Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

It's a pleasure to chat with you. Your career path is quite interesting. You started at Biedronka in 2000, close to the year Dino was founded. Could you start by telling me a bit about the history of the Polish market and what did you do from 2000 to 2010?

I joined the group in January 1990. Initially, I spent a few years as a category manager at Pingo Doce Supermarket in Portugal. Following that, I served as a market director in Lisbon for a year and then as a general manager in Madeira for two years. I was around 30 or 31 years old at the time, and it was quite an experience. Then, I was asked to move to Poland, and I arrived there in January 2000. I distinctly remember the date, January 17, and the temperature in Poznań was -17 degrees. It was a significant change, moving from the paradise of Madeira to the freezing cold of Poznań.

Around that time, the Jerónimo group had started its internationalization. We started in 1995 when we acquired Eurocash, which at the time was a few cash and carry stores. In 1998, we bought the first 243 stores of what was then called Biedronka. It was a very soft discount store. We also had a venture in Brazil in 1996. Initially, I was supposed to go to Brazil in 1999, but I ended up in Poland instead. At that time, Biedronka had 575 stores, with a margin of 18 and costs of 26. Essentially, it was a bankrupt company with 575 stores when I arrived. Luis Amaral was the CEO of the company at that time. When Luis left, I took over.

The years 2000 to 2002 were a period of restructuring for the company. We closed 75 stores for good. I separated Biedronka from Eurocash. Luis Amaral returned from Brazil after two years due to a crisis there. He wasn't in management anymore, but he provided some managerial assistance. He took over Eurocash from Jerónimo. During this period, Jerónimo sold off its businesses in Brazil, sold Lillywhites in the UK, and a few companies in Portugal. It was a challenging time for the group, the first in its history.

Interestingly, we decided to keep Biedronka and sell our Brazilian interests. It was a strange decision, but based on my plan that I presented to the board, we decided to sell our Brazilian business and keep Biedronka. At that time, Biedronka had 3,000 articles in theory, but the service level was 35% from suppliers and we had a 40% service level to the stores. Our prices were even higher than the supermarkets, and it was a time when hypermarkets were booming in Poland. We had competitors like Casino, Leader Price and Tesco opening everywhere, and even the German company Real was entering the market. It was a time when everyone, even the Vikings, were trying to get a slice of the cake.

Returning to Biedronka, the years 2000 to 2002 were a period of restructuring. We rationalized our assortment, reducing from 3,300 articles, in theory, to a real 800. It was a massive change, a disruptive change, that's why I refer to it as chemotherapy. We separated the logistics from Eurocash and Biedronka. We started to learn how to run a discount store, as we didn't have any in the group. We only had supermarkets in Portugal and Brazil, and cash and carries. We visited Aldi stores in Hamburg and Munich to learn from them. Then we started to create what I call a convenient discount store.

In Poland, 50% of the people were shopping two to three times per week, if not more. No one really understood why, considering they have 40 square meter flats and ample space to store goods. However, the key to Poland's success is the proximity format, as people still have the habit of shopping three or four times per week.

They simply walk a street or two and get what they need. The significant difference today is that they have 10 times more options than in 2000. This is due to the emergence of stores like Lidl and Żabka and other proximity stores that weren't available before. This is why mom-and-pop shops were crucial for the Poles, as they prefer shopping in their neighborhood. They typically visited 4.4 different stores per week, splitting their shopping. This is how you start gaining a large share of the Poles' wallet.

In 2004, I conducted the first major research for the company from Barcelona. At that time, we weren't as popular as we are today. About 25% of Poles declared that Biedronka was their main store, where they spent more than 50% on FMCG products. This was an impressive number. I repeated this research every two years because it was an expensive quantitative study, and I started doing it annually after 2008. By 2008, we achieved something unbelievable, that 51% of Poles declared that Biedronka was their main store. Even the founder said it was not possible because there is no other chain in the world that had achieved that.

