THE POLISH GROCERY RETAIL MARKET IN 2010-2020 - PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS ...

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THE POLISH GROCERY RETAIL MARKET IN 2010-2020 - PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS ...
THE POLISH GROCERY RETAIL MARKET
IN 2010-2020
PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL
BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS

November, 2016
THE POLISH GROCERY RETAIL MARKET IN 2010-2020 - PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS ...
2 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  Contents

  1         Grocery retail market                                                                             5

  2         Customer trends                                                                                   13

  3         Regulations                                                                                       15
THE POLISH GROCERY RETAIL MARKET IN 2010-2020 - PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS ...
3 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  Foreword
  We are happy to present the extended version of The Polish grocery retail market in 2010-2020 report
  published by Roland Berger in August 2016. The report gained noticeable market traction with number of
  articles in the most opinion shaping portals and newspapers.
  After thorough analysis and interviews with key market stakeholders we have decided to update and enrich
  the report with new conclusions. Major differences vs previous report are in market segmentation and
  forecast projection.
  We have distinguished soft franchise segment and divided supermarkets into large and proximity
  supermarkets. The reason for the change is different drivers behind those segments and therefore possible
  blurring of some market trends and dynamics.
  We have also updated the forecast as for major players in terms of LFL sales 2016 is much more lucrative than
  2014 and 2015, inflationary perspective for Poland has changed and we have taken into account the impact
  of minimum wage.
  The results of the more detailed segmentation shine a new light on the market dynamics and the conclusions
  presented in the report describe deeper the perspectives for the future grocery market development. We
  encourage you to read the report carefully and wish you a pleasant lecture.
THE POLISH GROCERY RETAIL MARKET IN 2010-2020 - PROXIMITY SUPERMARKETS AND CONVENIENCE SEGMENTS WILL BENEFIT FROM SLOWER GROWTH OF DISCOUNTERS ...
4 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  Market expects convenience
  stores, proximity supermarkets and
  discounters to continue to be the
  fastest growing market segments.
  Overall market growth of grocery in Poland was                    Market expects the overall grocery sales in Poland
  3.4% on average annually since 2010. Traditional                  to grow by 3.7% annually on average till 2020
  trade declined on average by over 7% annually while               driven by disposable income growth resulting from
  modern formats increased their market share by                    GDP development and increase in minimal wages
  total of 15 pp. Consumer trends strongly favoured                 as well as 500+ program (especially in 2016 and
  both discounters (14.1% annual growth) and                        2017). Growth of inflation is also expected to be a
  convenience stores (14% annual growth) – those                    contributing factor. Traditional trade is expected
  two segments combined increased their market                      to further decline (by 3.7% annually) to reach
  share by 13 pp (from 21% to 34%) enjoying growth                  14% share in 2020 as supported by CEE and WE
  on LFL and by aggressive network expansion.                       benchmarks. Convenience stores are expected to
  Proximity supermarkets were the third fastest                     continue to be the fastest growing segment (12.5%
  growing segment (8.1% annually), benefiting from                  annually) followed by proximity supermarkets (8.2%
  favourable customer trends. Furthermore number                    annually) and discounters (decrease in growth rate
  of stores increased the fastest in this segment (by               from 14.1% 2010-2015 to 6.6% annually in the
  over 13% annually). Soft franchise networks enjoyed               forecast period due to visible slow down in network
  moderate growth at rates above overall market,                    expansion, especially by Biedronka). Soft franchise
  which enabled them to increase their market share                 is expected to grow at rates comparable to overall
  by 3 pp. Sales volume and number of stores both                   market while hypermarkets and large supermarkets
  in large supermarkets and hypermarkets segments                   will further lose ground to other modern trade
  stagnated – their combined market share declined                  formats (decline of combined market share by 4pp).
  by 3 pp.
  Six key customer trends impact the buying
  behaviour and customer preferences across all retail
  formats: busy lifestyle, new family model, demand
  for higher quality, health consciousness, increased
  sophistication and awareness of customers and
  regional development. Expected customer trends,
  buying behaviour and preferences (including fast
  shopping, convenience, proximity etc.) will further
  promote development of convenience formats,
  discounters as well as small proximity supermarkets
  over    other    modern      (large   supermarkets,
  hypermarkets and soft franchise) and traditional
  channels.
5 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  1
  Grocery retail market
  1.1
  Historical development of grocery market

  Historical development of grocery market and traditional and modern channel

  Sales value, 2010-2015 [PLN bn]                                 Number of stores, 2010-2015 ['000]

   65%       69%   72%     75%   78%      80%      CAGR           16%    18%    21%    24%    27%    30%    CAGR

                                          211       3.4%           166                                      -3.7%
                                 205
                           198                                           156
                   192                                                          151
             184                                                   27                  145     141
   178                                                                                               137
                                                                          29
                                                                                 32
                                                                                        34
                                                                                               38
                                                                                                      41
                                                    7.8%                                                    8.4%
                   139     149   160      169
   116       128

                                                                   138
                                                                         127    119
                                                                                       111     103    97

    62       56     53                             -7.7%                                                    -6.9%
                            49   44       41

   2010     2011   2012   2013   2014    2015                     2010   2011   2012   2013   2014   2015
         Modern    Traditional   XX     Share of modern channel

  Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

  Grocery market growth was driven by increasing                                             Share of traditional trade in 2015 approached 20%,
  disposable income and individual consumption but                                           examples of both Eastern and Western European
  slowed down due to deflation in 2014 and 2015.                                             countries show potential for further declines.
  Sales in traditional channel declined an estimated
  7.7% annually, in line with historical trends and
  experiences of more mature markets, while modern
  trade formats grew over proportionately (7.8%
  annually on average).
6 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  1.2
  Forecast of grocery market development

