A Prisoner‘s Dilemma: Too much space, too little demand

Research evidence excerpt

A Prisoner‘s Dilemma: Too much space, too little demand

FoundationManalysis shows MDG penetration has now plateaued and traditional channels are

increasingly exhausted as a funding source. We think either space growth needs to

slow, or volumes need to see a material acceleration. It is difficult to see a catalyst

for this, considering market volumes were down -1.7%/-0.4% over 2024/25 when

real disposable income growth was up ~6% pa, whereas for 2026-28e is projected

to be much lower at 3%-2% by the NBP, accompanied by an elevated savings rate of

households. In numbers:

• Selling space in Poland (ie capital invested) by the top 10 "modern formats"

has grown with a ~4.5% 10yr CAGR out to 2025, and much of this has come

specifically from the Discounter channel (~5% 10yr CAGR, accelerating to

~7% in the last 5 years). Over the same period, industry volumes were up

slightly, ~1% pa on average, including benefits from structural trade up in the

mix of basket, as customers sought more convenience.

• Volumes across the top "Modern 5" grocers (which we define as Biedronka,

Lidl, Aldi, Kaufland and Dino Polska) fared much better than the overall

market, as they were amplified by channel rotation and share gains, growing

with a ~6% CAGR over 10yrs. The key funding sources have been small local

grocers and hypermarkets. In other words, for most of the past decade,

volume growth across the key modern formats was sufficient to cover for

the growth in invested capital.

• This changed in 2023. Industry space has still been expanding at ~3%-4% pa

across modern formats, but volumes have been up only ~2%-3% pa across

the top 5, against a broader market backdrop of volumes down -2%. These

volume gains were hard won, with an ongoing price war between the key

price setters.