commercial premises located at 22, General
Christian Tell Street, owned by Practic S.A., except for the ones that have been authorized and
approved or which are in the process of being authorized until the end of 2019. The selection has
been made considering the provisions of the Law 307/2006 on fire protection, namely the
premises located at collective addresses (ground floor of the apartment buildings) having a
deployed area bigger or equal to 200 sqm and individual premises having a deployed area bigger
or equal to 600 sqm, the tenants’ requests and the financial and time capacity of the company and
of the providers who have been hired for this project;
- Collection of dividends for the financial investments made during the previous years within the
company Piata Obor, Market and Complex Comercial S.A.
2. Real estate market
2.1. Supply
The modern commercial premise fund (shopping galleries, malls, etc.) will reach over 3,600,000 sqm nationwide
at the end of 2019 and in Bucharest approximately 1,200,000 sq m according to data provided by the CBRE real
estate consultancy firm in the "H1 2019 report”.
For 2020 it is estimated that approx. 214,000 square meters will be added nationwide. From this area, 20,000 sqm
will be in Bucharest, where the expansion of Colosseum Retail Park shall be completed, and which has been
initially set for 2019. Promenada Mall and AFI Palace Cotroceni will initiate the expansion process, by trying to
raise the retail and entertainment supply.
Except for the mall market up to this moment, where the centers were focusing on retail premise, stores, the
future centers shall stake more on spending free time to attract and ‘’withhold’’ customers for longer periods of
time inside the malls.
The shopping centers developers invest more and more in shared premises, where the customers can spend their
free time and they request to the tenants the opening of new and outstanding concepts, focusing more and more
on the experience they offer to the customers. The entertainment and event area become a sort of an anchor within
the shopping center for the customers, as well as for the tenants. On the other hand, although the hypermarket has
been considered as the most important tenant, the surface area allocated to it begins to be reduced.
According to CBRE, the surface of the anchor FMCG (hypermarket or supermarket) is beginning to be reduced
depending on the operator, and the self paying system and the technology within the commercial premises is
being more and more present. The consent of FMCG anchors to reduce the premise they occupy if the future
mixture of tenants is optimal is a tactical decision to be able to be a part of the optimization strategy of the
project, they are a part of. The tenants of the commercial centers are currently changing their concepts and they
are also aware of the retail parks developments as the availability of premises is reduced.
The commercial centers maintain their leading position as the most developed retail format, being also included
on the target list of the retailers, as they are providing an integrated shopping and entertainment package in the
same place.
The analysts of the most important real estate agencies (CWEchinox, Colliers International, CBRE) have
estimated for Bucharest a total area of high street retail premise of about 950,000 to 1,150,000 sqm.
According to these estimates, Practic SA has a market share of about 3-4%.
In 2020, the total number of street commercial premises available in Bucharest will suffer slight increases in the
supply of new available premises. These will mainly consist of street commercial premises on the ground floor of
new office buildings, but also of shops obtained from the conversion of apartments located on the ground floor of
apartment buildings made by the owners.
2.2. Demand
Eight international supermarket and hypermarket networks are controlling over 20% of the retail in Romania. It is
a sector including all companies operating in retail, whether it’s fuel, food, electronic and IT, DIY or medicine
sectors.
Kaufland, Lidl and Carrefour Romania, having less than 500 stores together are controlling 10% of all retail,
which is proving that this industry is strongly polarized and focused on the top, as well, according to the data of
the analysis of companies indicated on Confidas.ro platform.
The foreign retail players in the food sector are opening every year between 250-300 stores, mainly of small size,
but not necessarily. On the opposite side, small merchants go out of business or close the stands or the stores they
own. Therefore, the market share of the foreign retailers in the food trade is regular.
The same thing happens in the whole retail industry, where the big ones become even bigger. This isn’t only
specific to the national market, but as well as to other countries, given that the big players and mainly the ones
who have the support of a foreign group have large amounts available for investments in this type of business.
Consequently, they are carrying out their expansion and, implicitly, the growth of this industry.