  Forecast of traditional and modern grocery trade
  Sales value, 2015-2020 [PLN bn]                                              Number of shops, 2015-2020 ['000]
                                                    CAGR        CAGR                                                         CAGR       CAGR
   80%      82%    84%      85%    86%       86%    '10-'15     '15-'20        30%     32%    35%    38%     40%    42%      '10-'15    '15-'20

                                             252        3.4%     3.7%          137.4 135.6 134.6                             -3.7%       -0.6%
                                   245                                                           133.8 133.8 133.7
                            238
                   230
            219
    211                                                                        40.9
                                                                                       43.9   47.4
                                                        7.8%     5.3%                                50.6    53.5   56.2     8.4%        6.6%

                                   210       218
                   192      201
    169     180

                                                                               96.6    91.7   87.1   83.2    80.3   77.5
                                                        -7.7%    -3.7%                                                       -6.9%       -4.3%

     41      39    38       36         35    34

   2015 2016 2017 2018 2019 2020                                               2015 2016 2017 2018 2019 2020

          Modern         Traditional         XX    Share of modern trade

  Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

  Overview of traditional trade market shares and their development
  Traditional trade share, 2015 [%]                                                                         Traditional trade share development, 2010-2015 [%]
                                                                                p.p. change             55%
                                                                                   '10-'15
                                                                                                        50%
  Greece                                                                              -11               45%
                                                                         41%
                                                                                      -2                40%
  Italy                                                  26%
                                                                                                        35%
  Spain                                            23%                                -4
                                                                                                        30%
  Poland                                          20%                                 -15
                                                                                                        25%
  Austria                                     18%                                     -3                20%
  Germany                                   15%                                       -1                15%
  Portugal                                  15%                                       -4                10%
  Slovakia                             11%                                            -6
                                                                                                            0%
  Lithuania                            11%                                            -2                            2010          2011            2012       2013   2014      2015
  United Kingdom                       11%                                            -2                            Greece             Poland            Slovakia   Austria
  Latvia                          9%                                                  -4                            Spain              Portugal          Latvia

  Source: Roland Berger, EMIS

  It is expected that the traditional trade will further                                                            The rate of decline is expected to slow down
  decline, both in sales value (-3.7% annually) and                                                                 as compared to historical figures, because as
  number of shops (-4.3% annually).                                                                                 traditional grocery shops join soft franchise chains
                                                                                                                    or go out of market an increasing share of traditional
  Trend is corroborated by experience from both WE
                                                                                                                    trade will come from specialized stores, which are
  and CEE markets, where traditional trade share
                                                                                                                    still popular among Polish customers (e.g. butchers,
  stabilizes at levels between 11% and 15%.
                                                                                                                    bakeries, alcohol shops, etc.).
7 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  1.3
  Historical grocery market segments development

  Historical development of Polish grocery market by segment
  Sales value, 2010-2015 [PLN bn]                                                Number of stores, 2010-2015 ['000]
                                                                 CAGR                                                                               CAGR

                                                                                      166
                                                      211         3.4%                   1 0                                                        -3.7%
                                             205                                      2
                                   198                                                     1 156
                       192                             33                                         0
            184                                 34                1.1%                 9                                                            4.1%
   178                             33                                                           2 1 151
                       32                                                                    3      1 2 0
    32
             32
                                                17
                                                       18         2.3%                              3     145                                       3.1%
                                   17                                                 13      10          1 2 0 141
                       17                              13
             16                                 12                                                              1 2 0 137                           13.2%
    16                 10          11                             8.1%                               10   3
             10                                                                                                 4     1 0
     9                                                                                        13                         3
                                                51     55        14.1%                                     11         4                             9.9%
             35        41          47
    28                                                                                               15          12
    8
                                                                                                                       12                           6.0%
             10        11          12           15     16        14.0%                                     16
    23       25                                                                       138
                       28          29           32     35         8.1%                                           19
                                                                                             127                                                    9.8%
                                                                                                    119                20
    62       56        53                                                                                         111
                                   49           44     41        -7.7%                                                     103
                                                                                                                                       97           -6.9%
   2010     2011     2012          2013     2014      2015                        2010       2011     2012        2013     2014       2015

        Hypermarkets           Large supermarkets              Proximity supermarkets          Discounters           Convenience             Soft franchise          Traditional

  Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

  Historical development of Polish grocery market by segment – market shares
  Share in sales value, 2010-2015 [%]                                         Share in # of stores, 2010-2015 [%]
                                                                                                                    145        141
    178       184           192           198        205        211              166         156     151     0.3     0.3     137
                                                                            0.7 0.2              0.3     0.3     0.8     0.8 0.9 0.3
                                                                                             1.0     1.2     1.4     1.6     1.8
    17.8      17.6          16.9          16.8       16.4       15.9        0.8 1.4          1.7 0.7 2.0 0.7
                                                                                                             2.3     2.6     2.7
                                                     8.3        8.4              5.6
    8.8        8.8           8.8          8.5                                                6.2
                                                                                                          6.8
                             5.4          5.6        5.9        6.2                                                 7.6
    4.9        5.2                                                                                                             8.5
                                                                                                                                             9.0
    15.8      18.9                                                               7.8
                            21.2          23.6       24.9       26.0                         8.6
    4.7                                                                                                   9.9
               5.3           5.7
                                          6.2                                                                       11.1
    13.2                                             7.2        7.6
              13.5                                                                                                             13.4
                            14.4
                                          14.6                                                                                               14.9
                                                     15.6       16.4
                                                                                 83.5
                                                                                             81.5
    34.7      30.7                                                                                        79.1
                            27.6          24.6                                                                      76.5
                                                     21.7       19.6                                                           72.8
                                                                                                                                             70.3

   2010       2011       2012            2013        2014      2015             2010        2011      2012         2013        2014         2015

     Hypermarkets            Large supermarkets              Proximity supermarkets         Discounters          Convenience          Soft franchise          Traditional

  Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

  Smart shopping trend started during economic crisis                                                                            chains aggressively, capturing significant part of the
  strongly supported development of discounters.                                                                                 market. With a market share of 26% discounters
  Lidl and especially Biedronka expanded their                                                                                   established themselves as leading segment.
8 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  Convenience stores benefited from changing                                                                    lost ground to other formats (market share declines
  customer trends (especially busy lifestyle and new                                                            of 1 and 2 pp respectively).
  family model). Network expansion of Żabka drove
                                                                                                                Growth of soft franchise chains was fed by traditional
  the growth. Convenience stores managed to grow in
                                                                                                                shops seeking professional support on increasingly
  significance increasing their share by 3 pp.
                                                                                                                competitive market. Soft franchise chains increased
  Those same trends lead to increasing stagnation                                                               market share by 3 pp, fuelled by rebranding of
  of hypermarket sales as customers looked for                                                                  traditional grocery stores.
  proximity and fast shopping.
                                                                                                                Traditional retail market shares dropped by almost
  Proximity supermarkets sales growth outpaced the                                                              15 pp measured both by value and by number of
  growth of large supermarkets by almost a factor                                                               stores.
  of 4. Proximity supermarkets gained market share
  (1 pp), while large supermarkets and hypermarkets

  1.4
  Forecast of grocery market segments development

  Forecast of grocery market segments development

  Sales value, 2015-2020 [PLN bn]                                   Number of stores, 2015-2020 ['000]
                                           CAGR         CAGR                                                     CAGR      CAGR
                                           '10-'15      '15-'20                                                  '10-'15   '15-'20

                                            3.4%         3.7%                                                    -3.7%     -0.6%
                                    252                               137 136
                              245                                       1             135    134    134   134
                        238
                 230                33      1.1%        -0.3%
                                                                      3 00 1          0 1    0 1    1 1   1 2
                                                                                                                 4.1%      1.1%
           219                33                                       4  3           3
   211                  33                                                 4                 3      4     4      3.1%      3.6%
                  33                19      2.3%         1.4%                          4      4
           33                 19                                                                     4     4     13.2%     10.7%
   33                   19          19                                 12
                  18          18            8.1%         8.2%                    13
           18           17                                                            14                         9.9%      3.3%
   18             16                                                                         14     15
           14                                                                                             16
   13                                                                                                            6.0%      5.5%
                              71    75      14.1%        6.6%
                  64    68                                             20
   55      58
                                                                                 22
                                                                                      25
           18     21    23    26    29      14.0%       12.5%                                27
   16                                                                                               28
                                                                                                          29     9.8%      7.5%
   35      38     40    42    42    43      8.1%         4.5%
                                                                       97
                                                                                 92
                                                                                      87     83
   41      39     38    36    35    34      -7.7%       -3.7%                                       80
                                                                                                          77     -6.9%     -4.3%

  2015 2016 2017 2018 2019 2020                                      2015 2016 2017 2018 2019 2020

        Hypermarkets           Proximity supermarkets           Convenience           Traditional
        Large supermarkets     Discounters                      Soft franchise

  Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews
9 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

  Forecast of grocery market segments development – market shares
   Share in sales value, 2015-2020 [%]                            Share in # of stores, 2015-2020 [%]

    211      219     230      238          245      252              137     136          136       135        134         134
                                                                         0.3     0.4     0.4 1.1 0.4 1.1 0.4 1.1 0.4
                                                                     1.8
    15.9     15.2    14.5     14.0     13.5         13.0                 0.9 2.1 1.0 2.3 1.1 2.6     2.8     3.1
                                                                     2.7     2.9     3.0     3.1     3.2     3.3
                     8.0      7.8          7.6      7.5
     8.4      8.2
                                           7.4      7.6              9.0     9.6
     6.2      6.5    6.8      7.1                                                         10.2      10.8       11.4        12.1

    26.0     26.7    27.7     28.5     29.2         29.8
                                                                     14.9
                                                                             16.5
                                                                                          18.4
     7.6      8.3    9.1      9.8                                                                   19.9
                                       10.6         11.5                                                       21.1
                                                                                                                           22.0
    16.4     17.1    17.5     17.5     17.3         17.0
                                                                     70.3
                                                                             67.6
    19.6                                                                                  64.7      62.2
             18.0    16.5     15.3     14.4                                                                    60.0
                                                    13.5
                                                                                                                           58.0

    2015    2016     2017    2018      2019        2020             2015    2016      2017         2018        2019       2020

      Hypermarkets    Large supermarkets         Proximity supermarkets     Discounters          Convenience          Soft franchise   Traditional

  Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

  Convenience channel is expected to lead the growth                                                           Supermarket formats are expected to continue
  in modern trade formats (on average 12.5% annually)                                                          to develop at different rates, with proximity
  supported by favourable customer trends, gradually                                                           supermarkets sales expected to grow at 8.2% annually
  eating away on traditional and soft franchise                                                                (store # by over 10%) while large supermarkets are
  networks. Żabka is expected to lead the segment                                                              expected to stagnate. Proximity supermarkets are
  with continued aggressive network expansion. Also                                                            expected to gain 2 pp of market share while large
  sales in convenience stores are expected to increase                                                         supermarkets are expected to lose 1 pp.
  significantly enabling them to reach 11% share in
                                                                                                               Sales in soft franchise are expected to grow at levels
  the market.
                                                                                                               slightly higher than total market development (4.5%
  Market expects slowing down of discounters’                                                                  annually) due to lower than historical shop number
  growth. The number of stores opened in 2014 and                                                              growth and increasing competition with formalized
  2015 was lower than in previous years, moreover                                                              convenience formats. Soft franchise stores are
  the main discount chain has announced much                                                                   expected to maintain their current position.
  smaller plans of expansion due to reorganization of
                                                                                                               Sales in hypermarkets are expected to decrease
  their current stores. Increasing LFL sales will only
                                                                                                               on average 0.3% annually due to customer trends
  partially compensate revenues from reduced new
                                                                                                               clearly putting this format at a disadvantage. Both
  store openings.
                                                                                                               hypermarkets and traditional trade are expected to
  Discounters are expected to continue to have                                                                 further decline reaching market shares of 13% and
  leading customer perception and fit well to the                                                              14% respectively.
  smart shopping trend because they established
  themselves as shopping destinations also for less
  affluent people which should affect LFL and sales
  per store but not stores number development.
  Although discounters’ growth is expected to slow
  down as compared to previous 5 years, this format
  is expected to gain 4 pp of market share.
10 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   1.5
   Top players historical development

