Pepco Group simplifies structure will turn Dealz brand into Pepco
Pepco Group is focusing on improving operating costs and simplifying the business, Pepco Group's CEO announced. The Group's expansion in Western Europe is progressing successfully and the region is an increasingly important market for the group. The group is confident that it will open at least 550 new shops this financial year and that it will achieve EBITDA growth of "an average of several per cent".
"We opened a total of 166 new shops in the first half of the year and at least 550 for the full year. For the first time, openings in Western Europe were higher than in Central and Eastern Europe. We aim to refurbish 2,500 Pepco shops in CEE within 2.5 years. We are focusing on improving the operating costs of the business, on our strategy and on how to be a 'bigger, better, cheaper and simpler' group. We are confident that we will open at least 550 new shops this financial year and that we will achieve EBITDA growth of 'an average of several per cent'," Pepco Group chief executive officer (CEO) said during a conference call with analysts.
He added that as part of simplifying its structure and making savings, the Pepco Group in Western Europe has Pepco/Pepco Plus formats and so, for example, in Spain it has consolidated Dealz and Pepco shops into one business as Pepco. In Poland and throughout CEE, the Group wants to continue to develop Dealz shops, which in Poland is modelled on the UK's Poundland, offering customers a wide range of well-known international FMCG brands and general merchandise at low prices.
"All Dealz shops in Spain have now been transformed into Pepco shops, with a focus on larger shops that include a fast-moving product range alongside clothing and general merchandise. The integration has resulted in a simplified operating model, with one brand, one range and one team," said the CEO.
"Our Pepco 'Plus' shop format, which offers three product categories (fast-moving products in addition to apparel and general merchandise), continues to deliver the best performance of any shop format in the Group. The Group now has 40 Pepco 'Plus' shops, mainly located in Spain. This result follows the conversion of all Dealz shops in Spain to the Pepco format. The revenue of Pepco 'Plus' shops in the first half of the year (LFL) increased by more than 30% compared to the same period last year. We are also piloting the conversion of 6 Dealz shops to Pepco 'Plus' in the Republic of Ireland, which is being positively received by customers. We will provide an update on our plans for Ireland later in the year," He added.
The group stressed that following a strategic review of the Dealz business, it has concluded that it will retain the Dealz brand in Poland and will not convert these shops into Pepco, as the brands are complementary. There is a clear opportunity to develop the Dealz brand, which offers a combination of fast-food and general merchandise, in addition to Pepco. In addition, Pepco's retail network in Poland and Central and Eastern Europe consists mainly of smaller shops, where there are limited opportunities to incorporate FMCG offerings alongside clothing and general merchandise.
The group reported that it will leverage the scale and optimise Dealz's operations with Pepco, adapting the shared infrastructure to provide greater efficiencies and lower operating costs. It will also simplify the shop layout and expand and improve the merchandise mix, including a range of general merchandise sourced from Pepco, from autumn 2023. And it will optimise the supply chain so that Dealz will act as a wholesaler of FMCG categories for all Pepco shops, as required.
"Developing the Dealz brand in Central Europe represents an important and attractive additional growth opportunity for the Group with Pepco. [...] We are refreshing the Dealz brand with a new look and style, including a new Dealz logo and modern shop facilities," Masters pointed out.
Dealz in Poland opened its 200th shop in March 2023, and the Group expects to open a total of 300 shops by the end of December 2023. All new shops will adopt the new brand identity, while older shops will be adapted to the new brand image over time.
The total number of shops at the end of the first half of the financial year (i.e. at the end of March this year) was 4,127, an increase of 12% year-on-year, which was mainly due to an increase in the number of Pepco chain outlets in Western Europe. The group indicated that its expansion in Western Europe is progressing well, with Italy and Spain continuing to be the largest and fastest growing markets there, performing well over the past three years.
"We recently opened our 100th shop in Italy, an important milestone for the Group and a testament to the success of our profitable expansion plans across Europe. Western Europe is an increasingly important market for Pepco, with shops operating in Spain, Germany, Austria, Greece and Portugal. In April, Pepco opened its 100th shop in Serbia, strengthening its presence and capitalising on the strong demand for the products on offer in the country. In May, following a successful roll-out in Spain, Pepco launched its first shops in Portugal," he stated.
"During the period under review, we launched the Pepco 'New Look' programme, under which we intend to redesign all 2,500 Pepco shops in Central and Eastern Europe over the next two and a half years. The programme was launched in January 2023 and we completed 191 conversions in Poland, Slovakia and the Czech Republic in the first half of the year. As with our shop opening programme, we expect the conversion dynamics to accelerate over the remainder of the year. Initial results from converted shops are encouraging and in line with the trials we conducted in Wrocław and Warsaw last year. To date, like-for-like (LFL) revenue growth in the converted shops is around 10 percentage points higher than in the control group, with increases in both the number of transactions and average basket size," he added.
The company also highlighted that the expansion shows that the Group is able to reach markets across Europe. In addition, the Group is on track to introduce, later this year, the Pepco brand in Bosnia and Herzegovina.
The CEO also drew attention to the difficult environment showing signs of declining consumer confidence in some of the Group's main markets. This uncertain trading context continued in April and May, with weaker consumer sentiment on personal spending in response to high inflation, particularly in Central Europe. This was evidenced by a decrease in the frequency of shop visits and other shopping decisions made by customers.
Source: Pepco Group and ISBnews
