Mercator Challenged By Weakness At Home
Slovenia's leading food retailer Mercator finds itself particularly exposed to ongoing weakness at home and across the Balkan region . While the retailer benefits from its exposure to these immature retail markets that offer a lot of room for growth, the current consumer spending environment is not in great shape. In our view, Mercator ' s domestic challenges are the greater concern. The retailer has reported results for the first nine months of 2012, with overall sales up 0.7% year-on-year (y-o-y). International y-o-y sales growth of 4.4% for the period outperformed a 2% contraction at home.
In 2011, Slovenia accounted for about 58% of Mercator's annual sales of EUR2.9bn . I t is from this position of strength in Slovenia - where it has been the leading food retailer by market share for a number of years - that it has been able to expand regionally.
Indeed, Mercator expanded significantly across the Balkan region over the past few years as it looked to leverage off the strength of its position in Slovenia, where long-term growth is restricted by a population of about 2mn. On the positive side, many of the markets Mercator entered are fundamentally under-retailed. Organised retail in Croatia and Serbia , for example, is not as developed as it is in Slovenia, and we expect these will be strong markets for sustained growth once confidence eventually returns. That said, it is hard to predict when consumer confidence will improve. In the meantime, companies such as Mercator, with almost total exposure to the regional consumer story, will have to focus on operating as efficiently as they can.
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