To answer your question, the key to Biedronka's success was doing things a bit differently from other discount stores at that time. Stores like Leader Price were leaders at that time. They tried to offer the lowest price for the best possible quality. However, my team and I took a different approach. We offered the highest quality at the lowest possible price. We focused on quality, created a large team for quality control, and even placed quality controls in factories. We embarked on a journey to offer quality at the lowest possible price.

That's very interesting.

As I mentioned before, focusing on quality was the key. When you offer quality at a lower price than neighborhood hypermarkets, people start to appreciate the offer. We began to provide the best quality in most categories. Our benchmark was to match the quality of the market leader while keeping the price of our private label products 30% to 60% below the market leader.

It's also important to note that Biedronka decided to have no more than 60% of our own brands and around 30% to 35% of other brands. This wasn't an accident, but a conscious decision, as Poles also appreciate local Polish brands.

I understand the big picture, but I'd like to know what was happening with Dino while you were doing this.

Allow me two more minutes to explain my point. I conducted a blind test with Polish yogurt and three other brands; Danone, Nestlé and one from Germany. The Polish yogurt was the preferred choice by 95%. However, it wasn't actually Polish yogurt. I'm telling you this story to illustrate how people are very nationalistic and focused on their regional and local brands. That's why we decided to keep 35% of our range as local brands and 5% for non-food items.

As for Dino, it wasn't on the radar at all when I left Biedronka in 2015. I was the CEO for 10 years and then the COO for five years. During that time, I launched operations in Colombia and supervised Portugal, but I chose to stay in Poland. Dino was just a regional chain from the western part of the country. At that time, I had visited perhaps three, four, or five to 10 of their stores. Dino was like Chata Poska or many other regional chains with 50 to 60 stores.

If you had asked me in 2010 to invest in Dino, I would have said no. However, enterprise investors made 7.5 times their investment in Dino, which is a great outcome for private equity. The owner of Dino is now the second richest person in Poland, but you won't find his picture anywhere, which is quite interesting.

It's interesting that you observed this chain starting to establish a model in rural areas. Why didn't you shut them off back then?

When I departed from Biedronka, I left three key developments in progress. I had been with the group for 25 years, serving as CEO for 10 years and COO for five, while also acting as the country manager for Poland.

At that time, I created a model for urban areas that focused on smaller discounts and super convenience. I also initiated a franchising model to facilitate expansion into areas with populations under 7,000 and to mitigate real estate risks in Ukraine.

I covered all the small towns in Poland with populations up to 7,000, which amounted to 778 locations. In a few instances, we expanded into areas with populations below 5,000. I developed a franchise model and tested it with 30 to 40 franchises. This was a small-scale test considering we had almost 3,000 shops. The goal was to create a win-win concept where we could share part of the margin and franchisees could also profit, while also diluting the risk of investing in areas that might not provide a proper return on investment within three or four years.

When I left, there were 2,700 or 2,800 stores and Biedronka decided to slow down its expansion. They chose to avoid cannibalization of their stores.

As you can see from Biedronka's public records from 2016 to 2021, they opened 20 to 40 stores per year. My ratio was 12% new stores and 13% like-for-like, which resulted in a consistent 25% growth every year, half from like-for-like and half from new stores.

Their significant reduction in expansion allowed Dino to seize the opportunity to continue opening stores in areas where Biedronka was not present, primarily rural areas and locations not typically targeted by Biedronka.

Why did Biedronka do this? Considering 40% of the Polish population lives in rural areas, why halt expansion if you're Biedronka, have the necessary funds, and see another player potentially taking the lead?

Firstly, we already cover all areas up to 7,000 inhabitants. There are 767 or 768 places like that in Poland. After I left, the decision was made to slow down the expansion entirely because there was a belief that cannibalization was an important factor, which I don't agree with. I'd rather cannibalize sales myself than share them with others.

Dino seized this opportunity and quickly reached 1,000 stores. Maybe they are now close to 2,000 stores; I don't know. Their business model is quite different. They don't have their own brands and maintain a lean structure. I estimate that 95% of the decisions are taken by the owner and two or three other individuals. They don't have a sophisticated category management structure, nor do they use modern concepts like supply chain efficiency and ERPs.

