Slovenian Mercator prepares to take over Agrokor’s retail activities in Bosnia and Herzegovina. In a press release the Croatian retail conglomerate informed that Ante Ramljak, the extraordinary trustee appointed by the Croatian government on grounds of the 'Lex Agrokor', presented a new concept for Agrokor’s retail business in Bosnia and Herzegovina. According to Ramljak's proposal, this would involve the takeover of Konzum and Velpro operations by Mercator with subsequent rebranding. Mercator's market experience and positive brand image would secure successful future operations in the country. Implementation still depends on approval by the respective company boards.
Agrokor Group operates more than 250 selling points under the Konzum, Konzum Maxi, Konzum Supermarkets and Velpro banners in Bosnia and Herzegovina. Mercator transferred its Bosnian operations to Agrokor after it was acquired in 2014, consisting of more than 30 grocery, cosmetics and non-food stores. To date Mercator operates real estate companies owning Konzum and Velpro properties in Bosnia and Herzegovina. Konzum’s overdue financial obligations towards external suppliers in Bosnia and Herzegovina allegedly sum up to more than EUR65mn.
After it was swallowed by Agrokor in 2014, Mercator now seems to be celebrating its comeback. Net profit for the first quarter of 2017 improved significantly year-on-year, losses for 2016 can largely be attributed to outstanding rent payments from Konzum and Velpro banners as well as investment in remodelings. Will the early successes at home be transferable to Bosnia?
We believe that the proposed solution has been fuelled less by a market-orientated repositioning strategy, but pays mainly tribute to strong internal financial concerns amongst a tug of war between Slovenian and Croatian political interests. Mercator officially operates Konzum’s commercial real estate in Bosnia and Montenegro, joining the ranks of unpaid creditors, which is effectively curbing the financial scope of action in its Slovenian home territory. Offsetting these debts against Konzum’s operations could at a single stroke bring Agrokor relief from intragroup liabilities and at the same time safeguard precious real estate against external demands of banks and suppliers.
We also are convinced that due to Mercator’s low store number and mix of banners at the time of market exit the Bosnian consumer will not welcome it back as the saviour of modern retail. This is particularly the case as local hero Bingo has significantly been growing its market share since that time, taking the lead position now, according to LZ Retailytics data. Also, still being part of Agrokor Group, Mercator would have to follow the group’s assortment strategy, which was the root for Konzum's failure. Rebranding all stores and building supplier relations from zero would set the retailer back until end of 2017, at least, losing time – again.
This scenario would appear more promising if rumours were true that the Slovenian government as well as private equity investors like CVC Capital Partners – the new owner of Polish Zabka – are interested in buying Mercator from Agrokor. Viewed from this angle, the prepared 'sales package' would be more than attractive – and a radical change in market positioning included.