Netherlands-based Spar International buying group has signed a franchise agreement with the locally listed Ermes Department Stores. This should result in some twenty stores trading under the Spar banner on the island by 2022. Indeed, the new entity, Spar Cyprus, has ambitions to become the leading wholesale and retail services provider to independent shopkeepers across the island.
Spar Cyprus will also operate its own stores, with the first unit to open in early 2018. Ermes is already established in the Cyprus retail industry, owning the franchise rights for banners such as Debenhams, Superdry and Desigual; operating across categories including Apparel, Cosmetics, DIY and Electronics.
Meanwhile, Spar International will provide support including store layout, private label procurement, staff training, supply chain optimisation, retail location assessment and marketing campaigns. Globally, more than 12,500 stores trade under the Spar banner across 44 countries, representing sales of EUR33.1bn in 2016.
The arrival of Spar illustrates the radical dynamic change within Cyprus' grocery retail landscape. In the midst of the crisis, top players exited the market. These include both Orphanides, which filed for bankruptcy; and more recently Carrefour Marinopoulos, which was sold to Greece-based Sklavenitis. This vacancy at the top has developed in favour of the myriad of smaller supermarket operators... as well as discounter Lidl, which increased its market share by almost 1% to 8.3% between 2014 and 2016, according to LZ Retailytics data.
As the economy recovers and tourism explodes due to political instability in other popular sunny destinations, the Cypriot grocery market presents opportunities. With 2016 tourist numbers nearly four times higher than the local population, retailers have much to gain. Unsurprisingly, local hero Alphamega is now distributing Tesco private labels to cater to the more than one million Britons heading to Cyprus' sunny climate each year. Similarly, Spar is likely to benefit from brand awareness among tourists, putting it on an equal footing with Lidl.
The backing of a local retail operator can be expected to play a significant role in terms of facilitating local sourcing and expansion, while access to international private labels gives the retailer an edge in terms of price negotiations with local suppliers. Quite a sensitive topic for patriotic Cypriots that Ermes Group's Holding CEO Marios Schacolas was at pains to balance, stating "we will not lose sight of our need to strengthen local manufacturers, distributors and retailers, giving back to our local economy".
We believe Spar Cyprus will not be short on challenges. It is too early to see if – and how – the newcomer Sklavenitis will disrupt the market by importing its low-price strategy to the island. The pool of independent shop keepers which may be interested by the Spar franchise has eroded under the crisis and consequent competitive pressure. Traditional trade may also prefer new supply inlets, as illustrated by the arrival of Greek Metro AEBE cash & carry on the island, scheduled for the second half of this year. Ironically enough, the very same Metro AEBE acquired and dismantled the Spar network in Greece. In this context, the target of 20 stores within five years, which would turn Spar Cyprus into one of the largest networks in Cyprus in terms of point of sales, seems to us rather optimistic.