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Hungary: Penny's multi-million rebranding process is taking place

Updated: Aug 31, 2022

Discount Retail Chain Penny Hungary (owned by the German REWE Group) faces big challenges with increases in food price and special tax, but the chain is still in the middle of a large-scale rebranding process in these years. The renewal of stores, the product assortment update and the automation are also a sign that the company is planning for the long term in Hungary, said Florian Jens Naegele, CEO of Penny Hungary and Financial Officer Silke Janz.

Florian Jens Naegele is CEO of Penny Hungary and Silke Janz Director at Penny Hungary reacted upon some questions, what results could Penny produce in the first half of this year and what does this mean in the current business environment?

Despite last year's continuing difficulties, Penny Magyarország Kft. Exposed a full annual turnover compared to the same period of 2020. In numbers, this represents gross HUF 389.5 billion (US$ 1.0bn), an increase of exactly 4.45 percent compared to the gross revenue of HUF 372.9 billion (US$ 0.96bn) in 2020.

In addition to the challenges of recent years, covid pandemia and the subsequent economic recession, we seem to be ahead of difficult times again, but we trust the Penny team of nearly five thousand employees in Hungary. The current economic situation, steadily rising energy prices, inflation, and the war conditions at our neighbor, is also putting pressure on customers' wallets. Therefore, discount retail chains are an increasingly favorable choice for them, so we also need to respond to the continuously changing consumer needs as quickly as possible.

How does the Food Price affect the operation of the company and negotiations with the suppliers?

Recent government measures have put the entire retail sector in a challenging position, from producers to suppliers to shops to larger store chains.

This situation also requires huge resources from us. For our partners, the most important goal for us is to create conditions with our suppliers that have as many benefits as possible for both parties and even customers. Of course, it should not be forgotten for consumers to evaluate the situation. Although they have now been explicitly delighted (price caps for flour, oil, sugar, chicken, pork and UHT milk), it is important to emphasize that

Apart from customers, almost everyone is struggling to survive in the industry, as farmers, shippers and retail companies are now making significant losses due to a significant increase in raw material prices.

We are working for Penny to get as many products as possible from domestic suppliers as possible. When this is not possible at some point, for example, for the supply chain problems, it is particularly beneficial that we have an international background, as this allows us to provide a wide and reliable supply. In addition, this is exactly what we can remain competitive on the market. Currently, nearly two-thirds of commodities are provided by domestic producers and we are constantly working to make this proportion even higher in the future.

How to evaluate the recently announced measure for a special tax tax? How does this affect the commercial sector and within it?

Considering the transformation of customer needs, Penny was about repositioning in 2021, our 227 stores in the country are constantly renewed and our supply of goods is expanding significantly.

We spend a huge amount on the company's operation, and we are constantly reversing our profits. The essence of the operation of discount chains lies in the low margin, which is why the introduction of the planned extra profit tax is a big challenge for us. This will make it harder to realize our plans we want to implement in Hungary in the near future.

Penny is experiencing a rebranding process in Hungary. What are the reasons for this step and how much does the shop renewal cost?

The renewal of our shops began in 2021, when we spent a total of EUR 35 million (US$35.8 mio) for this purpose. Our costs have increased to EUR 52 million (US$ 53.23 mio) in 2022, and in 2023 we are planning to spend an additional EUR 35 million (US$ 35.8 mio) on modernizing our domestic stores. These numbers also prove that we have long-term plans in Hungary.

We are constantly increasing our domestic market role, further strengthening and renewing the brand. These are all processes to respond to customer needs and changing consumer trends. When mapping customer needs, we have observed that there is a growing demand for new and more modern shops and that healthy diet is becoming more and more important among our customers. Our latter experience reinforces our lifestyle supply, for example, and more and more of our shops are gluten, lactose-free, candy control, bio- and vegan products on the shelves of our shops.

How does the chain handle labor shortages and what solutions can reduce the use of live work?

Perhaps Penny do not tell a big secret that we are not alone in the industry with this problem, and we are constantly facing the labor market challenges. This makes us use more and more creative solutions, as we need to keep our employees and need to replace the missing workforce. We have managed to catch up with wages in recent times and have units where the third generation is working for the company within a family.

Of course, there are processes that need mechanization, but in general, the proportion of human labor is still a majority at Penny.

For example, the recently introduced self-service coffers do not support the machine replacement of valuable workforce, but to quickly and convenient customers.

It is also important to note here that expanding payment solutions is a definite reaction to ever-changing customer needs, which are essential to remain a modern company.

What are your future plans for the chain in Hungary?

The next tangible result of our aspirations is the expansion of our Karcag Logistics Center worth HUF 7 billion (US$ 180mio) and the upcoming opening of our Hajdúsámson store. In both cases, we work closely with the local governments, and as an employer, we play an important role in the settlement.

Our more than a quarter of a century of presence behind us in the Hungarian market is clearly evidence of planning for the long term, continuously researching the possibility of developing our Hungarian network or in which part of the country to open our latest shops. At the same time, the currently in force is making it difficult to open new stores. We will hand over our next new business in Hajdúsámson during the fall.


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