For instance, only in the food trade the foreign networks have approx. 60% of the market and experts say that
there is still enough space for growth, given that in the Western world the market share of these companies
reaches 80-85 % of the market. If this does occur in Romania as well, then their contribution to the total turnover
of retail might grow, compliant to the ZF.
In terms of street shopping premises, they were occupied in large part by sports betting agencies, second-hand
shops, pharmacies, banking agencies and supermarkets.
In general, retailers will look for retail premises with small areas (50 to 80 sqm), with heavy pedestrian traffic and
very good visibility (intersections, food markets etc.).
2.3. Market analysis on tenant segments for street retail in 2020
2.3.1. Banking sector
The domestic banking system comprises 34 banks, out of which more than half have a market share below 1%.
The biggest banks in Romania were controlling at the end of last year 85% of the total assets of the banking
sector. Transilvania Bank has become the biggest credit institution having a market share of 16,5% while B.C.R.
which is the second according to this criterion, has a bigger market share of 15%.
In the NBR report on financial stability, it is indicated that ‘’The consolidation process of the banking sector by
mergers and acquisitions has been carried on and the prerequisites for widening this process are being maintained,
taking into account the competition increase, the need to cover the operational costs, including the increase of the
held market share and the decisions at group level to give up to some markets. Based upon the optimization of
the operational expenditure and the digital stimulation of the banking activity as an alternative to the physical
agencies, the number of banking territorial units and employees has been reduced’’
Compared to the peak of 2008, it is observed that 18.323 employees have left the system, the decrease being of
25,6 %. In the same time, 2.341 bank units have been closed down during this period, the adjustment being of
35,7%. It can be noticed that with the disappearance of several banks from the statistics, a third of the branches
has closed and a quarter of the number of employees has left. For instance, only in the first part of the year,
B.C.R. has closed nation-wide 78 agencies. B.R.D. and Raiffeisen Bank have also closed such agencies.
Restructuring strategies for agency and branch networks will continue in line with the level of demand for
banking services, with the tendency to have fewer staff or even no personal use for certain types of transactions,
focusing more on digitalization, in connection to the increase of the level of technical and economic education of
the population.
B.C.R. has launched a digital platform for mortgage loans which allows the uploading of documents directly
online in the application, on the phone or computer, as the target is to simplify and reduce the time period of the
home purchase process. A year from now, B.C.R. anticipates that more than half of the new mortgage loans are
obtained by this app, without being needed to be present in person at the bank for this step of the process. The
bank of the future shall be one ruled by artificial intelligence-chat bots (a software programmed to carry a
conversation in writing), as autonomy shall become a main point in the future. A modern bank needs these virtual
assistants. (source ZF Bankers Summit). The technological progresses and the spread of automations shall
generate the biggest decrease of the number of employees ever registered in the American banking industry,
compliant to a Welles Fargo & Co survey, quoted by Bloomberg. The companies of the financial industry are
spending approx. 150 billion dollars in the development of new technologies, more than any other industry. The
purpose of massive investments carried out by the financial groups is to cut back the long-term costs, as currently
half of the expenditure of a bank is represented by the salaries of the employees. The employees who are to be
affected are represented by the back office and branches employees, as well as the call center and corporate
employees, therefore the number of the ones who shall be affected by layoffs can vary between 20% and 33% of
the total number of employees.
The tech, sales and consultancy jobs shall be the least touched. ‘Michael Tang, one of the main consultants in the
worldwide financial innovation services, says in the survey carried out by Wells Fargo that ‘’There shall be
dramatic changes in the operating divisions open to the public, whether they are domestic or non-domestic.(...)
We are already noticing signs of change regarding chat bots. Some people don’t even notice they are discussing
with an IA robot as everything they do is answering questions’’. The analyst has joined the banks and consultancy
companies’ presidents who are trying to predict massive cuts of staff in banking industry in the midst of the
automation process. The bankers and the traders are historically the most valuable assets of finance companies
and their number shall decrease with almost a third alongside the progresses of mechanization, states McKinsey
& Co. (ZF).