Their model is traditional and basic, and they've been copying and implementing it as quickly as possible. There are three important things to note about Dino. Firstly, they made acquisitions when land prices in rural areas were still very low. Secondly, they bet on important category of meat, which led to verticalization. They claim that meat is a key strategic factor, and given that Poles enjoy meat, this seems plausible. They have a proper meat counter in rural areas and primarily stock national, regional, and local brands.

Their stores are basic, usually under 500 square meters, and while they're not particularly attractive, they are effective and low-cost in terms of construction and creating an offer. However, they don't offer anything that creates differentiation or uniqueness, which is important in the supermarket sector.

You mentioned that Biedronka didn't want to expand into rural areas to avoid cannibalization, but another player came in, opened stores next to yours, and started taking market share. How will Biedronka respond, going forward?

As you know, I can't speak for the people who took over when I left, so I don't know why they made the decisions they did. However, Biedronka didn't lose market share. When I left, they had 22.2% of the total market share, and after seven or eight years, they're now just above 30%. This means that in most categories, they have more than 50% of the market share because they don't cover the entire range.

I'm not certain that Dino actually took market share from Biedronka. As I mentioned earlier, Biedronka's market share increased from 22% to 30%. The clear losers were the hypermarkets and supermarket chains. Traditional retailers also lost out.

Biedronka could have potentially increased their market share to 35% or 34% if Dino did not exist. Essentially, Biedronka allowed room for Dino, but they didn't stop gaining market share. In eight years, they increased their market share from 22% to 30%. If Dino didn't exist, they could have potentially reached 35% or 36% of the total market share in the country.

They left some space for Dino and a few others, including Żabka. It's important to mention that the space of pure convenience was left for smart players like Żabka. The entire team of Żabka was my former team. The CEO, Tomasz, was my former CFO. The managing director was my former pupil of marketing. The PR director is my ex PR director.

Żabka occupied the convenience segment, even though they only have a market share of 3% or 3.5%. What remains in Poland is the story about supermarkets. There are still around 2,500 shops in Poland that need to be consolidated. There are several regional chains still available, with 20, 30, 40, or 70 stores.

Another player you should consider is Stokrotka. They were bought by the guys from the Baltics about four to seven years ago. I was surprised to learn that they now have more than 1,000 shops. Stokrotka is a supermarket, not a discount store. They came from the east and they've been acquiring and integrating several local supermarkets.

I often compare Poland to Spain because of the size of the country and the number of people, which is around 40 million. In Spain, the relevant player is Mercadona with 30% of the total market share. In Poland, discount stores have 40% to 50% of the total market.

What I'm trying to say is that I didn't allow supermarkets to appear because we took part of that business in every category.

Due to their development in bakery and self-service meat departments, and a proper fruit and vegetable department, Biedronka preempted the supermarket development. Dino and Stokrotka have occupied a portion of that space. However, there are still around 2,500 supermarket stores that could be consolidated, and I see a chance for that to happen.

Could you tell me about the overlap between Biedronka and Dino today?

The map you shared with me shows there's significant overlap. There's still some missing overlap in the north of the country, from Germany to Ukraine to the Baltics.

There are parts not covered by Dino properly, but with 2,000 shops, there is massive overlap (between Dino and Biedronka).

If you were Biedronka, what would be your main concerns seeing another player like Dino overlapping in your territory?

Honestly, it's not a big concern. The only thing these guys can do, and Dino isn't doing it perfectly, is focus on service areas and do things Biedronka can't. Biedronka can't provide service or counters. They might have meat counters run by third parties in some stores. But to protect your business model from discounters, you have to offer what they can't. This is the only thing that can happen and I don't see anyone being able to do this so far properly. If you compare Spain or any other familiar market, if the discounters do their job properly - offering quality at the lowest price or offering differentiation - then you have to focus on offering perishables, like any discounter can't do, or offering services that a discounter cannot offer. I still don't see any big concerns regarding Dino or Stokrotka or any other player, to challenge the Biedronka business model.

