METRO ROMANIA

How to improve Promotion?

METRO AG 2005

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METRO Group – one of the most important international retailing companies

Why METRO Group?

METRO AG 2005

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Agenda

International & Local Retail Market

Metro Overview

Metro Analysis – SWOT & PEST

Promotion; improvements

Recommendations

Conclusions

METRO AG 2005

Internationalization of Retailing

Retailers are rapidly expanding internationally in order to:

Gain competitive advantage

Increase sales & profits

Improve overall firm performance

Take advantage of cost savings

Learning by doing

Further enhance home-country operations

METRO AG 2005

World retail evolution

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METRO AG 2005

Grocery Retail Market Sizes 2007e

Country Grocery Retail Market

(US$bn)

1. USA 785.85

2. China 450.14

3. Japan 394.45

4. France 278.33

5. United Kingdom 249.20

6. India 249.11

7. Germany 192.92

8. Russia 188.02

9. Italy 165.64

10. Spain 130.51

34. Romania 24.23Source: IGD Datacentre estimates

Top 10 Eastern European Markets Top 10 Global Markets

Country Grocery Retail Market(€bn)

1. Russia 140.53

2. Turkey 50.59

3. Poland 35.93

4. Romania 18.07

5. Czech Republic 11.98

6. Hungary 11.50

7. Ukraine 10.74

8. Bulgaria 6.43

9. Serbia 6.31

10. Slovakia 5.07

METRO AG 2005

8,243

10,147

7,397

5,828

5,088

2,726

3,095

2,459

2,579

4,007

20,780

17,537

13,513

13,146

11,817

5,630

5,582

5,460

5,189

4,997

0 5,000 10,000 15,000 20,000 25,000

Schwarz Group

Metro Group

Tesco

Carrefour

Rewe Group

Mercator

Ahold

Maxima

CBA

Retail Banner Sales (EUR mn)e

2007 2013

Central Europe (CE) - TOP 10 Retailers

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METRO AG 2005

Traditional channels

72%

Cash & Carry10.9%

Forecourt and Convenience

Stores0.5%

Hypermarkets and

Superstores10.3%

Supermarkets and

Neighbourhood Stores

3.3%

Discount Stores2.5%

20132007

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Traditional Channels

59%

Discount Stores4.7%

Forecourt and Convenience

Stores0.3%

Cash & Carry8.6%

Supermarkets and

Neighbourhood Stores5.2%

Hypermarkets and

Superstores21.5%

Estimated Retail Market Evolution

METRO AG 2005

Top 10 Retailers 2006 in Romania

Source: IGD Datacentre. Data is for grocery formats only. Sales are net. Grocery Retail Market Shares excludes cash & carry operations.

Retailer Net Grocery

Sales2006 (€m)

Net Grocery

Sales2005 (€m)

% Change Grocery Sales 2006 v 2005

Grocery Retail Market

Share*(%)

No. of Stores

Sales Area (sqm)

Metro* 1,511 1,244 +21.46 0.49% 31 223,000

Rewe* 1,050 780 +34.7 3.57% 65 153,600

Carrefour 451 150 +301 2.68% 7 61,000

Lidl & Schwarz 210 30 +600 1.25% 14 42,000

CBA 202 187 +8.0 1.20% 455 43,100

Cora-Louis Delhaize

185 177 +4.5 1.10% 24 46,000

Artima 78.2 57.5 +36 0.46% 19 15,200

Intermarché 72 40 +80 0. 43% 8 20,000

Tengelmann 71 29 +145 0. 42% 35 43,750

Delhaize 70 58 +21 0.42% 19 17,060

METRO AG 2005

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METRO ROMANIA Company Overview

Background

Pioneered by Dr. Otto Beisheim, first C&C store in

Germany in 1964

The Metro C&C Model

Self-service wholesaler (C&C) — targeting small business

owners rather than individual consumers and households

Exporting the C&C Concept

Often the first foreign C&C wholesaler to enter the market

In 2005, Metro C&C - 43 new wholesale stores, a record for the

company

Metro C&C initially expanded from Germany to Austria in 1971

In Romania since 1996

1997 - Metro took over Makro

METRO AG 2005

METRO Romania - Characteristics

Logistic platform (3 temp. zones) of 9,500 sqm

Distribution center

1-st company with Bulk Break Cross Docking

2-nd company in Eastern Europe – high tech platform for vegetables & fruits

2007 sales – 5,306,017,000 RON ( ~ 67 Euro/person/year)

17,500 products

852,021 clients

METRO AG 2005

P.E.S.T Analysis

Political

Foreign investment is encouraged; in practice, retailers face a number of

challenges.

