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Innovation in Eastern Europe – Groceries in Poland

Even those who did not live it know the planned economies on our side of the Iron Curtain were no “centers of excellence” in terms of consumer choice. This is why, after the transformation in 1989, the number of groceries in Poland doubled in only two years. Most of these upshots were small or medium family-owned shops. The first multinational hypermarket entered Poland in 1991, the second only in 1994. The Polish market is still the most dispersed in the European Union. In 2001, our 10 biggest players shared 19 percent of the market among them. Such a dispersed market drove certain behaviors of people. Many families were just buying their daily provisions in any of the nearby shops. Most citizens living in large and medium Polish cities were within walking distance from a grocery store. Weekly shopping in hypermarkets or large supermarkets was unusual.

The market continued to evolve, though, and evolved even faster after Poland joined the European Union in 2004. Between 2005 and 2009, the number of shops changed in the following way:

Type of shop   Number in 2005     Number in 2009
Hypermarkets 200 280
Supermarkets 1.5 ths 2.2 ths
Discount shops 1.2 ths 2 ths
Large groceries (100-300 sq.m) 5 ths 5.4 ths
Medium groceries (40-100 sq.m)      32 ths 31.5 ths
Small groceries (<40 sq.m) 73.7 ths 54 ths

As a consequence of the growing number of large shops and the increasingly easy access to them, the behavior of families also started to change. Weekly shopping in large stores became ever more common. This resulted in less frequent shopping in small stores, less money spent there and, as a consequence, a significant drop in the number of small shops. They were facing strong competition—mainly from hypermarkets, supermarkets and discount shops. The main competitive advantage of small shops remained their ease of access “around the corner.”

At the same time, larger shops also started to open within residential areas or close to them. And they were able to offer the same or even better quality for a lower price. As a consequence in 2008, the 10 biggest players in Poland had grown to a combined market share of 31 percent. That compares to 73 percent in Germany, 63 percent in the UK, 89 percent in France and 66 percent in the Czech Republic. In only seven years, the market share of the biggest players had grown from 19 to 31 percent—none of the other European countries had seen similar growth. How could Poland’s small shops face this challenge and the obvious trend of further catching up with its Western neighbors? How could small shops attract customers and keep them from “migrating” to weekly shopping in supermarkets or hypermarkets?

Freshly pressed juices – a surprise in the “Red Ocean”

Shop keepers talk to their clients every day. They observe buying patterns and listen to conversations. In that sense, they may be much closer to their clients than any of the supermarkets, in spite of all the analytics larger stores use to optimize their SKUs and other portfolios. What the keepers of small shops are doing can be called “ethnography” by an innovation practitioner. Small shop keepers are doing it on a continual basis and can thus gain a deep understanding of their clients’ needs.

So how can small shops help their clients? Which are the “jobs” people are trying to get done when going to these local stores? One of them clearly is to “provide people with the basic provisions of daily life.” But large shops do the same. How can small shops differentiate themselves?

Let’s have a closer look at large shops and how good they are in satisfying some of their customers’ expectations while “getting the basic provisions of daily life.” For a few examples, we suggest looking both at the importance of any of the expectations and at the current level of satisfaction. Such an analysis helps choose the right strategy to address opportunities. Please note that in the frame of a robust innovation project, such an analysis would be based on solid market research. It is very likely that Poland’s keepers of small shops have not performed such an analysis, nor might they be familiar with innovation concepts such as the “Job To Be Done” or people’s “Outcome Expectations” while getting a job done. Using these concepts and an approach such as the one we suggest here helps understand the strategy followed by those shops that survived the challenge. Applying such approaches in a consistent and proactive manner helps businesses increase the very likelihood of their survival.

Examples of expectations that are important for customers and which large shops are good at satisfying include:
1 – Maximize the variety of drinks available
2 – Minimize the price of products
3 – Maximize the selection of products

Examples of expectations that are also important for customers but which large shops struggle to satisfy include:
4 – Minimize the ease of buying daily and provisions
5 – Maximize the freshness of your daily breakfast.

Expectation 4 may need some explanation. Different from many Western countries, in Poland your guests do not necessarily call prior to coming to see you. You may simply find a friend and her family ringing at your door. Reacting flexibly in such instances and proving yourself a good host is essential. Being able to send your oldest son to buy some provisions at the local corner store, then, is essential.

Also, most of the small shops are open long hours, usually 7 days per week, from 6 a.m. till 11 p.m., even during bank holidays when supermarkets and hypermarkets need to remain closed, due to legislation in Poland.

Let us also look at example 5. What is it that small shops “next door” can offer to maximize the freshness of your breakfast? Something that cannot be offered by large shops or markets that you would visit on a weekly basis?

Let me share here the story of a local store that came up with the idea of offering freshly squeezed juice. And I mean really fresh, with no preservatives, no additives—100 percent natural. The juice you would prepare from time to time for you and your family on your own. Such juice is good for consumption only for up to 24 hours, regardless of the way it is stored. At the beginning, the local store in question started with just one type of juice—carrot juice. After gaining experience and seeing great success with people coming to the shop before their breakfast, they started offering a few other types of juices.

Does this store need to be afraid of a supermarket eating its lunch (or breakfast in this instance)? If a large chain wanted to offer such a product, it would have two options: It could provide juice machines, fruits and vegetables to thousands of small outlets all over the country. Or it could offer fresh juice that is bottled. Bottled juice, however, incurs the risk of not selling within the due time of 24 hours. Both options also imply logistic or planning complexity that super- or hypermarket chains may not want to handle. This leaves space, a “Blue Ocean” so to say, to smaller shops that can produce to demand, on the spot and which are open before breakfast and conveniently situated “just around the corner.”

If the above list of expectations appears incomplete to you, and if you are convinced there are more jobs people might try to get done by going to a local store, then we are on the same page: Expect the thousands of small shops to come up with more ideas to fight not only for their survival but also to strive in our changing Polish society. I am convinced that the successful ideas will address expectations that remain underserved by the super- and hypermarkets. You are invited to join me in observing the further evolution of the aforementioned local store and smaller shops at large.