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Six Foreign Companies Control Czech Food Retail Sector, According To Mendel University Study

Czech food retailing is dominated by the six largest companies, which together hold 75% of the market share. Firms are also increasing their margins and profits. These were the main findings of the study, which was carried out by a group of experts from the Mendel University Faculty of Business Economics (PEF MENDELU), in cooperation with the Office for the Protection of Economic Competition.

The researchers examined data from 2005 to 2021 for a total of 32 companies that sell food. They found that six of them held 75% of the market’s total volume of food sales. The dominant players are Albert, Globus, Makro, REWE Group (Billa, Penny), Schwarz-Gruppe (Kaufland, Lidl), and Tesco. “The Czech retail market can be characterised as an asymmetric oligopoly, which means that a few large companies have a significant advantage over other competitors,” said Michal Mádr from the Institute of Economics at PEF MENDELU, one of the authors of the study.

According to Mádr, this is the most common type of food retail market structure within the European Union. A very similar market structure can be found in Estonia, Germany and Great Britain. “In the Czech Republic, there is a noticeable increase in market concentration from a mild to a medium level after 2013,” he explained. “For comparison, there are markets in neighbouring countries with a lower degree of concentration, for example Hungary and Poland, but also with a higher degree of concentration, such as Austria and Slovakia.” 

Between 2005 and 2021, there was a substantial increase in the market share of the subsidiaries of German companies Schwarz-Gruppe, which includes Kaufland and Lidl, and REWE Group, which owns Billa and Penny. Schwarz-Gruppe’s share increased over time from 13 to 28%, and REWE’s increased from 7 to 15%. “The increase in market share for both foreign companies is due to their business strategy and, in the case of REWE Group, the acquisition of PLUS-DISCOUNT in 2008. In general, all markets across sectors are moving towards the situation where several important companies are gradually gaining a more significant position at the expense of weaker competitors,” said Mádr.

For the companies analysed, the study revealed an increasing trade margin and trade mark-up. “The difference between how much companies bought for and how much they sold for, i.e. the trading margin, increased over time,” said Radek Náplava, the second researcher from the PEF MENDELU Institute of Economics. “In this context, the trade mark-up, expressing how much companies added to the purchase price, also grew. The average level of trade margin and trade mark-up grew especially between 2015 and 2021.” 

The study also found an increasing trend in the trading margin at Globus, whose market share declined in the research period. In addition, the study also shows an increase in aggregate gross profits. “During the monitored period, the sales of the largest companies increased more than twice, gross profits increased almost fivefold, while the price level measured by the consumer price index increased by 36.5%,” said Náplava, adding that a more stable development in the sector in terms of financial indicators occurred only after in 2017.

The authors of the study intend to continue monitoring the development of market concentration, but currently not all data from the following years are available. They also hope to compare the profitability and margins of the six dominant companies with foreign markets.

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