   Overview of top players in modern Polish grocery retail
   Sales value, 2010-2015 [PLN bn]
   Top 10
   market              41%                        45%                       48%                       52%                       55%                           57%
   share
                                                                                                                                                              211
                                                                                                                                205
                                                                                                      198
                                                                            192
                                                  184
                       178
                                                                                                                                28%                           30%
                                                                            25%                       27%
                       20%                        23%

                       6%                         7%                        8%                        9%                        9%                            10%
                       15%                        16%                       15%                       16%                       17%                           18%
                       9%                         10%
                       3%                                                   11%                       12%
                                                  4%                        4%                                                  13%                           12%
                                                                                                      4%                        4%                            5%
                       46%                        41%                       37%                       33%                       29%                           26%

                       2010                       2011                      2012                      2013                      2014                          2015

       TOP 3         TOP 4-5              TOP 6-10              TOP 11-20          TOP 21-30           Others

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

   Concentration of modern trade segment is                                                                                                       from 26% to 40% (by 14 pp), whereas market share
   increasing – share of Top 10 retailers grew by 16                                                                                              of top 10, top 20, and top 30 grew by 17, 20, and
   pp between 2010 and 2015. Top 3 players increased                                                                                              22 pp respectively. Market share of smaller players
   their combined market share between 2010 and                                                                                                   is decreasing. In 2010 they accounted for 46% of
   2015 by 10 pp. Market share of top 5 chains grew                                                                                               market while in 2015 their share dropped to 26%.

   Overview of TOP20 players in terms of sales in 2015
   Sales value, 2015 [PLN bn]
   Sales value and            19.2          6.1          10.1        5.2           5.7      8.0            6.3        6.8           2.8             2.9          2.6     1.8       2.5       0.5            1.1           2.9          1.7           1.6           1.5       n/a
   ranking, 2010
   [PLN bn]                       1          6            2           8            7           3             5          4           11              10           12       14        13       19              18             9          15            16            17        n/a

   CAGR 10'-15'               15%          16%           2%          15%         12%        3%             7%         0%          19%               9%          11%      11%       2%        37%          18%            -4%           5%            6%            7%        n/a

   Sales growth
                                9%          8%           0%          11%         10%        3%           15%          2%          11%               3%           6%      7%       -1%        23%            6%         -38%           5%            4%             6%        n/a
   2015/14 [%]
                              38.5
                                           12.7
                                                        11.2        10.4         9.9       9.5           8.9
                                                                                                                    6.9           6.6
                                                                                                                                                 4.4           4.4      3.1      2.7        2.6         2.5            2.4          2.2         2.1             2.1        1.4
                                                                                                                   Lewiatan2)

                                                                                                                                                                                                       Top Market2)
                                                                                                                                                                                E.Leclerc
                                                                                                        Auchan1)

                                                                                                                                 Żabka2)3)

                                                                                                                                                Intermarche

                                                                                                                                                                        Netto

                                                                                                                                                                                                                                   Groszek2)

                                                                                                                                                                                                                                                               Stokrotka
                                                                              Kaufland

                                                                                          Carrefour

                                                                                                                                                                                            Dino

                                                                                                                                                                                                                      Polomarket
                                                                    ABC2)

                                                                                                                                                               DC2)4)
                                           Lidl

                                                                                                                                                                                                                                               Piotr i Paweł

                                                                                                                                                                                                                                                                           Mila
                              Biedronka

                                                        Tesco

   Legend:5)            Hypermarkets                     Large supermarkets                     Proximity supermarkets                          Discounters              Convenience               Soft franchise                  Traditional
   1) Including Real     2) Estimated sales in stores               3) Żabka + Freshmarket             4) Delikatesy Centrum                 5) Segment in which grocery chain had the most stores in 2015

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews
11 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   Overview of TOP20 players in terms of stores number in 2015

   Number of stores, 2015 [#]
   Number of                3,990       2,431         2,730             1,649         1,102      561          610      335                400       150          638         111          371      212         178               n/a             300             274         161                 61
   stores and
   ranking, 2010                1          3             2                  4              5      8            7        11                 9          17            6         18           10      14            15              n/a               12            13            16                19

   CAGR 10'-15'             14%          12%           2%               10%               5%    14%           9%      19%                 8%       29%           -4%         36%           3%     11%         13%                n/a             -1%            -1%          7%              28%

   # of stores growth
                            10%           9%           4%                 3%              2%     7%           -7%     18%                 5%       10%            8%         25%          -2%      6%          30%              -18%            -36%             -7%          5%             11%
   2015/14 [%]
                           7,685
                                        4,360
                                                      2,955            2,667
                                                                                      1,415     1,076         920     813                577       525           514         511          440     354         327               287             282             256        231               207
                                                                                                DC2)

                                                                                                           RD3)
                            ABC

                                                                                                                                                                                                  Netto

                                                                                                                                                                                                              Stokrotka

                                                                                                                                                                                                                                                                           Intermarche
                                         Żabka1)

                                                      Lewiatan

                                                                                                                      Carrefour

                                                                                                                                                   Top Market

                                                                                                                                                                             Dino

                                                                                                                                                                                                                                Małpka

                                                                                                                                                                                                                                                Polomarket

                                                                                                                                                                                                                                                                Eko
                                                                                      Groszek

                                                                                                                                                                                                                                                                                            Spar
                                                                        Biedronka