If there's a massive overlap between Dino and Biedronka, where is their growth coming from if not from each other?

Dino has a 5% market share, Biedronka has 30%. That still leaves 65% of the market. They're not the only two players. We have Lidl, Aldi, Eurocash with 1,000 shops that will have to exit sooner or later, 2,500 supermarkets; you have Delikatesy Centrum from Eurocash, Intermarché, and Aldi. There are still many players that aren't winning. The market isn't a duopoly.

I see.

In Poland, it's not a duopoly. Biedronka and Dino only account for 35% of the market, leaving 65% to other players.

Could you explain how Biedronka and Dino's models differ from other players, which allows them to gain market share?

When you consider Biedronka, they have been benefiting from the brand's strategy over the past 20 years. They focus on local engagement, partnerships with local suppliers, and community involvement. 95% of our offerings were produced in Poland. This engagement with the society in various areas has built brand equity, loyalty, and awareness.

Compared to Lidl, Biedronka has a stronger focus on food rather than non-food items. Even during good times, our non-food sales were around 8% or 9% I always maintained that we should not exceed 5%, as we are a food chain, not a typical discounter like Aldi and Lidl in Germany, where they can achieve 25% to 30% percent of sales from non-food items.

The trend across Europe is for discounters to focus on perishable goods. When you visit a Lidl in Paris, for example, you'll see a vast array of bakery products, frozen goods, meat, and fruits and vegetables. This is essentially what supermarkets offer.

Some do it better than others. Biedronka did very well and still does. Lidl, in Poland, for instance, has one of the best fresh food sections in Europe because they have to compete with Biedronka.

Dino, for me, apart from meat and local brands, I don't see any sustainable competitive advantage. Dino, on the other hand, benefits from owning their buildings, which saves them 2% to 3% in rent. This can be used to improve pricing or margins. Their return on equity is significantly higher because they don't have rent expenses. However, I see more threats to Dino than to Biedronka.

If we were to compare a Biedronka store and a Dino store in the same village, how would they differ?

The shopping experience is quite different. In one, you have a typical small supermarket with a limited offer. The temporary or seasonal articles are typically offered at a discount. I'm not certain about today's offer at Dino, but I estimate it might be around 5,000 to 6,000 articles, perhaps slightly more. Biedronka has transitioned from a discount store to a softer discount model. Today, you might find around 5,000 articles at Biedronka, which is a significant change from a few years ago when they only had 1,500. They have essentially tripled their offer. It's a different operation with a different offer. They've also preempted the supermarket concept by offering a wider variety and more brands. The difference isn't as significant anymore.

However, in my opinion, the shopping experience at Biedronka is more efficient and smoother. It's straightforward, with easier choices, and it's proven that less is more. When more options are offered, people tend to buy more. This has been proven by numerous research studies.

The key differentiator for me with Dino, particularly in a small village, is their meat counter and the specific brands they carry.

For instance, they carry what is known locally as Ogórki, canned cucumbers, and other regional or national brands that you won't find at Biedronka. Biedronka primarily carries umbrella brands. However, Biedronka now carries more brands than ever before, and you can start to find some of the important brands on their shelves.

In conclusion, the two offer different shopping experiences, and of course, price matters. I believe that on average, Biedronka is still 5% to 7% cheaper than Dino.

How important is the meat counter? You mentioned that this is a major differentiator. How significant is a fresh meat counter to Polish consumers?

In the early days of shopping, people would typically visit four or five different shops per week, one of which was the butchers. They enjoyed going to the counter and selecting their meat. It took me two years to introduce chicken, even at a loss and with negative margins, just to create a habit. Then, we started to package the meat ourselves.

In some cases, when I left, we (Biedronka) had 80 or 90 stores with meat counters run by third parties. This was because running a meat counter requires specific logistics. It's not just about setting up a counter, but also about handling and processing the carcass in the store. This requires specific labor, training, and logistics, which adds complexity to an efficient machine like Biedronka, one of the best logistics supply chain machines in the world.

