‘Ratio between quality and price’

Mercator started 61 years ago as a Slovenian FMCG retailer. Today Mercator Group operates in seven markets in southeast Europe and has a long tradition in its core business – retail and wholesale of fast-moving consumer goods, as well as apparel, sportswear, hardware and electronics. It operates everything from large hypermarkets of more than 10,000sq m to supermarkets, convenience stores and small shops down to 100sq m, depending on the relative characteristics and needs of each local market, even on micro-location level. Currently Mercator operates more than 1,400 shops, has more than 23,000 employees, and expects revenues of €2.8bn for 2010.

Mercator Group started to plan as early as in mid-2008 its response to the changes in economic conditions brought about by the global financial and economic crisis, by devising two sets of measures: measures for adjusting its offer to consumers and measures for business rationalisation. In 2009 the company added another set of measures aimed at increasing business flexibility, in which framework it commenced and completed the reorganisation of the entire Mercator Group, with the goal of increasing the focus and efficiency of operations, enabling improved responsiveness to local customer demands, and adjusting the organisation to the growing complexity of international operations.

Pursuing its strategy, Mercator Group will conduct activities within their two fundamental programmes, i.e. fast-moving consumer goods and home products. In addition, non-core activities that include retail of sportswear through the Intersport licence, textiles, and manufacturing will continue.

As well as being one of the largest retailers in Slovenia, Croatia, Serbia and Montenegro, Mercator Group is the biggest real estate company in the region. More than €1.7bn worth of unencumbered property and over €800m of share capital ensure financial strength and stability to all company stakeholders in terms of both financing and operations. Undisturbed financial operations which further enabled unhindered execution of development activities were largely a result of mutual trust and partnership with banking partners and other financial institutions – an aspect even more crucial in times of severe and harsh economic conditions.

Even though the group, in the framework of its anti-crisis measures, limited the scope of investment activities to a level that could be financed with in-house sources, development activities continued in a well thought-out way. In 2009 Mercator invested over €150m in the development of retail network and acquired through own investments or operating and financial lease more than 100,000sq m of sales area. Thus, it operated more than one million square metres of gross sales area at the end of year. Furthermore, over a third of total revenues were generated in foreign markets.

In the medium-term period 2011-2015, Mercator Group is planning to monetise some of its real estate. The proceeds from sale-and-leaseback transactions will be used to reduce the debt. The group’s investment activities will take place in all existing markets of Mercator’s operations, with investment into new retail capacity planned at €125m-€155m per year. In the following five years, the group will invest more than €700m. After completing the planned investments – which also include acquiring trade facilities through operating lease – the group will add more than 700,000sq m to its gross retail space in five years. The funds required for the planned investment will be secured from internal sources, and partly by borrowings. As of 2013, Mercator is planning to launch operations in the markets of Kosovo and Macedonia.

Consistently with the expected growth of consumption and anticipated escalation of competition in particular markets, Mercator Group is planning sales revenues at €2.95bn in 2011, which is 5.9 percent above the estimated figure for 2010 (€2.78bn). In Slovenia, revenues from sales of goods are expected to rise by 2.1 percent in 2011, while in foreign markets they are expected to soar by 16.2 percent. The planned growth is a result of the launches of new retail units and full-year operation of the units opened in 2010.

Given the investment activities, scheduled for the period 2011-2015, Mercator Group is planning an average nominal annual increase in sales revenues of 8.7 percent. At this rate, annual net sales revenues will have reached €4,21bn by the end of 2015.

Mercator currently offers more than 2,300 private label products in Slovenia and more than 2,200 in Croatia. These products generally retail up to 30 percent cheaper than their branded equivalents. Sales of some Mercator private label products in Slovenian market rose by up to 48 percent since 2007. Mercator private labels now represent 15 percent of the Group’s total FMCG sales in Slovenia and five percent in Croatia. The goal is to reach more than 20 percent in Slovenia by 2015.

A significant purchasing incentive is the Mercator Pika customer loyalty system. There are more than 1.5 million Mercator Pika card holders in four markets. In Slovenia, the share of total retail revenues generated by purchases completed with Mercator Pika card amounted to 55 percent in 2009 (51 percent in 2008). In all markets of Mercator operations combined, this share amounted to 44 percent (41 percent in 2008).

In the next five-year period, Mercator’s key marketing activities will be focused on developing the ‘economy’ format and commitment to the customers. Particular attention will be paid to stressing the favourable ratio between quality and price. The assortment will be optimised according to location-specific characteristics – particularly in stores of smaller formats – and competitive pricing strategy will be pursued for key products and categories.

In addition to all basic advantages, Mercator continues to implement measures for simplification of procedures, cost rationalisation, higher levels of service, and new possibilities for customer loyalty system upgrades which would allow adjusting the offer to the target segments.

Sustainable development is also an increasingly important part of Mercator’s business strategy. It includes activities related to environmental responsibility in the broader sense: environmentally friendly supply chain and transport, marketing activities focused on local offer, responsible attitude towards the environment and nature, business responsibility with implementation of innovation at the point of purchase, establishing partnership relations with suppliers, and activities of corporate social responsibility which include human resources capital, and philanthropy. Mercator was one of the Ruban d’Honneur recipients in the category of corporate sustainability.

Mercator principles:
– Being the consumers’ first choice for everyday and home product shopping
– Creating the best value for consumers
– Offering quality service and pleasant shopping environment
– Enhancing the quality of life in the local environment

Ziga Debeljak, CEO
We possess the knowledge, skills and experience for managing a broad portfolio of retail outlets, and we believe that this is an important advantage for the region in which we operate. We are very familiar with consumers’ needs and the markets in our line of business in the region. Our philosophy is to offer a broad assortment of high-quality products at highly competitive prices. As an important part of our strategy, we source the majority of goods from local suppliers in all markets. We adapt our offer to the local needs and characteristics of our consumers to the highest possible extent, and offer a high level of retail service. Basically, we want to be the consumer’s first choice for everyday and home product shopping. In 2015, I see Mercator as the leading retailer in nine markets of the region, with revenues over €4bn and 33,000 employees.