                                                                                                                                         Lidl

                                                                                                                                                                Euro Sklep

                                                                                                                                                                                          Tesco
   Legend:4)              Hypermarkets                  Large supermarkets                        Proximity supermarkets                         Discounters                 Convenience                Soft franchise                      Traditional
   1) Żabka + Freshmarket           2) Delikatesy Centrum                     3) Rabat Detal     4) Segment in which grocery chain had the most stores in 2015

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

   Overview of top players in market segments by sales, 2010-2015 [PLN bn]

  Hypermarkets                                                                                    Large supermarkets                                                                              Proximity supermarkets
     58%           60%          62%            64%               70%                76%                 58%         62%                  62%        62%              62%        62%                   61%                 67%             71%                 74%          76%               63%1)

     31.7          32.5      32.5            33.3                33.6               33.4               15.7         16.2             16.9           16.8            17.1        17.6                                                                                       12.0                  13.2
                                                                                                                                                                                                                                          10.4                11.1
             5.7        6.0 7.1                8.3               9.0                9.9                 3.6     4.0     4.3     4.3     4.3     4.4                                                     8.8               9.5             3.1                                                    3.3
                   6.5                                                                                                                                                                                                                                         2.9
     6.3                    6.0                6.1               7.7                8.9                     2.9 3.4     3.8     3.9     4.3     4.4                                                       1.9 0.5 2.3 0.8 2.6 1.2     1.7 2.1                                                    2.6
     6.5           7.0      6.8                6.9               6.9                                        2.6     2.6     2.6     2.2     2.1     2.2                                                                                                                                          2.4
                                                                                    6.8                                                                                                                   2.9     3.3     3.6     3.8     3.9
     13.2          13.0     12.5               12.0              10.0               7.9                 6.6     6.2     6.2     6.4     6.4     6.6                                                       3.4     3.2     3.0     2.9     2.9                                                    4.9

    2010           2011      2012            2013            2014                   2015               2010         2011             2012          2013            2014        2015                  2010                 2011            2012                2013         2014              2015
       Kaufland           Auchan           Tesco                            Other                        Tesco                           Intermarche            Carrefour           Other                  Delikatesy                    Dino                Polomarket                  Other
                                           Hypermarket                                                   Supermarkets                                           Market                                     Centrum

  Soft franchise                                                                                  Discounters                                                                                     Convenience
     64%           65%          66%            67%               70%                69%                 96%         95%                  98%        98%              98%        99%                   36%                 40%             44%                 47%          53%                   55%

     23.4                                                        31.8               34.5                                                                            50.9        54.6                                                                                                             16.1
                             27.6            29.1                                                                                                   46.7                                                                                                                   14.8
      5.2          24.8                       10.4               9.4                                                34.8             40.1                                                                                                 10.9    4.6         12.4
                                7.7            8.7                                                     28.2                                                                                             8.3               9.7             4.3
                                                                                                                                                                                                                          3.1 1.1 3.2 1.7 2.1 1.3 2.5 1.7
              6.3                             6.9                                                                                                                    35.3          38.5
                                6.7            6.7               6.8                                                                     28.2        32.4                                                         3.2 0.5
      6.8     6.6                 4.2     6.1 6.6                                                       19.2 1.8 23.8 2.1                                                                                 2.6 0.2
          2.8     3.3     3.9                                                                                                                   2.4      2.7      2.9      3.1                                                0.5 6.5 0.9 7.0
      8.5     8.6     9.3     9.5     9.6     10.6                                                       6.1 1.1 7.1 1.7                 8.7    0.8 10.6 1.0 11.7 1.1 12.7 0.4                            5.3 0.1 5.8 0.2 6.1                     7.2

    2010           2011      2012            2013            2014                   2015               2010         2011             2012          2013            2014        2015                  2010                 2011            2012                2013         2014              2015
       ABC           Lewiatan           GK Specjal                 Other                                 Biedronka                Lidl          Netto           Other                                     Żabka              Carrefour                       Freshmarket                 Other
                                                                                                                                                                                                                             Express

     XX      Top 3 market share in segment                                 1) Polomarket chain was split into Mila and Polomarket in 2015

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews
12 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   Overview of top players in terms of historical growth
   CAGR of sales value, 2010-2015                                                                                                      CAGR of # of stores, 2010-2015
   Sales value and          0.2     0.5    0.3          0.2     2.8        1.1          6.1       19.2       5.2      5.7              # of stores and         59     111     150           61       26        50      3,990     561         178        2,431
   TOP20 ranking,                                                                                                                      TOP20 ranking,
   2010 [PLN bn]            3       19    >20          >20      11         18              6         1        8         7              2010                    11     18       17           19     >20        >20        1         8          15          3

   Sales value and          2.5     2.6    0.7          0.6     6.6        2.5         12.7       38.5       10.4     9.9              # of stores and         576    511     525           207      76       106      7,685 1,076           327        4,360
   TOP20 ranking,                                                                                                                      TOP20 ranking,
   2015 [PLN bn]            6       14    >20          >20       9         15              2         1        4         5              2015                     8     12       10           20     >20        >20        1         6          15          2

                                                                                                                                       # of stores
   Sales growth
                           19%      23%   15%           4%    11%         6%            8%         9%        11%     10%               growth 2015/14       23%       25%    10%            11%    -3%        13%      10%        7%        30%          9%
   2015/14 [%]
                                                                                                                                       [%]
                           63%
                                                                                                                                                           58%

                                   37%                                                                                                                                36%
                                                                                                                                                                             29% 28%              24%
                                          21%      20%        19%       18% 16%                 15%          15% 12%                                                                                          16% 14%           14%         13% 12%
                       Express3)

                                                                                                                                                          Express3)
                                                       Aldi

                                                                                                                                                                                                                               Delikatesy
                                                                                                             ABC

                                                                                                                                                                                                   Auchan2)

