Agrokor needs million of tourists who come to Croatian resorts every summer to spend their money at Konzum’s grocery stores.
The annual influx of tourists was supposed to bring financial relief to the biggest retail chain in Croatia, but, instead, the summer looks like another headache for Agrokor, causing a spiral of crisis which has threatened economies across the Balkans, writes Bloomberg. Agrokor needs millions of tourists who come to Croatian resorts every summer to spend their money at Konzum’s stores, which are the largest cash generator for the group. But now, even the local population avoids its stores, turning to competition, reports 24sata.hr on 3 July 2017.
Agrokor was once the most powerful conglomerate in the Western Balkans but is now threatened with oblivion. The arrival of competitors such as Lidl was among the first blows to the company’s finances, and the chaotic implosion which started earlier this year also scared away the customers. Konzum’s revenues fell by 11 percent in the first five months of this year compared to the same period last year.
Konzum’s business results this summer will be crucial as the restructuring period begins. For years, this retail chain was the main venue for millions of tourists, providing the parent company with a good source of cash. But nowadays, stronger competition and bad publicity deter customers, while the company’s capacity to respond is limited since the extraordinary commissioner appointed by the Croatian government is undertaking restructuring process and demanding that the priority should be given to creditors and suppliers who have been left without almost any money.
Although it ‘s hard to know the precise figures, further complicated by Agrokor’s admission that previous financial reports are not reliable, Konzum is the key brand and brings in most of the revenue. Since Agrokor is currently surviving thanks to emergency loans, it cannot afford to lose its customers. Problems in the supply chain could make it extremely vulnerable at the peak of the tourist season, though its problems are far greater, says Goranko Fižulić, a former economy minister who now works as an analyst.
“Konzum cannot continue with its retail model. In addition to large business margins, rental expenses and a significant number of employees, Konzum cannot compete with Lidl and will not be able to maintain its market share. This competition is even tougher in the summer when tourists prefer to buy in the chains they know,” Fižulić added.
Extraordinary commissioner Ante Ramljak recently said that the group would probably no longer exist in the current form after the 15-month state administration period is completed. Agrokor’s holding company will be liquidated and its three segments – retail, food and non-core operations – will be sold to pay off bondholders holding almost worthless debt, as well as banks and suppliers, Ramljak said in an interview.
Meanwhile, Agrokor’s transformation has begun. Konzum will close about 100 out of nearly 700 stores in Croatia, executive director Slavko Ledić said. The company is adjusting its supply chains and will comply with existing contracts, he said, arguing that the stores should be well stocked.
There are 143 businesses that are part of the Agrokor group in several countries in the territory of the former Yugoslavia. Sale of non-core businesses, including a polyclinic in Zagreb and four cinemas in Belgrade, will be a priority, Ramljak said. Food producers and agricultural holdings will be joined in groups or sold separately, he said, as well as the Konzum and Mercator retail chains.