Adding meat to the supply chain is a completely different flow. You need to prepare your warehouse and have a proper fleet for meat. So, we decided to have some larger stores with meat counters run by third parties to optimize sales per square meter, which was already one of the highest in Europe.

I'm not sure about the current policy or philosophy of Biedronka. I noticed more meat counters when I visited Poland in the past two years and even last February. Meat is a significant part of the Polish diet. Fish was introduced by Biedronka into the country with salmon and many different types of fish. However, meat still dominates. I estimate that 15% to 20% of the money spent on FMCG is for meat. So, it's an important part of the Polish diet.

What would be the impact on Biedronka if they decided to introduce a fresh meat counter tomorrow?

First, they could only introduce it in some of the stores because there isn't much space for meat counters in smaller stores of 300, 400, or 500 square meters. This would require some compromises on the other offerings. However, I believe the average size of the store today might be between 700 and 800 square meters.

They have hundreds of stores that could accommodate a meat counter. I think they now have the critical mass to create their own meat supply chain, despite Poland being a large country. It's not feasible to have a central warehouse in the center and supply meat everywhere due to the distances and transportation costs involved.

If Biedronka decides to properly play the meat game, they have enough critical mass to create proper distribution centers or form a strong partnership with one of the biggest meat suppliers, similar to the fruit and vegetable suppliers. However, I haven't seen a need for this so far.

As you've seen, Biedronka's performance over the last six or seven years has been mixed, with some years better than others. Even in the last two years, with the disaster in Ukraine, everyone has benefited from a massive increase in consumption in the country due to the additional two, three, or four million people living there. I don't see a specific need to address the meat counter issue at this point.

How does a meat counter run by Dino differ from a meat counter in a Biedronka store that is run by a third party?

A meat counter is a meat counter. I don't know the specific details such as the size per full-time employee on the meat counter at Dino, but I predict that meat might account for more than 25% of their sales in the supermarket, even 30%. In a normal supermarket, meat should be around 15% to 17%. So, in a good supermarket, the highest percentage I found in my life was in a Colombian supermarket where 35% of total sales was meat.

So, if meat is really important, it might account for 25% of their sales. This means that if they have their own meat factory, as they do, and they have vertically integrated, they gain margin because there is margin to be gained in the meat process. However, they also need to keep feeding and creating butcher people to run that butcher counter, which today is a challenge in all of Europe due to the lack of specialized labor to fulfill some specialized tasks. And meat is a specialized task.

How does the profitability differ between a fresh meat counter run in-house like Dino and a meat counter run by a third party at Biedronka?

I can't say the exact percentage, but it might be a couple of percentage points because you essentially avoid the margin. If you consider the margin of a large meat producer, they don't have a modest EBITDA level, they have a proper EBITDA level.

So, if they have integrated that and they run their meat factory and meat logistics properly, they might have a substantially higher margin in meat than any other player that works with a third party. This is because we have to share our margin with the producer and the third party, and some part for ourselves. Yes, if you don't have a third party and you are the producer, then you can integrate either on the factory or on the retail side. Then you decide which pocket you prefer to use, left or right.

However, this is not the only question. Even if we have, let's say in the meat, not 18% or 20% but you have 25% of margin out of your 20% of your sales, it might give you 0.3%, 0.4%, 0.5% on the total P&L. So that can be one answer regardless of where the margin is. The margin stays on the factory or stays on the store. Yes, but 0.3%, 0.4%. 0.5% will not give you the full answer about the profitability of Dino and Biedronka.

How does the profitability per store compare if we focus on the villages where Dino and Biedronka stores are located side by side? What would the profitability of Biedronka stores be there?

I'm not aware of the profitability of Dino's store as I only see the profit and loss statement and the store's contribution, which includes logistics, overheads, and marketing costs. However, I do recall the level of Biedronka. At that time, Biedronka had one of the most efficient logistics in the country, with costs not exceeding 2%, including transportation. When I took over Leader Price stores or Tengelmann, their logistic cost was between 5% and 7%. This difference in logistics and supply chain was a massive 300 basis points.

