BMI View: As demand for skilled workers in Bulgaria outpaces supply, wages will continue to rise over the next five years. With substantial levels of urbanisation and ever improving transport networks locally and internationally Bulgaria has an easily accessible and increasingly affluent consumer target market. However country rewards remain poor and the continued decline of the population size presents risk for retailers.
Opportunities for retail growth will be limited in the medium term to 2019. A lack of impetus to continue with political and economic reforms will dampen investors' enthusiasm, and economic growth is forecast to be sluggish, at 1.0% this year, not rising above 2.0% until after the end of our forecast period. Bulgaria's shaky financial system is under strain as a result of exposure to Greek banks as well as past bankruptcies, including the default by Corporate Commercial Bank in 2014. Even though Bulgaria's public debt is the second smallest in the EU (27.6% of GDP in 2014; only Estonia has a lower rate), it is struggling to balance its budget. The parliament was seeking to approve the issue of EUR8bn of bonds over the next three years. Fitch approved new Issuer Default Ratings for Bulgaria in June 2015, assessing its long-term foreign currency debt with BBB- and local currency debt with BBB with a stable outlook. Such ratings may prevent the country from borrowing cheaply in the next five years.
Despite this rather pessimistic outlook, there is increasing activity in the retail market. Mass grocery retail (MGR), which is almost entirely controlled by foreign companies, is growing rapidly and is expected to diversify. In 2015 the market's biggest players all had a successful year.
Total household income is projected to rise throughout our forecast period. This is driven by falling unemployment, particularly at the younger end of the workforce, and rising wages for skilled and educated workers, as the 'brain drain' to Western Europe creates a shortage of workers for skilled positions.
However, the fact that the young and educated are leaving Bulgaria to work elsewhere in the EU means that the population at home is set to age rapidly while the birth rate is set to fall, leading to long-term demographic challenges and making Bulgaria increasingly unattractive for retailers despite higher occurrence of foreign remittances.
Lidl, a subsidiary of Schwarz Group, recently opened a new store in Dupnista with another two planned before the close of 2015 and has begun construction on its largest logistical centre in the region.
MGR chain Billa, the country's third largest food and drink retailer plans to invest BGL200 million and open 40 new stores in the next few years, with 8 new stores opened in the four biggest cities in 2015
Bulgaria has been increasingly active in enforcing controls against abuse of market power. However, the fines imposed on retailers have been criticised for lack of clarity, discriminatory treatment and severity.
Swedish clothing retailer H&M began selling online in Bulgaria, as well as seven other European markets, in early 2015.
Bulgarian drug distributor Sopharma Trading has acquired drug retailer Farma Online in a move to improve its retail operations and differentiate its market segments.
Berlin-based online fashion and lifestyle retailer Lesara has announce plans to expand throughout Bulgaria.
Key BMI Forecasts
Total household spending will reach BGN55.4bn in 2019, up from BGN49.0bn in 2015.
In US dollar terms, it will rise from USD27.5bn to USD33.9bn, falling slightly in 2016 before rebounding rapidly in the later years of the forecast period.
Food and non-alcoholic drinks will continue to be the biggest single segment of total retail spending, accounting for 17.8% in 2019 (down from 18.5% in 2015). This will be followed by transport at 17.1% in 2019 and housing and utilities at 15.3%.
Net incomes per household are set to rise from USD6,773.8 in 2015 to USD8,497,5 in 2109, although the number of households will fall from 2.40mn to 2.27mn.
The population is set to fall from 7.15mn in 2015 to 6.94mn in 2019.
The Bulgaria Retail Report has been researched at source and features BMI Research's independent assessment and forecasts for the retail sector. The report examines key drivers of retail sales growth and future prospects, including consumer spending and private sector investment.
BMI's Bulgaria Retail Report also examines the level of development and potential for growth of the retail sector, the commercial initiatives of major players, changing consumer demographics that influence demand and the regulatory environment. Key sub-sectors include mass grocery retail, autos, over-the-counter pharmaceuticals, computers and consumer electronics.
- Benchmark BMI's independent retail industry forecasts for Bulgaria to test other views - a key input for successful budgeting and strategic business planning in the Bulgarian retail market.
- Target business opportunities and risks in Bulgaria through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
BMI Industry View
Summary of BMI’s key forecasts and industry analysis, plus a discussion of major industry developments and a snapshot of key short-term demand-driving macroeconomic movements.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the retail sector and within the broader political, economic and business environment.
BMI Industry Forecasts
There are four separate 5-year forecast modules in the retail reports. These are:
- Headline Retail Forecast: Total household spending (local currency and USDbn, % growth, % GDP, per capita, per household), spending by retail sector (food & non-alcoholic drink, alcoholic drink, clothing & footwear, housing & utilities, furnishings & home, health, transport, recreation, education, restaurants & hotels, personal care & insurance (local currency and USDbn, % growth, % GDP, % of total spending)
- Retail Sector Forecast: Breakdown of Food, Non Alcoholic Drink, Alcohol, Tobacco, Clothing, Footwear, Household Goods, Furnishings, Appliances, Glass and Tablewear, Household Textiles, Consumer Electronics, Garden Toys and Pets, Home and Garden tools, Personal Care, Personal Effects Spending (USDbn, % Growth)
- Household Income and Numbers Forecast: Number of Households (‘000, % growth); gross income per household and per capita; net income per household and per capita; tax and social contributions per capita; breakdown of household incomes – USD5000+, USD10,000+ USD50000+ (‘000, % of total); labour force, employment and unemployment (‘000, % change)
- Demographic Forecast: Total population; Babies 0-12 months; Young Children 0-4yrs; Children 5-9yrs; Young Teens and Older Children 10-14yrs; Older Teens 15-19yrs; Adults 21yrs +; Young Adults 21-29yrs; Middle Aged 40-64yrs (‘000, % growth, male, female); Urban Population (‘000, % population); Rural Population (‘000, % population).
BMI’s Retail Risk Reward Index
BMI’s Risk Reward Indices provide investors looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide indices of highest to lowest appeal to investors, with each position explained.
Provides a detailed country-specific analysis of the key trends and developments in the retail sector as a whole, as well as an assessment of the main drivers affecting the major retail segments including mass grocery retail, fashion, pharmacies, consumer electronics, home improvement and personal care. The market overview also considers the most effective store formats in a given country and the impact of these factors on the main international and domestic players’ development strategies.
This provides a brief overview of the key players in each subsection of the retail sector including MGR, Fashion, Home Improvement, Consumer Electronics, Pharmacies, and Department Store chains.
The Retail Reports draw on an extensive network of primary sources, such as multilateral organisations, government departments, industry associations, chambers and company reports.