Focus: Czech online grocers look east and west beyond their home market

Metro AG

01/03/2023 07:00

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      Rohlik switches focus to Germany
    

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      Czech grocers apply home model abroad
    

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      Focus on city by city
    

  
    By Michael Kahn and Jason Hovet
       PRAGUE, March 1 (Reuters) - Two Czech online grocers -
one a start-up "unicorn", the other backed by a billionaire
businessman - are taking on Europe's biggest supermarkets to
feed growing appetite for home grocery delivery.
    Market leader Rohlik Group is setting its sights on Germany,
while local rival Kosik pushes eastward.
    Founder and Chief Executive Tomas Cupr said Rohlik was
focused on turning a profit in Europe's biggest economy after
postponing plans to expand in Italy, Spain and other markets as
inflation and the Ukraine war cloud the economic outlook. 
    "We will go much deeper in Germany than wider in markets we
wanted to a year ago," Cupr told Reuters, adding the company has
contracted sites for fulfilment centres in Cologne, Essen,
Berlin and Düsseldorf, where it plans to launch. 
    "Europe is a 1 trillion euros in grocery sales market. You
are looking at a blue ocean."
    Last June, Rohlik raised 220 million euros in a Series D
financing round led by Belgian investor Sofina  SOF.BR  that
valued the company at 1 billion euros ($1.06 billion), making it
a rare "unicorn" among start-ups. 
    Rohlik and rival Kosik, backed by Czech billionaire Daniel
Kretinsky, are both seeking to apply models that have been
successful at home. 
    Although small in size, the Czech grocery delivery sector
has developed faster than others in a fragmented European market
that is expected to grow to $121 billion over the next four
years from a current $73 billion, according to Statista.
    
    HUGE GROWTH POTENTIAL
    Rohlik, founded in 2014, leads the Czech market by mainly
targeting customers in big cities through its string of
distribution warehouses. It operates in Munich and Frankfurt
under the Knuspr.de brand.
    Last year, the privately-held company drove revenue 33%
higher to 574 million euros. Cupr said it had generated profit
in its home market but posted an overall operating loss as it
pursued expansion.
    He said succeeding in Germany over the next two years would
help raise capital for a further push by the grocer, which is
active in Hungary and Austria and has a small pilot programme in
Italy. It has also laid the groundwork to open up in Spain.
    "Once we prove Germany we will probably get money for other
markets," he said. "We will keep pushing on that infrastructure
and profitability and then we will accelerate. Three years is
the time to start selling everywhere."
     The proportion of shoppers using online grocers is
estimated at less than 10% across most of Europe, according to
data cited by McKinsey, and at just 4% in Germany. That means
the potential for growth is massive, in a market that lacks
dominant players, analysts say. 
    McKinsey estimates 18-30% of grocery sales could be online
in Europe by 2030 – a huge prize for companies able to overcome
the costs and logistical challenges of providing speedy service
at prices competitive with bricks-and-mortar supermarkets.
    "The online grocery market opportunity is a clear no-brainer
but the key question is whether companies should focus on being
a clear leader in one market or focus on more," said Ingmar
Wegel, a director at investment bank Clipperton in Germany.
    "Competition is still mainly driven by stationary retail but
a small number of online grocery players are gearing up in each
market to become leading e-grocery platforms."
    
    KOSIK TURNS EAST
    As Rohlik bets on Germany, Kosik is looking eastward,
entering the Slovak market and expanding in Bulgaria.
    CEO Ivan Utesil said the company would also seek to cut into
Czech market share by capitalising on its tie-in with German
wholesaler Metro  B4B.DE  in some regional areas. 
    Metro, in which Kretinsky also holds a major share,
announced in January that it had acquired a 25% stake in Kosik,
aiming to become a stronger partner and improve the online
grocer's sourcing capabilities.
    "The infrastructure is a great enabler for us to expand,"
Utesil told Reuters. "This model (of using Metro stores in
regions) enables fast rollout. It is not capital-heavy."
    Germany is not yet on Kosik's radar, he added, although it
will eventually turn its attention to other central and eastern
European countries.
    "Bulgaria and Slovakia is our focus for end of this year and
beginning of the next," Utesil said. "With our strategy, we are
confident we will be able to grow at least 30-40% a year, some
of it being organic and some of it from expansion." 
    Many big supermarket chains do not have distribution
centres, which analysts say limits their ability to expand
delivery networks and gives an edge to companies like Rohlik and
Kosik that are focused on building infrastructure.  
    Rohlik already has a distribution agreement with Marks &
Spencer and Cupr said the company could potentially partner with
other retailers.  
    McKinsey senior expert Tomas Karakolev said companies able
to build scale quickly to cut costs and cover more delivery
territory were most likely to succeed in the nascent market.
    "Leading e-grocers in Central Europe are attempting to win
with a sequence of local city-level games, with each one
starting with the largest cities and growing until a country is
covered," Karakolev said.

  ($1 = 0.9411 euros)

 (Reporting by Michael Kahn and Jason Hovet, Editing by
Catherine Evans)
 ((michael.kahn@thomsonreuters.com; +420 234 721 612; Reuters
Messaging: michael.kahn.thomsonreuters.com@reuters.net))