Foreign companies are allowed to own land and buildings

Laws encouraging the foreign investment

Flat tax of 16%

Difficulties with deductibles and VAT reimbursement

METRO AG 2005

P.E.S.T. Analysis

Economic

Installing an outlet: Capex €15m-€25m.

Real estate prices in Romania (especially in Bucharest) - skyrocketed

The number of hypermarkets and superstores – still very low.

Investments planned over the next 5 years by Carrefour, Auchan, Metro

(Real), Kaufland and Spar - impact the Romanian retail landscape.

Local retailers - expansion (Artima)

Increase of inflation & exchange rates

Estimated economic growth

METRO AG 2005

P.E.S.T. Analysis

Social

Decreasing population growth rate

Aging population

Working career attitude

Lack of highly trained/skilled personnel

In terms of opening hours, there are no fixed regulations

15% of customers still shopped in traditional stores for basic groceries

(ACNielsen data)

Since EU membership - foreign investment boom and sharp reduction

in small shops and street vendors.

METRO AG 2005

P.E.S.T. Analysis

Technological

IT technology available

High quality/innovative equipments available

HACCP – good safety quality assurance regulation accord to EU

METRO AG 2005

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Strengths - Weaknesses

Weaknesses

Distribution-delay of deliveries

High personnel flow

Different purchasing terms

Cost increase

Decreased no of clients

Decrease of some suppliers‘ production capacity

S.W.O.T Analysis

Strenghts

Local and international good image

First entry – 10 years ago

Dinamic expansion

Import increase

Productivity increase

Fidelity programms

Top quality suppliers

METRO AG 2005

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Opportunities - Threats

Threats

Agressive competition of new entries

Market segmentation among other competitors

Decrease of traditional suppliers‘ production

Decrease of number of clients due to new entries

Exchange fluctuation – inflation

Price increase

S.W.O.T Analysis

Opportunities

Increase of retail market and

population consumption

Geographical position and locations

allover the country (23 sites)

Increase of IT quality

(data base, surveillance systems, etc)

METRO AG 2005

Promotional activity expansion

Why? How?

Aggressive competition

Crowded markets

Consumers’ saturation with

promotional excess

Trademark

Short terms results

Demanding distribution

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Advertising

Sales promotion

Public relation

Trademark

Promotional Events

Sales force

METRO AG 2005

Influence of promotion on product life cycle

Products in decline – decrease the sales

Products at maturity – momentary sales increase

Products in growing phase – increase the sales

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METRO AG 2005

Promotional Strategies

Direct demand stimulation – immediate sales – for traditional products

Creation of favorable purchasing climate – needs time for future sales

(conferences, symposia, adverts for public, etc)

Sales stimulation – for seasonal products ( Easter, Christmas, etc)

Selective promotion for a market segment ( for specialists, IT, technical products)

Extensive promotion – for several markets (diversified promotion)

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METRO AG 2005

Metro - Promotional Strategies

1. Focused strategy on generic competition using differentiation ( specific segment or geographic markets)

2. Leader price strategy - price reduction for big amounts and fidelity discounts

3. Functional promotional strategy – create the demand through a sustained advert and promotional sales

METRO AG 2005

Promotional Activities - Tactics

Client oriented – specific group of clients

Better negotiation startegies with suppliers

Better prices

Adverts on sales ‘ place

Promotion of own products (ARO, Metro Quality, etc)

METRO AG 2005

Communication channels

Metro Post

Website

Direct letters to clients

Indoor

Outdoor (ex. “Metro – The partner of professionals”)

Magazines

Telemarketing

SMS

Clients as consultants

METRO AG 2005

Factors influencing promotion

Promotion is the most expensive component of marketing strategy

Promotion should be done according to:

» Company objectives» Clients purchasing habits» Advertising pannel» Finacial resources

METRO AG 2005

How to improve promotion?

Telemarketing (40 new clients/day)

Direct truck sales promotion

Easter/Christmas present packages

Exhibitions and fares participations

Customer Panel

Metro Post Catalogue improved

Gift certificates

Matro bags for free

METRO AG 2005

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Shaping the future of Metro retailing today

Thank you!