                                                                                                                                                                                                              Aldi

                                                                                                                                                                                                                       ABC

                                                                                                                                                                                                                                            Stokrotka
                       Carrefour

                                   Dino

                                                                        Top Market

                                                                                                                     Kaufland

                                                                                                                                                          Carrefour

                                                                                                                                                                      Dino

                                                                                                                                                                             Top Market
                                                              Żabka1)

                                                                                                                                                                                                                                Centrum

                                                                                                                                                                                                                                                        Żabka1)
                                          Spar

                                                                                       Lidl

                                                                                                                                                                                           Spar
                                                                                                 Biedronka

      Legend:4)            Hypermarkets            Large supermarkets                          Proximity supermarkets                  Discounters         Convenience                    Soft franchise             Traditional
       1) Żabka + Freshmarket 2) Including acquired and merged Real hypermarkets in 2014 3) Ranking for the whole Carrefour 4) Segment in which the company had the most stores in 2015

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

   Overview of top players stores number evolution in supermarket formats, 2010-2015

   Large supermarkets                                                                                        Proximity supermarkets

                                    CAGR +3%                                                                                                 CAGR +13%
                                                                                     1.3                                                                                                  2.5
                                   1.1                         1.2                                                                                                     2.3
       1.1           1.1                         1.1                                                                                                     2.0                              0.6
                                                                                     0.4                                          1.8                                  0.6
       0.3           0.3           0.4           0.4           0.4                                                        1.5                            0.5
                                                                                     0.2                          1.3             0.4                                  0.4                0.5
       0.2           0.2           0.2           0.2           0.2                                                        0.4     0.2                    0.3                              0.3
                                                                                     0.2                          0.3         0.2                                      0.4
       0.2           0.2           0.2           0.1           0.1                                                    0.1 0.3     0.4                    0.4
                                                                                                                  0.3
       0.4           0.4           0.4           0.4           0.4                   0.5                                                                 0.8           0.9                1.1
                                                                                                                  0.6     0.7     0.7

      2010        2011             2012      2013             2014                   2015                      2010             2011       2012          2013         2014                2015

         Tesco Supermarkets                Carrefour Market                                                         Delikatesy Centrum               Polomarket1)
         Intermarche                       Other                                                                    Dino                             Other

   1) Polomarket chain was split into Mila and Polomarket in 2015, Mila was included in other segment

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews

   Concentration is also growing in segments, especially                                                                                Centrum. Dino jumped to 2nd position while 3rd
   in convenience – most concentrated segments are                                                                                      place was taken by Polomarket. Differences between
   discounters and hypermarkets. Concentration in                                                                                       the three largest chains in proximity supermarkets
   convenience increased by 19 pp. Supermarkets is                                                                                      are not significant and there is no clear leader as
   more stable segment with 6 pp change from 2010 to                                                                                    opposed to discounters and convenience segments.
   2015. Concentration is also increasing in proximity                                                                                  In the large supermarkets segment concentration
   supermarkets and large supermarkets. Top 3 players                                                                                   has increased by 4 pp from 58% to 62%. Top 3
   in proximity supermarkets increased their share                                                                                      players in this segment were Tesco Supermarkets,
   by 2 pp from 61% to 63%. The leader in proximity                                                                                     Intermarche and Carrefour Market, taking the first,
   supermarkets segment continued to be Delikatesy                                                                                      second and third position respectively.
13 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   The fastest growing retail chains from 2010-2015                                               slower growth pace than the leader. ABC, Delikatesy
   both in terms of sales value and number of stores                                              Centrum and Żabka were the fastest developing
   were Carrefour Express and Dino.                                                               chains that in 2010 had already owned above of 500
                                                                                                  stores.
   The fastest growing chain in terms of sales value was
   Carrefour Express with annual growth of 63% from                                               The concentration is expected to increase most
   2010 to 2015. 2nd and 3rd place was taken by Dino                                              rapidly in convenience, proximity supermarkets
   and Spar with almost two and three times slower                                                and large supermarkets segment because of the
   growth pace than the leader. LIDL, Biedronka and                                               significant number of players in these segments and
   ABC were the fastest developing chains that in 2010                                            better fit of these segments to shifting consumer
   had already recorded sales value of above 5 PLN bn.                                            trends.
   The fastest growing chain in terms of number of
   stores was Carrefour Express with annual growth of
   58% from 2010 to 2015. 2nd and 3rd place was taken
   by Dino and Top Market with almost two times

   2
   Customer trends
   Impact of selected consumer trends on store format development
                                                                 Large                            Proximity
                               Hypermarkets                      supermarkets                     supermarkets                       Discounters                       Convenience
       Busy lifestyle                  Long shopping time due          Long shopping time due          Easy and fast shopping             Extended shopping time           Making shopping as
                                       to large store size and         to large store                  due to close location              due to limited space,            quick and convenient as
                                       long queues, distant            assortment and most             and limited but sufficient         crowded stores and               possible, proximity
                                       location                        often distant location          assortment                         longer queues (limited
                                                                                                                                          in-store employment)

       New family model                Rich offering of                Rich offering of ready          Already wide selection             Selection of ready               Potential to introduce
                                       multipacks and family           meals, including salads         of ready meals or pre-             meals or pre-                    ready meals and serve
                                       packs but limited offer         and frozen meals,               assembled/ semiprepar-             assembled/ semiprepar-           food-to-go/hot drinks
                                       for singles and lack of         however lack of                 ed products                        ed products getting              confirmed by
                                       proximity                       proximity                                                          wider (e.g. grill sets)          international examples

       Demand for higher               Wide assortment, of             Wide assortment of high         Wide assortment of                 Presence of high quality         High quality of available
                                       high quality products,          quality products,               fresh products, with               Private Labels,                  assortment with large
       quality, premium                organic products                organic products                fresh charcuterie, less            increasing focus on              selection of ready meals
       products                        available                       available                       premium products than              fresh food                       and availability of niche
                                                                                                       in large stores                                                     products

