Romania: Penny has 600 local suppliers that generate 85% turnover
Discount Retail Chain Penny (owned by German REWE Group) sees the year 2020 as a year with important changes, including in terms of image. Marius Obreja, Purchasing Manager at Penny Romania, explains in an interview with Progresiv how they managed to maximize growth opportunities, how important local partnerships are for Penny and, last but not least, what is the retailer's strategy for the near future.
Right now, at the end of a year that came with an unpredictable situation - the pandemic, what do Penny's priorities look like?
Regarding the assortment approach, there are three categories that represent by far our top priorities: meat, dairy including cheeses, vegetables & fruits.
Even if we have Romanian meat on the shelf, for example, 100% does not mean that our goal is met. We will deepen this product development by integrating farmers, live animal producers in our procurement contract so as to shorten the supply chain. On the other hand, we will also focus on other topics, for example, animal welfair, animal welfare, including employees in the production chain because there have been some discussions and in the future we will have to make sure that the animals are raised and transported accordingly.
We will focus all our efforts on the vegetable & fruit categories to make the same integration of producers in the procurement contracts because we want to increase the period in which we can have Romanian vegetables and fruits on the shelf. Regarding tomatoes, for example, we want to extend from 5-6 months to 8-9 months the presence of these vegetables from local production on the shelf. Regarding fruits, we are looking for solutions for the apple segment in Romania. I foresee a future in which we can grow apples in Romania, special varieties that withstand storage conditions, which we harvest at the end of autumn, store them in specially created spaces, under controlled temperature conditions and have them available for sale. until the next harvest season.
When you talk about special storage spaces, do you mean new investments made in dedicated warehouses or about the logistics spaces of the manufacturers? It's about producers' warehouses. We can provide these entrepreneurs with clear data about the quantities they can sell with our help in March - April, quantities that we now cover with imports. In January we sell, for example, 2,000 tons, in February 1,500, in March 2,500 and so on. This quantity is available and a producer has to commit to a certain month, respectively quantity. I will not be able to sell more than 2,500 tons of apples in November because that is the demand. From here we have to leave, from the consumer who we know wants Romanian apples in April, in what quantity, what quality, how we can ensure the storage of those products, their packaging conditions and their transport and so on. These are large quantities. We also make a commitment to provide the necessary turnover. For example, if someone comes and tells us that they have apples for a certain period, we sign a document, a firm contract by which we agree that we will buy those quantities and the supplier will deliver them to us.
In the area of processed products, what does the situation look like now? You said that 90% of the range of sausages on the shelf is made in Romania, but that "made in Romania" is not similar to a product of Romanian origin. We have this situation with sausages: most of the imported meat goes to the sausage industry. In the future, it will be a very difficult step to select the best-selling items, taking into account that the main ingredient, meat, is of Romanian origin. Which means that we are no longer just talking about products made in Romania, but of Romanian origin. Regarding the dairy category, the situation is a bit more relaxed in the sense that most of the production in Romania is made with milk from the local market. But I would like to draw attention to some categories that are produced in Romania only very little or not at all, such as UHT milk. It is a sought after milk, demanded by Romanian consumers, but it is not produced in sufficient quantities in Romania. In a similar situation is the triangle melted cheese. There is only one manufacturer with limited quantities, but the demand is much higher. Or certain yoghurt types that consumers associate with dessert if fruits are added, for example. Likewise, we have to resort to imports because local production is limited and does not cover demand.
How important are local partnerships to Penny and how do you support local producers? First of all, I want to emphasize one thing: we focus on local production not for nationalist reasons, but for practical reasons. A product made in Romania is easier to supply, if sales increase or decrease sharply, we can adapt quickly. An engineer in the food industry understands better what a salami means for Romanians than an engineer who works in a factory abroad. The Romanian engineer understands exactly what the Romanian consumer wants and can produce a product exactly like that. At the moment, Penny has about 600 Romanian suppliers and they generate about 85% of the PENNY turnover. But this does not mean that the products are also manufactured in Romania or that they are of Romanian origin. Our goal, an ambitious one, is to get 60% of the assortment to be of Romanian origin, i.e. processed in Romania and the main ingredient to be of Romanian origin. At this moment, approximately 50% of Penny's assortment is of Romanian origin. We made a detailed analysis and identified the way in which we can meet our goal of having 60% assortment of Romanian origin in the next three years. For Penny it is more advantageous to buy sausages made of Romanian meat versus sausages made of imported meat even if they are produced locally, respectively to sell a Romanian apple compared to an apple from Poland because it is easier to interact with the producer, you can convey concrete details about your needs. In the case of import orders, you cannot make last minute changes because they are already on their way to you. In addition, supporting local production will lead to growing economic activity and, implicitly, economic growth. A circle closes, practically: you generate economic growth, the disposable income for the consumer increases, the demand for local products increases and the cycle repeats itself. And last but not least, we can be much more sustainable with these shorter supply chains.
2019 ended with a turnover of 3.96 billion lei (US$1Bn). What does 2020 look like and what are your plans, where do you think the growth opportunities will come from? I do not know if 2021 will bring a change in terms of the pandemic, probably not, however our relations with producers will continue their pace of development. Regardless of the pandemic or not, our strategy will be to continue supplying Romania. Versus the retail market, I believe that 2021 will be about the same line as 2020 in the sense that these consumer behavioral changes will continue next year. I am referring here to the impulse category was highly affected by the fact that people came to shopping less often and spent less time in stores. But overall, 2020 was a very good year, with certain categories exploding in sales at least at the beginning of the pandemic, such as staple foods.
Categories that had a downward trend in previous years, such as flour, sugar, rice, corn, this year sales exploded. In the frozen area, people discovered that they could have at home the pastries they normally took from the dedicated section of the store. This branch of the home baking category was practically born. In our case, we stopped bake-off products in the first two months after the emergency, customers still asked for them, so we thought about how we could sell them. We packed them and sold them frozen, the demand was very high. Then we came up with products more adapted to consumption, adapted to household ovens, with clear recipes and adapted packaging. Today we have a freezer located next to the bake-off shelf with eight permanent products, made 100% in Romania. Some of them will be developed under our own private label brand 'Hanul Boieresc'. Among the best selling products are buns and pies with cheese, cherries, and saltines.