Dino might also have efficient logistics, but it's certainly more expensive than Biedronka because they handle more articles in the store. They likely have higher costs due to needing more staff for replenishing the shelves and servicing the counters, which might require two or three more full-time employees. On average, a Dino store might have seven or eight more employees than Biedronka. This could result in an additional 1.5% to 2% in personnel costs. However, they offset this with little to no rent costs. Biedronka might have two or 3% in rent costs while Dino has almost none.

In retail, a 2% or 3% rent cost is quite acceptable. Some retailers, pay 6% or 7% if they are in a shopping center. So, if you don't have the 2% or 3% rent, you can offset some other extra costs. That's why Dino's bottom line is not modest. With a 7% to 10% EBITDA level compared to others, it's not a shameful number.

But what would the EBIT level of a Biedronka store in a village be?

There's no significant difference between rural and urban stores. It depends largely on the sales mix and product margin mix. In urban areas, we have more ready-to-eat and ready-to-go articles. In rural areas, we sell more washing powders and toilet papers. The sales and margin mix don't make a huge difference between the two.

What would an average Biedronka store's EBIT margin be?

I can only estimate based on the company's performance. If you have, let's say, 7.5% percent at the EBITDA level, then subtract 0.2% to 0.3% for interest, 0.5% for marketing, 1% for overheads, and 2% for logistics. The store contribution might come to around 12%. The margin will probably be 22% and the store operation would be around 10%. You might arrive at an EBITDA level of 7% to 8%, plus any financials involved. So, the store contribution might be around 12% to 13%.

When a customer goes shopping, why would they choose Biedronka over Dino?

They don't just have two options. There are more than four, five, or even six in the same neighborhood. They have Aldi, Lidl, Carrefour, Stokrotka, and several other brands. Proximity is one factor. From my experience with market research, the three main factors are quality, price, and proximity. Biedronka was chosen for its perceived quality. In the case of Dino, proximity matters, as does a certain kind of assortment that is connected with the brands and meat. But it's not about price or service, as the service offered by Dino is not comparable to what you can find at a proper delicatesse shop in Paris. So, the factors for choosing Dino would be proximity, local assortment, and affordable price, but not the lowest.

Let's delve a bit into the aspect of proximity. When you are in a village, how difficult is it to secure land to build a store?

As far as I understand, until 2015 or 2016 when I was leading the company, this was not an issue. There are two strategies on acquiring land; fishing and hunting. In fishing, you wait for someone to knock on your door and in hunting, you select where you want to open the store. We had a very clear hunting strategy. My record was to open 365 stores in one year and 27 in one day, and it was never an issue. You have a professional team working on it and they know what they are doing. The question is only to select the best in a specific village or town and now there is so much choice of stores, location matters.

You mentioned that a customer has four or five choices in their neighborhood for shopping. How do you see the trends evolving between customers choosing Dino, Biedronka, versus others like Aldi?

Over my 15 years in Poland, I often asked my team why we are the preferred choice. Each brand, as I mentioned earlier, has different attributes. Biedronka, for example, is known for its quality and affordability, offering the highest quality at the lowest possible price. Dino, on the other hand, offers what Biedronka does, but with some local brands and a meat counter. I don't see many other reasons to choose Dino, to be honest.

Who is gaining and who is losing market share among these four stores? Looking at the neighborhood and considering a five to 10-year horizon, who would be the winners and losers in terms of market share?

Based on what I saw two weeks ago when I was in Poland, and from a friend of mine who runs one of the largest food production companies, the biggest winners of market share last year were Stokrotka and Dino. This is mainly due to their expansion. Stokrotka acquired around 150 stores and Dino opened approximately 250 stores. I don't recall the exact number. This growth is reflected in their total growth, but they're still not achieving 6% of the market share. Biedronka, on the other hand, has 30%. So, Biedronka's market share growth is more on a like-for-like basis, which is healthier as it requires less capital expenditure.

Who is losing market share?

The big losers continue to be the hypermarkets like Auchan and Carrefour.

Why are they losing?

People no longer need to go there to fulfill their needs. Every neighborhood is enjoying prosperity.