                                       Wide assortment of              Wide assortment of              Fresh assortment with              Increasing focus on              Limited shelf space
       Increasing health-              fresh, organic and              fresh products and              high quality of products           fresh food but potential         reducing the ability to
       consciousness                   regional products               organic products                but limited availability of        limited by lower SKU             offer eco/green products
                                                                                                       organic products                   numbers                          and reducing potential
                                                                                                                                                                           to offer fresh food

       Increasing                      Prices comparable or            Prices not much higher          Prices of main SKUs                Price levels difficult to        High prices not
       awareness of                    slightly lower than in          than in hypermarkets,           slightly higher than in            compete with due to              compensated by the
                                       discounters, attractive         attractive promotions,          discounters, remaining             simplified operating             promotions
       customers                       promotions                      Private Labels potential        SKUs at higher prices              model, efficient
                                                                                                       than larger stores,                logistics, large scale per
                                                                                                       limited promotions                 SKU and Private Labels

       Regional                        No development                  Limited development             Format preferred by                Limited development              High potential of
                                       potential in small and          potential in small and          small shopping malls               potential in small and           geographic penetration
       development                     mid-size cities                 mid-size cities                 outside large                      mid-size cities                  due to small store area
                                                                                                       agglomerations

     Positive impact on format development         Negative impact on format development

   Source: Roland Berger analysis based on Nielsen, PMR, Industry expert interviews, industry press
14 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   List of buying behaviors/customer preferences impacted by customer trends

   Buying behavior/
   customer preferences
                                     A Increasing frequency of grocery shopping
                                            B Growing importance of location near work/ home

                                               C Availability of extended opening hours

                                                  D Important convenient access and availability of parking places

                                                  E Increasingly important range of products not available elsewhere

                                                  F More popular healthy, organic and fresh products

                                               G Increasing popularity of regional products

                                           H Quality, freshness of available products
                                     I   Continuously important promotions, attractive offers and loyalty programs

   Source: Roland Berger analysis based on PMR, Industry expert interviews, industry press, GUS

   Changing lifestyle and key consumer trends impact                 on shopping can easily buy necessary products
   buying behaviour and customer preferences in                      quickly i.e. on their way home from work because of
   Poland which further impact formats’ future                       the convenient localizations of stores and sufficient
   growth potential with proximity, discounters and                  parking area. Both formats also respond well in
   convenience being increasingly attractive.                        terms of delivering products at a reasonable price
                                                                     and good quality.
   Amongst the trends which have the most impact
   on convenience, proximity supermarkets and                        On the other hand wide selection of ready meals in
   discounters are busy lifestyle, new family model and              proximity supermarkets and discounters attracts
   increasing awareness of consumers. Busy lifestyle is              customers fitting in the new family model because
   a result of growing employment, increasing share of               these customers are more often seeking ready or
   employees working at more than one job or longer                  semi-ready products with a good quality to price
   hours and more time spent on entertainment                        ratio. What is more, proximity supermarkets and
   activities. New family model is driven by growth                  discounters, due to their suitable size and logistics
   in number of single households and growing                        have big potential in regional development,
   awareness is mainly a result of increasing internet               especially penetrating smaller cities, inhabitants
   access.                                                           of which are increasingly expecting same shopping
                                                                     experience as in bigger cities.
   Proximity, discounters and convenience stores
   are best fit to customers’ increasing frequency                   On one hand it is caused by smaller store area
   of shopping and closer locations. Proximity                       which enables reaching break even point with less
   supermarkets and large stores are the best fit to                 customers than bigger stores. On the other hand
   customers’ valuing healthy, fresh and regional                    it is caused accessibility to appropriate lots, lower
   products of good quality.                                         CAPEX and effective logistics.
   Proximity supermarkets and discounters also
   fit well in changing consumer trends, especially
   busy lifestyle and new family model. On one hand
   customers who do not want to spend a lot of time
15 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   3
   Regulations
   3.1
   The family 500+
   Total impact of 500+ is estimated to contribute to                Part of the growth may be explained by marginally
   1.1% - 2.5% of additional sales growth in 2016-2017.              positive food inflation but the rest of it is associated
                                                                     with increased consumption that linked to family
   In the first half of 2016 most of the grocery chains
                                                                     500+.
   noted positive revenue trend YoY with positive
   LFL sales e.g. Biedronka announced YoY LFL sales
   growth of 8.8% (9.8% Q2 2016) and Stokrotka
   announced YoY LFL growth of 7,5% (6,6% Q2 2016).

   3.2
   Act on minimum hourly wage
   Introduction of the minimum hourly wage act is                    On the other hand, increase of minimum hourly
   expected to affect not only the convenience format,               wage to 13 PLN/hour may contribute to growth
   soft franchise and traditional stores in a negative               in disposable income boosting individual
   manner but also to stimulate the market growth. On                consumption.
   one hand in terms of higher employment costs, the
   minimum hourly wage can lead to smaller margins
   in the worst case, closing the store.
16 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   3.3
   Act on counteracting the unfair use of contractual
   advantage in the trade in agricultural and food products
   The act aims to eliminate unfair commercial                       •   Diverting supply to large intermediaries in order
   practices between buyers, especially large retail                     to reduce the risk of being accused of unfair use
   chains, and producers of agricultural products                        of bargaining power against small, fragmented
   throughout the supply chain. This is to be achieved                   suppliers
   by prohibiting the unfair use of bargaining power in
                                                                     •   Diverting supply to foreign suppliers to whom
   contracts in a way which is:
                                                                         the Polish law does not apply
   •   against other similar practices (also not specified
                                                                     •   Difficulty to conduct marketing activities
       by the act)
                                                                         through e.g. temporary price reductions, shelf
   •   threatens or violates a substantial interest of the               placement marketing and trade marketing
       producer, by abusing a situation wherein the
       producer lacks the ability to sell the agricultural
       or food products to a different buyer, and there
       is a substantial imbalance in the economic
       potential in favour of the buyer (and vice versa)
   The act is likely to affect all players in the retail
   supply chain, including retailers, food processing
   companies and agricultural producers.
   Effects on retail chains and food processing
   companies, based on market experience:
   •   If the act is successful as a measure to combat
       downward price pressure on suppliers, thus
       increasing the prices of supplied goods, retail
       chains will likely increase prices in order to
       secure margins leading to inflationary pressures
17 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

