Rebranding at Full Pace, Penny Wants to Expand Further

Interview

Florian Jens Naegele, CEO of Penny Hungary.

The Budapest Business Journal talks with Penny Hungary CEO Florian Jens Naegele about the past business year, today’s challenges, and its plans for Christmas and 2023.

BBJ: What have been the highlights of 2022?

Florian Naegele: First of all, I would like to highlight our large-scale retail premises renovation and modernization project. Under our rebranding process that began in 2020, the entire network of 228 stores will be renewed and modernized to the new standards by the end of this year. Our customers will enjoy a modern and high-level shopping experience. Of course, we are not only renewing our stores; their number has also increased. We just opened our newest unit in Hajdúsámson (240 km east of Budapest, relatively close to the border with Romania) this month. Moreover, we have extended our product range by 25%, and our focus on bio and “freefrom” customers has also improved (in line with industry trends).

In addition, we will soon officially take over our renewed logistics center in Karcag (168 km east of the capital), which has been extended by around 40,000 sqm. This project began in 2019 and is very important for us because it will nearly double the storage capacity of the distribution center and allow us to supply more stores from there. With this step alone, our delivery trucks will reduce our Co2 emissions by almost 220,000 kg annually. Thus, the center’s operation has become more sustainable, cost-effective, and environmentally friendly; meanwhile, we are creating around 100 new jobs in the area.

Another highlight of the year is that we have expanded our express home delivery service. Since this summer, more than three million Hungarian customers have enjoyed the benefits of online shopping at Penny on various e-commerce platforms such as Foodpanda and Roksh.

BBJ? What investments do you plan for next year? How is the renovation and rebranding/brand-building project going?

FN: One of our primary goals is to complete our rebranding and store modernization process. We spent a total of EUR 87 million on renovating our stores last year and this, and we will spend another EUR 35 mln in 2023. We are very proud that we will realize this significant rebranding and repositioning project in just two and a half years.

Furthermore, we are constantly working on the development of our product range. The selection of our own-brand products is also getting wider, including “Penny Ready” convenience products. Based on the feedback from our customers, we also know that healthy nutrition is becoming more important to them. As a result, we have significantly expanded the range of health-conscious, gluten-free, lactose-free, sugar-controlled, organic, and vegan products, which can be found on our store shelves. In addition to expanding our fruit and vegetable selection, we also take more second-class fruit and vegetable crops from producers. With the so-called “Girbe-gurba” product line, our customers can get vegetables and fruits that are not perfect in appearance but still excellent in quality and at a more favorable price.

Since sustainability and the conscious use of energy also play an essential role at Penny, we are gradually increasing the number of solar panels, and we use only LED lighting in our stores, warehouses, and headquarters. We are also installing heat-retaining glass doors on the refrigerators in the stores, a move that is resulting in up to 40% savings on cooling energy.

In addition to finishing the transformation of our aforementioned logistics center in Karcag, we are working on expansions and improvements in our center in Alsónémedi and also planning to open additional stores.

BBJ: How many stores do you have in Hungary? What are the plans to increase this? How many stores could Hungary eventually support?

FN: Our store in Hajdúsámson takes us to 228 in Hungary. Our expansion department is constantly working to increase this number. Many factors hinder our efforts, although we are willing to invest more than EUR 50 mln in the following years only into expansion, which would create hundreds of new jobs. Within our company group, our domestic developments in this area are considered lagging, as Penny International increased its expansion by about 5% in the recent period. Ideally, we would catch up with the international trend by opening 8-10 new Hungarian stores per year, but unfortunately, we do not currently have the opportunity to do so. Yet we are confident that with time, we will be able to offer quality products with an excellent price-value ratio to even more Hungarian settlements.

BBJ: Post-COVID and possibly on the brink of recession, how is the economy evolving, and how is this changing the market approach of Penny?

FN: We are now living in a genuinely challenging period. The effects of COVID-19 are no longer so strong; now, it is more the war in the neighborhood, the increase of energy prices, the price cap on food products, the raw material crisis, and the extra profits tax that are putting not only Penny but the entire sector in a difficult situation. In addition, the long-term maintenance of the aforementioned economic measures strongly calls into question their impact on society and the economy. Within these circumstances, one of our most significant advantages is that we source our product range from local and international resources. Actually, nearly two-thirds of our goods are from domestic producers. On the other hand, our parent company REWE Group is present in 21 countries in Europe. In the current economic situation, it is imperative that we have a stable, international corporate background in all respects; thus, we can provide our wide range of products to our customers even if supply difficulties arise.

BBJ: Christmas is just around the corner, and Penny always runs charity programs at this time of year. What do you have planned for 2022?

FN: We are currently organizing a charity campaign for the Együtt a Daganatos Gyermekekért Alapítvány [Together for Children with Cancer Foundation], with which we would like to reach a donation amount of HUF 10 mln. Our goal is to purchase a car suitable for transporting sick children for the foundation. We have had a long-standing cooperation with the foundation for 15 years, and we are proud that, together with our customers, we have supported the organization’s work with almost HUF 100 mln.

One of the most critical elements of our company’s corporate policy is the support of employees, and professional organizations have recognized our efforts on numerous occasions. For example, the German-Hungarian Chamber of Industry and Commerce recently recognized our responsible employer practice for the third time with the “Reliable Employer” award. We are well aware that rising energy prices impose extra financial burdens on everyone, which may bring even more challenges as Christmas approaches. That is why we decided to help our employees with a subsidy package total of nearly EUR 2.5 mln paid in three phases until the first quarter of 2023.

This article was first published in the Budapest Business Journal print issue of November 18, 2022.

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