austrian focus SPAR HUNGARY: STRIVING TO CURB INFLATION ONE STEP AT A TIME

THE SUPERMARKET CHAIN SEEKS TO INCREASE ITS NATIONAL PRESENCE IN HUNGARY

As Hungarian shoppers tighten their belts to stave off the impact of incessantly increasing prices, retailers are also feeling the pinch. Spar Hungary, one of the country’s leading supermarket chains, is taking small, adaptive steps to shield their business and help consumers.

Hungary is experiencing the biggest increases in food costs in the European Union. Food prices are surging at an annual rate surpassing 40%, more than double the EU average. This is taking a toll on consumption as evidenced by weak retail sales, especially at food retailers. With an overall bleak consumption picture and inflation forecast to climb higher, households are widely expected to further cut spending. This leaves retailers in a particularly tight spot. “In such a turbulent environment, when so much happens to us every day, we have to take a lot of small, adaptive steps,” says Gabriella Heiszler, CEO of SPAR Magyarország, one of the key supermarket chains in Hungary.

Fighting to dampen the impact of inflation

SPAR, which has been present on the Hungarian market for over three decades, has become a household name in Hungary. They have a nationwide presence and their brand recognition is outstanding. The company is working hard to make sure it protects customers from negative market effects as much as possible. “We only accept price increases from our suppliers after serious and long negotiations. Perhaps this is the most important thing we can do in order to try to curb the huge inflation present in our country with our own means, or even slow it down a little,” Gabriella Heiszler notes.

In addition to trying to keep a lid on prices, SPAR has embarked on a significant cost saving program. It pays close attention to energy consumption as utility costs are soaring at an even higher rate than food prices. With various solutions, SPAR managed to achieve a quantitative reduction of more than 10% in electricity consumption in the second half of last year. They also experiment with various marketing models to facilitate a switchover to digital channels. In Budapest, for instance, paper-based leaflets have become shorter while the online forms have undergone a significant expansion. The executive says that this is part of a campaign to gauge customer willingness to consume advertising in digital form. In order to cut back personnel costs, the company has reviewed its policy of employing external workers and has taken appropriate reduction measures.

Increasing the national footprint

Despite the challenging economic backdrop, expansion is of strategic importance to SPAR as they seek to increase their customer base. Hungarian regulations, however, render new store openings extremely complicated, according to the CEO. “The so-called Plaza Act makes it very difficult to release or develop completely new properties. We are happy if we manage to open 3-5 such stores a year. Our goal remains to be able to open a store in every location where we manage to obtain a shopping mall exemption,” Heiszler says.

The franchise channel is an area of success in terms of national expansion. SPAR celebrated the tenth anniversary of its franchise program last year. As of September 2022, 237 Spar shops operated as franchises in Hungary in 114 settlements. “The franchise channel works very well, as we bring Hungarian retail partners under the SPAR brand by converting existing premises. We have built a very good brand for our franchise partners, our marketing activity is effective, and we can provide them with excellent logistics services,” the executive stresses. SPAR generates more than 10% of its sales through this channel, which clearly shows that this strategic direction is one worthwhile pursuing.

Think local, buy local

The supermarket chain purchases more than 90% of its food produce locally in Hungary.

The drive to stock shop shelves with uniquely Hungarian products manufactured by smaller producers is being hampered by the difficult economic situation. “Unfortunately, in a difficult demand situation burdened with high inflation, the place of origin of the product is a secondary consideration. In such a situation, the price is everything,” Heiszler says. Even though customers say that they prefer Hungarian products, this is true only as long as they find the price-value ratio is right for them.

Nevertheless, SPAR is working together with many local small and medium-sized enterprises, and they hope that a number of them can become bigger partners in the long term. They are purchasing innovative products specifically developed for either local or national Hungarian tastes and they hope that offering these products will help distinguishes them from the competition. In addition, the company is keeping a close eye on the market to see whether there is demand for new services. They operate their own bakery, coffee roasting, and winery in Austria and are looking for opportunities to develop these services in Hungary as well.