How do hypermarkets and supermarkets compare in terms of proximity?

Brands like Dino and Biedronka are close to where people live. In the past, you didn't have many options on your street. Now, you have five, six, or seven store brands like Biedronka, Dino, Aldi, Lidl, Żabka and others offering better prices than the hypermarkets. Why should you go to a hypermarket or a supermarket that's far away when you can shop once, twice, or even four times a week at the lowest price with the same quality? It's a game-changer.

How are these hypermarkets reacting to this loss in market share?

If we had the answer to that, we would all be billionaires. That's a question everyone in the world is asking about big box stores. Not just in the hypermarkets, but also department stores. Let me share a story. Last September, I was invited to a retail conference in Ibiza. We had around 15 CEOs from around the world, five big guys from private equity, and two or three investment bankers. We spend 48 hours together every two years, and we have some transformative discussions.

At that time, I was not running any company, I had left South Africa. I brought up a topic about the future of big box stores. I suggested three different possibilities. One is like what John Lewis did in the UK. They sell everything and then go to Ibiza to spend the money. They essentially create apartments where the hypermarket is.

Then there are companies like Continente in Portugal. What they did was sublease space to brands like Miele and Bosch. They started having stands inside the stores because they had too much space for what they sell. The third option is to rent the stores, but sublease a large part of the stores to so-called food halls. Food halls bring traffic, excitement, and they essentially protect the business.

Today, one of the big questions in retail is what will happen to these big box stores and department stores? Their sales per square meter are very low and are getting lower.

In Poland, when I arrived in 2000, hypermarkets were the dominant players in the market, accounting for 40% to 50% of the modern trade. Today, they account for maybe 15%. So, who is the rest? If we talk about modern trade, I think today discounters account for around 50% to 55%, supermarkets 20% to 25%, hypermarkets maybe 15%. And then convenience stores like Żabka, they might represent 4% or 5%, more or less.

What do you mean by modern retail?

I'm excluding the mom-and-pop shops that are not associated with any brands. Today, there are two big wholesalers in the country, Eurocash and Makro. Makro has an agency model with around 1,200 agent stores. Eurocash has around 10,000 to 12,000 ABC stores. They are very small stores everywhere. They have a chain called Delikatesy Centrum with 1,500 shops. Today, the second biggest player in the market is Eurocash. They do 25 billion zlotys. They have 10 or 12 different brands, which is why their performance on the stock market is not the most exciting.

Let me ask the question differently. If you take proximity stores, like Dino and Biedronka, which are gaining popularity and winning market share for various reasons, how much market share can they grab from hypermarkets or supermarkets that are currently losing market share?

To answer your question, it's crucial to understand how the Polish market will continue to grow in the upcoming years. The Polish market has been one of the most dynamically growing in Europe. When Europe was growing at 1% or 2%, Poland was growing at 6% or 7%. Now, with an inflation rate of 20%, the Polish market is growing at 7%, 8%, 9%.

In the coming years, due to the crisis in the neighboring country, Ukraine, there will be significant impacts on the Polish economy. Poland stands to benefit from the reconstruction efforts. Currently, Poland is the center of Europe. Anyone conducting business in Eastern Europe holds their meetings in Poland. There are no longer trips to the East; Poland is the center.

This implies that businesses in Poland are likely to grow significantly more than the average growth rate.

To answer your question, proximity formats will benefit the most. However, I believe hypermarkets will continue to lose. For supermarkets, if there is no consolidation to one or two brands among these 2,500 shops, they will lose the most. Convenience stores, like Żabka, will gain a bit more because convenience is key.

Hypermarkets will certainly lose 3% or 4% more. If there isn't a consolidator to aggregate these 2,500 supermarket shops, they will also be the biggest losers. These regional chains cannot afford to continue competing with the most dynamic brands, such as Biedronka, Lidl, and potentially Dino, although I have some reservations about Dino's future.

Thank you very much. That was extremely helpful. I really enjoyed our conversation and won't hesitate to contact you if I have further questions.