   Notes
   Differences in comparison with the previous report
   We have implemented several changes in comparison with the previous                             regarding the proximity supermarkets segments. The new division has
   report. Changes appeared mainly in the past market value estimation,                            led to reassignment of top players amongst the new segments which
   forecasted market value, defined segments, scope of top players and                             then led to slightly different distribution of market shares and growth
   trend-segment fit assessment.                                                                   of each segment. Furthermore we have excluded soft franchise segment
                                                                                                   from the convenience and shown it separately.
   Past market value in 2010-2015 has been adjusted due to the increased
   detail level of analysis, whereas the projected market value has been                           This report also includes the extended top players scope (from 10 to
   updated, mainly due to the recent inflation prognosis which turned out                          30 players). The extension of the bottom up assessment was necessary
   to be favourable for the retail market, recent high like-for-like results of                    for forecasting the market value with more accuracy and for detailed
   top retail chains on the polish market and additional expert interviews                         estimation of newly assigned segments.
   and industry report results.
                                                                                                   Minor changes have also been implemented in the trends section in
   In the above report we also identified new division of segments as                              the best-fit assessment of segments to the most recent trends. Changes
   a result of breaking down supermarkets segment into proximity                                   were implemented after consulting with the industry expert and using
   supermarkets and large supermarkets. Breaking down the segment has                              additional sources (industry reports, financial reports of the extended
   been consulted with the industry expert and made it available to forecast                       scope companies) with intent to more accurately picture the present
   the market more accurately basing on the new assumptions especially                             and future market dynamics.

   Methodology notes
   Our analysis is performed on retail grocery market. Grocery sales                               We have modelled key historical operating parameters of approximately
   includes the total value of products sold in grocery stores encompassing                        40 largest retail players based on their performance in segments
   fresh food, fast moving consumer goods, and other products (including                           (including: E.Leclerc Hypermarkets, Auchan, BI1, Kaufland, Tesco
   non-food, such as clothing, footwear, home appliances, consumer                                 Hypermarket, Carrefour Hypermarket, Real, Biedronka, Lidl, Netto,
   electronics and digital media, home furnishings, toys) sold in grocery                          Aldi, Tesco Supermarket, E.Leclerc Supermarkets, Carrefour Market,
   stores. Market assessment includes also food sales in specialist shops                          Simply Market, Intermarche, Piotr i Paweł, Alma, Stokrotka, Mila,
   (e.g. butchers, bakeries, alcohol stores, fishmongers, green groceries).                        Polomarket, Dino, Spar, Eko, Delikatesy Centrum, Freshmarket, Żabka,
                                                                                                   Carrefour Express, Chata Polska, Top Market, Groszek, GK Specjal, Euro
   We have segmented the market into 6 segments – Hypermarkets,                                    Sklep, Rabat Detal, Lewiatan, ABC).
   Supermarkets (further sub segmented into Large, Proximity)
   Discounters, Convenience (chain and hard franchise), Soft franchise,
   Traditional trade.

   Overview of grocery market segments and players clustering

              Format                   Description                                                                                  Key players
              Hypermarket              > Mixed stores (food and non-food products) with an area of over 2,500 m², offering
                                         around 30,000-50,000 products, of which grocery products comprise at least 50%.
                                         Typical location outskirts of large cities
              Discounter               > General grocery stores with an area of around 1,000 m², offering with limited SKU,
                                         mainly typical food products, many under white label. Prices typically lower by 15-30%
                                         than the market average. Typical location large and medium cities both close to
                                         residential areas and city centers
              Large supermarket        > Mixed stores (food and non-food products) or general grocery stores with an area of
                                         500-2,500 m², offering around 5,000-10,000 SKUs, of which around 70% are typical food
    Modern

                                         products. Typical location outside residential areas in large and medium cities
              Proximity                > Mainly general grocery stores with an area of 200-500 m², operated in hard franchise or
              supermarket                own chain model, offering of around 4000-8000 SKUs, of which typically 90% are food
                                         products. Typical location close to residential areas in large, medium and small cities
              Convenience              > Chain or hard franchise, self-service small format stores (on average sales area
              (incl. hard franchise)     accounts for around 60 sqm) opened at least 11 hours a day offering basic range of
                                         groceries comprising food, alcohol, cigarettes and press. Also includes petrol stations.
                                         Typical location city centers and residential areas in large, medium and small cities
              Soft franchise           > Soft franchise, predominantly self service small and medium format stores with a sales
                                         area of 50-300 m2. Typical location city centers and residential areas in large, medium
                                         and small cities
              Traditional not          > Not organized, individual grocery stores. Typical location small cities and rural areas
   Tradi-
   tional

              organized trade

   1) Stokrotka shops under 500 m2 selling surface assigned to proximity supermarkets
   2) DC, Freshmarket and Eko shops over 200 m2 selling surface assigned to proximity supermarkets

   Source: Roland Berger analysis based on PMR, EMIS, Euromonitor, company webpages and expert interviews
18 Grocery retail in Poland 2010-2020 – detailed analysis of convenience and proximity supermarkets segments

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its work carried out. Accordingly, neither Roland Berger nor any of their directors, officers, employees, representatives, advisers or agents shall be liable for any direct, indirect or consequential loss or damage suffered by
any person as a result of the use of or reliance on any information or on the basis of any omission, or inaccuracy, in this report or in any other written or oral information made available in relation to this report.
In this notice the term Roland Berger include its partners, directors, officers, employees, representatives, consultants and agents.

© ROLAND BERGER Sp. z o.o.
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