ING Bank as well is planning to carry out the expansion of the digital services and the development on mobiles of
the banking services. Therefore, the aim is to cut back the use of cash within transactions for the improvement of
adoption ratio of the credit card and the creation of ING apps for mobiles intended for the banking operations,
compliant to the INK Bank representatives. The Dutch bank has outlined its strategy on the domestic market at
the end of last year, which is based upon the digitalization concept. The first major step in this direction has been
the transformation of the ING branches in self-service units, by which the basic operations as well as the ones
carried out at the cash-desk have been removed. The last service ING shall introduce in the near future is the
possibility to withdraw cash without the credit card, by generating a code on the mobile app of the bank which is
being valid for 15 minutes, but this option is valid only for the ING ATMs (compliant to the ZF).
In perspective, restructuring will continue not only as a consequence of digitalization, which enters more and
more the banking field, but also the consolidation of the domestic banking sector will continue to manifest at a
time when there are still banks looking for buyers, mainly the ones with a market share below 1% , as the costs to
survive in the marketplace are high.
2.3.2. Gambling: Sports Betting & Casinos
Lately, the biggest challenges the industry had to face came more from collateral areas of the specific legislation.
For instance, the compliance by the operators of the General Regulation for Data Protection, the domestic
transposition of the Directive CE 849/2015, namely the new Law 129/2019 on the prevention and combating
money laundering, tax measures imposed by the GEO 114/2018, as well as imposing restrictions as far as
advertising and marketing are concerned. It can also be added to this list new legislative proposals to restricting
the gambling activity which are currently under debate in the Parliament and which generate an increased level of
unpredictability.
The GEO 114/2014 ordinance has had an impact mainly on the slot-machines and online gambling sector. The
annual fee per machine for the slot-machines has increased with 1.000 euro, namely from 3.000 euro to 4.000
euro, which is on the verge of unbearableness. For the online, the 2% fee for the players’ deposits has been added,
which has created a small conflict among the organizers meaning that some of them who have less-qualitative and
less-competitive products on the market, have decided to bear from their own pockets this fee, while others, with
good products, who are sure the client comes to them due to the quality of their products, collect this fee from the
players. Most likely, we will see an even bigger polarization of the slot-machine industry, by cutting down the
number of organizers, due to the exit from the market for some of them, as well as due to mergers or acquisitions.
Due to the legislative changes, the openings of new locations won’t be a priority for the big players (Superbet,
Stanleybet, Fortuna). They will be more focused on optimizing the existent agencies and closing the ones which
won’t meet the expectations.
Bonus Group (World Game) is the largest operator in this industry, followed by Admiral (Novomatic) and
MaxBet.
2.3.3. Pharmaceutical Sector
The pharmaceutical retail business, a total market of over 3,6 billion euro per year is in full consolidation process,
mainly as last year two international players have bought one of the biggest chains –Sensiblu (bought by Penta
Investments) and Help Net (Phoenix Group). Although less probable, it can’t be excluded that soon other
transactions might appear on the top of the sector. Usually, such investors prefer entering the market by the
acquisition of a top player, top 3 or top 5’’, compliant to BT Capital Partners.
According to the analysts, the growth drivers for the pharmaceutical retail market are the positive economic
development and the ageing population.
Compliant to the data coming from Statistics, there have been registered 8.100 pharmacies operating nationwide,
out of which 2.100 are in the portfolio of the first five domestic networks controlling each a couple of hundred
units. Compared to 10 years ago, the number of pharmacies increased with 25%, compliant to the calculations of
the ZF based on public records. The biggest players in this industry are Catena, Sensiblu and Help Net.
Regarding the number of units, the pharmaceutical retail reaches a new record, as the market is characterized by
acquisitions and transactions between the biggest players nationwide, as well as on a regional level.
For the first part of next year, Dr. Max shall enter the market by branding all the Punkt pharmacies.
According to wall-street.ro, a significant change has appeared in the process for the authorization of a pharmacy.
Currently, the authorization is firstly made at the Sanitary Direction and afterwards at the Ministry of Health,
which has extended the authorization term of a pharmacy with approx. One month. This shall impede on the
business of the pharmacies.
