The objective of the study “The Seen and the Unseen Effects of the Entry of Modern Retail1 in Bulgaria: Facts Against Myths” is to examine a number of popular claims that have been circulating in the media, and public debates. They often become grounds for political action and even legislative initiatives against modern retail formats.
An overview of industry trends shows that it is becoming more and more competitive – the companies in it and their market shares are changing rapidly. Nowadays, modern trade offers its customers access to stores from all price segments – hypermarkets, supermarkets, discounters, and cash-and-carry formats. Over the last decade the number of stores and the turnover of modern retail companies in Bulgaria has been growing. However, this trend has almost no effect on traditional retail. By contrast, turnover in traditional retail remains de facto unchanged between 2012 and 2015, and there is even growth in specialty stores. In 2015, the share of companies with more than 250 employees (largely overlapping with modern retail formats) in the retail sector is around 26%. The rest of the market continues to be held by companies in the traditional retail segment.
A common misconception is that the increasing market penetration of modern formats damages local producers, as the retail chain stores offer mostly imported goods. The fact is, however, that goods from Bulgarian suppliers account for approximately 60-70% of the total volume of goods sold in the retail chain stores. Most modern retail formats build long-term relationships with local suppliers – farmers, dairy and meat processors, etc., helping them implement European and international standards and enter the foreign market. This way, the positive effects on Bulgarian producers from their work with modern commercial formats extend far beyond the local market – shortening the supply chains by eliminating the buyers, increasing competitiveness, introducing high quality standards, and direct investment in the production process.
The investments by the retail chain stores are considerable – by the end of 2015, foreign direct investment in retail trade amount to around 2.6 billion leva, or 5.8% of total FDI. It is also important to acknowledge the influence modern retail has on the shadow economy – large retail chain stores help increase tax collection, declaring transactions with fast-moving consumer goods and strictly abiding by labor and social security laws. According to rough estimate for 2015 alone, they have paid about BGN 1.4 billion in VAT and labor taxes worth around BGN 170 million.
Busting the Myths
One of the myths regarding modern retail formats is that they lead to mass bankruptcies in small shops and job losses. However, statistics show that between 2005 and 2015 the number of employees in the retail trade increased by about 12%. This growth indicates that the increased level of penetration of modern retail formats, in practice, leads to a net increase in employment in the sector as a whole.
In addition, the retail chain stores offer significantly higher salaries to their employees – the average gross monthly salary was around 976 leva in 2015 or more than twice as high compared with salaries in the smallest companies with up to 9 employees (449 leva). The work in the largest companies in the sector is also much more productive – if the average annual added value of one employee in them is BGN 22,200, it is only BGN 5,100 for small companies.
The increasing market penetration of modern retail has also a positive impact on consumer choice. Different modern formats offer between 2,000 and 20,000 items, which is unattainable for smaller stores. Their certification and control methods, as well as the requirements they have towards their suppliers, enhance the quality of the products offered to the end-user.
Last but not least, retail chains also affect the social environment of the country. Some of them offer courses and specializations and take part in pilot programs for dual education. Another important aspect of their presence in the country is their involvement in different causes – from protection of the environment and cultural heritage, to donation programs aimed at funding civil society initiatives.
More generally, the analysis indicates that the level of market penetration and expansion of modern retail chains has a beneficial effect on the country’s economy as a whole. The share of the shadow economy in the sector shrinks, which in turn attracts significant investments and employees, who in turn have a higher income, and consumers receive a greater choice of goods and a quality guarantee.
The penetration of modern retail formats also contributes to the development of local production as it offers a huge market for its suppliers, while encouraging them to implement international standards and become more and more competitive. The study shows that periodic attacks on modern commercial formats are not fact-based, but serve private interests and seek to bring short-term political benefits.
1 Modern retail channel refers to formats of retail stores like Hyper markets, Department stores, Discount stores, Electric multiple stores, Cash and Carry Stores, Specialty stores, Online stores, Direct selling, etc.