CEO of Selver Kristi Lomp told Kuku Radio’s “Majandusruum” program that the turn of the year was a difficult time for retailers as major consignments of fish products are often ordered up to a year in advance. Shops had to come up with replacements inside a week when the Veterinary and Food Board closed both plants of fish process M.V.Wool last year.
Scandals brought food safety into the limelight last year. What is Selver doing to that effect?
Food safety is an everyday part of the business. The focus on listeria and food safety in general last year led to more attention being paid to own checks systems. The matter was taken extra seriously. I would not say we added any additional activities because what the law requires is thorough enough, but it was a thought-provoking period.
How difficult is it for a retailer to find replacement products when the VTA bans the sale of something?
Talking about individual products, it doesn’t change much. Clients will definitely be able to replace unique items with something similar. M.V.Wool is one of the largest fish processors in Estonia, and the company closing two production facilities around the turn of the year was challenging for us. Such major consignments are usually ordered up to a year in advance. It is not easy to find major quantities in a week.
How difficult will it be for the company to have its products on shelves again? We know that M.V.Wool have restarted production. Will they be back?
Retail chains hold selection council meetings several times a year where all market participants can offer their products. Procurements for volume goods happen at weekly or biweekly intervals, so it is possible to get back on the horse very quickly. We will accept them just as we used to. There are no preconceptions. If anything, we believe their products are safer now than ever before.
Small producers often complain that retail chains control the market and that it’s difficult to make their shelves. How do you see it?
I see it quite differently. From my perspective, the smaller and more unique the producer, the harder it is to find them. Their volumes are modest, and while they might be quality producers, they are not as good at marketing and sales. We have adopted the tradition of touring a region in Estonia every year to find small producers we want to do business with. We need to be proactive with small producers and support their development.
It is said that the retail market is full, while we saw another five shops opened toward the end of last year. How many more shops can Tallinn hold?
The market is oversaturated. Tallinn has around 800,000 square meters of store space or two square meters per resident. That is definitely the most in Europe. It is half that in Riga and Vilnius. That alone suggests competition is fierce in Tallinn and Harju County. When we looked at potential locations two years ago, the list was much longer. There are few active locations with lots of traffic left, and we are rather concentrating on renovation and extensions.
There seems to be a trend of small shops returning. Will it stick?
I believe it has to do with available locations appealing to all market participants, and the offers have been for small shops lately. I see that clients are most interested in supermarkets that have up to 2,000 meters squared of floor space. Shops that are big enough to offer a wide selection of goods but not so big as to make visiting them a chore. It is the most effective and profitable for us. Small shops are for people with modest needs – just milk and bread.
The Tallinn Old Town is seeing a boom of express shops, with both Maxima and Rimi opening convenience stores one after the other. Isn’t rent outrageous in the Old Town?
Yes, we have also considered various locations. Rents in the Old Town can reach €20 per square meter, which is a lot for a shop. Our calculations show it would be impossible to make ends meet there.
Milk has been described as a key product for attracting customers. Is it true that people choose where to shop based on the price of milk?
The price of milk is something people tend to know by heart. There are some products the price of which people remember, causing traders to maintain low prices to remain competitive.
Do Estonians value Estonian products, buy local?
Estonian products are a strong trademark for the consumer. Estonians are very loyal in that sense. We could say a few years ago that people tended to buy cheap foreign products despite claiming to prefer local food. However, customers tend to buy more local products with each passing year. Awareness of local and clean produce has grown.
How is growing prosperity affecting sales? Do people buy more and more expensive things?
The rule of thumb in commerce is that the more people make, the less they buy, while they buy better quality. That also goes for local handmade products. As prosperity grows, the gap between dreams and reality closes.
How much can the average check differ from one region to another?
They differ to a considerable degree, up to threefold. However, checks differ by region, not by city. Our shop in the Baltic Station’s station building has a lower average check sum than the Järve Selver because it caters to a lot of transit clients.
Let us look at the Baltic Station. You operate two nearby shops there. Why is that? You also have two shops near each other on Sõle Street.
We also have an opposite example in the Pääsküla Selver from when we opened the Laagri Selver nearby. Clients moved to the larger and more convenient shop. There is a key difference at the train station: the two shops are separated by the tracks. One is for the person going to the market and the local resident, while the other is for people passing through. Two different formats and different clients.
We do have two similar shops on Sõle Street, but it seems North Tallinn is a Selver area as both are in the black. We also own the properties and have no intention of leaving.
How is life for a key tenant? Tenants are complaining over lack of clients at the T1 Mall of Tallinn, while Selver is doing just fine there. Do key tenants hold all the cards in a situation where we have so many shopping malls?
The role of a core tenant comes with great responsibility. They are picked with synergy in mind. The T1 mall is not off to a great start, but we are happy with our performance there. While we have not hit our initial targets, we are seeing steady growth and it is an excellent location.
When it comes to positions of power, an overheated market brings lower rent prices. New period contracts are slightly cheaper for us. But there is no sense talking about power plays because these are normal partnerships.
How long are these contracts for? Malls usually do not replace their key tenants.
They tend to be quite long. Even if the contract is only for five years, core tenants are usually not replaced provided cooperation has been successful. We saw contracts for a period of ten years a few years back, while we have also signed contracts for 20 years recently. Technology has become very good and we match our contracts to the investment period. If the fridges last for 10-15 years, that’s how long the contract should be for.
Estonia has a lot of retail chains. Do we have too many? Will there be mergers?
We are in a peculiar situation compared to other countries. We can’t see similar chains of different sizes in neighboring countries. The model seems to be working somehow. Mergers and the market getting sorted out have been forecast, while I believe the coming of Lidl will take care of these things. Every new competitor affects market participants. We don’t know who will be hit because Lidl behaves differently in every country. But I believe there will be a reckoning.
Is Selver ready?
We are not underestimating their skills and experience or allowing ourselves to be arrogant. Estonia lacks a discounter chain to be honest. So, if you’re asking whether there is room for Lidl on the market, the answer is yes. The relevant question is whether there’s room for others.
Selver has been trailblazing the e-supermarket system and its popularity. When will traditional shops disappear?
I think they never will, while e-commerce will continue to grow. Our e-shops are growing by over 30 percent, with growth exceeding 50 percent some months. Of course, growth is easy to achieve when you start from scratch, but we are forecasting it to continue.
Self-service checkout is also becoming increasingly popular. Will cashiers disappear at some point?
Again, this will never happen. There will always be people who do not use loyalty cards or even bank cards for that matter. We expect 25-30 percent of clients to stick with good old customer service.