The independent pharmacists of the market are trying to keep themselves on the market and are focusing on the
niche areas in order to attract customers. Therefore, the domestic pharmacy chains have developed as well a store
area with products intended exclusively to children, therefore staking on a niche with a growing potential and the
sales brought by these units vary from 4% to 50 %, compliant to the calculations carried out by ZF for three
domestic pharmacy chains.
The biggest retailers of the market haven’t developed a niche area for children, except for Farmacia Tei. (source
ZF).
The online drug sales with no prescription are currently at an insignificant level, but they can reach 10% of the
market in the next 3 to 5 years, compliant to the analysis of the experts in the pharmaceutical market. In
exchange, there is no official data on the total number of pharmacies opened online, since the law allows this to
occur, according to Content Speed, (a company specialized in creating software for the online trade) for Profit.ro.
On this platform, there have launched six online pharmacies and another eight are still in process. ‘’But the
number of the requests for such projects has dramatically increased, over 30 pharmacies wishing to create this
selling channel as well’, according to Content Speed.
There hasn’t been yet any change in the structure of the pharmacy’s chains. The ones having a presentation
website don’t seem to have added yet the characteristic of online sale. Compliant to the new legislation, an online
pharmacy requires multiple technical developments and the permits which could be required have a deadline for
response of 30 business days since the online submittal of all the necessary documents. The biggest online
pharma player, Farmacia Tei, has reported that it has ended 2018 with a turnover of 447 million lei (96 million
euro), out of which 5 million lei have been represented by online sales, meaning only 1,2 % of the total sales. But
there are also pharmacies with a single place of business and an online pharmacy for which the website sales
represent 60% of the turnover. ‘’The average will be around 10 % of the total sales for the next 3 to 5 years. But,
if we are talking of a sales volume, this percentage of 10 % will represent a big part of the total sales of the
domestic eCommerce. According to the results of the Pharma & Hospital Report survey, Cegedim Customer
Information, the pharmaceutical retail has registered in the first part of 2019 sales of 4,12 billion lei (870 million
euro), increasing with 22,3 % compared to the same period of 2018. (source Profit.ro)
https://www.profit.ro/stiri/calcule-pana-la-10-din-vanzarile-de-medicamente-fara-prescriptie-vor-fi-online-in-3-5-
ani-19060508
2.3.4. Supermarkets
Supermarkets and proximity have been gaining more and more ground on the market for several years with the
change in the consumption behavior of Romanians who go more often to shops, particularly for small purchases
and for products of instant use, as well as for fruit, vegetables or other fresh groceries. During the years of
economic boom, hypermarkets were the favorite type of the domestic consumers, who were going shopping at the
end of the week. But, in recent years, the stake has been represented by the small stores, occasionally of 100-200
sq m, for which it is easier to find premises at the ground floor of apartment buildings or office buildings.
Currently, domestic modern trade, representing a market of 11-12 billion euro per year and over 3.000 stores of
various types, is the battlefield if ten players and among them, six have chosen to place their stores in malls and
shopping centers in Romania. The German discounter Lidl, the cash & carry chains Selgros and Metro and the
retailer Profi are the ones who made an exception. The cash & carry stores, unlike the supermarket, hypermarket,
discount stores and proximity shops chains don’t target the final customer, but the small merchants and the
players HoReCa, therefore their absence in the shopping malls is being justified. As far as the German discounter
Lidl is concerned, it prefers using its own plots of land with independent shops, since it has been the Germans’
policy up to now.
In Romania, more than half of the population lives in the countryside, which is the highest percentage in Europe.
Within this context, still 40 % of the trade held by the small merchants owing stands, by the entrepreneurs of the
traditional trade, the rest being divided among the 10 foreign networks.
The transition to the modern trade is being experienced and the trend will continue. Regarding the consumption
behavior, it has been noticed a focus of the consumers onto the price, as well as an openness to technology.
In Romania, Auchan's decision to diversify formats came at a time when other competitors had already done so.
For instance, their conational, Carrefour is the retailer covering already all the markets segments. The French
retailer has entered the domestic market more than a decade ago with the hypermarket format. Until more than
two years ago it has been the only format Auchan was operating domestically. Sources on the market are stating
that Auchan has significant plans in Romania for the segment of small shops, more precisely over 500 units in all.
A part of these shops shall be independent shops, according to the pattern of the ones opened in 2017 following
the takeover of the OOK Supermarket domestic chain. They can be opened from scratch or rebranded due to some
takeovers. But the fast expansion shall be achieved for the gas stations segment, by the partnership with Petrom,
and the French retailer will open proximity shops My Auchan in every Petrom gas station in Romania, therefore
expanding the pilot project started two years ago.
The trend to reduce the areas followed by other big retailers, therefore from an average area of 600 sq m in 2001
they have reached an average area of 315 sq m in 20187,according to the information of ZF on how to develop
the Profi shops chain, detailed below:
Year Number of
stores
Net surface of the
network (thousands
sqm)
Average net surface/
stores (sqm)
2001 5 3.000 600
2007 44 22.000 500
2009 67 35.000 522
2010 82 39.000 475
2011 108 50.000 463
2012 149 67.000 450
2013 207 87.000 420
2014 274 112.000 409
2015 367 143.000 390
2016 500 183.000 366
2017 692 231.000 334
2018 924 291.000 315
In fact, the average area of the network stores is on a descending trend for several years, following the direction
of the market of food trade as a whole. The latter is changing depending on the changes in the consumption
behavior, as it has been previously indicated.
Food Trade House ‘’Unirea’’ has proposed to create nationwide a network of 6 stores to sell traditional products
coming from the Romanian small producers. The first ‘’alimentare de stat’’ have opened in Bucharest and Sibiu,
according to businessmagazin.ro.
The Belgian retailer, Mega Image, has opened a Mega Street Food, a food court integrated in the store on Barbu
Vacarescu, with an area of 300 sq m. It has brought four restaurants with international cuisine. Therefore, Mega
Image enters by this project an area which generally bets on big commercial premises (500-1.000 sq m).
Carrefour is the player of the domestic modern trade covering the largest number of formats. In the recent years, it
has opened 20-30 new stores, most of them of a small format. Expansion is being accelerated, but for the attention
to focus on smaller shops, Carrefour will continue the expansion on all formats, even though the focus will be on
"Supeco” and the proximity. The Supeco” shops are a hybrid concept between cash carry and discounter, with an
area varying between 1.500 and 2.000 sq m. This format has been initially implemented in the medium towns all
over the country but currently they moved towards the bug urban areas, such as Bucharest, Iasi or Cluj
Romanians spend an important share of the monthly budget on food; therefore, we estimate that this segment will
remain the main engine of the retail market and the supermarkets will continue to develop their networks in 2020.
3. Rent level
• The level of rents will be mainly influenced by:
- The political environment;
- The economical situation;
- The fiscal policy;
- The mix of tenants and the degree of vacancy;
- Goodwill, the surface, the visibility, the subdivision and the accessibility of the offered premises;
- Homeowners’ associations;
- The seismic risk class of the buildings where the commercial premises are located;
- ISU authorization;
- New offer of commercial premises in the area (especially modern trade models: shopping
galleries, malls, etc.)
- The investments to be made in the arrangement of rented premise;
- Credit policy;
- Consumption level and consumption habits;
• At the present time, there is no commercial pedestrian area in Bucharest, which is why we don’t have a
price alignment as it usually occurs in the retail area. In the last decade, the rents of the street commercial
premises have varied greatly, some areas having their price per sq m increased, others decreasing
substantially.
• At micro level (streets), we could see both ascending and descending short-term corrections, area-based
and temporary events:
- Building consolidation and thermal insulation of buildings;
- Public works on sewerage networks, Net City, pipelines, gas and electricity networks;
- Works on road infrastructure (road over-enlargements) etc.
• Monthly rental / sq m forecast in 2020, according Practic SA:
- 5 - 15 euro / sqm peripheral or isolated locations in secondary or pauper areas;
- 20 - 30 euro / sqm for main streets and boulevards;
- 40 - 60 euro / sqm for "prime locations": Victoria, Magheru, Dorobanti, Unirii Square.
Source: Knight Frank
3.1. Prime yields1
1 Source: Colliers International