russia retail analysis 2010-2011

7/29/2019 Russia Retail Analysis 2010-2011

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Russia Retail Analysis 2010-2011 2010-2011

Rahul Guhathakurta

[email protected]

Rahul [email protected]


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Russia Retail Analysis 2010-2011

Russian retail chain, X5 Retail Group, has posted a 1Q 2010 netprofit of$78.9 million under IFRS.

The bottom line is a turnaround of the 1Q 2009 net losses of$82.1million, with EBITDA up 10% year-on-year to $178.5 million andsales revenue up 36% to $2.54 billion.

U.S. retail giant Wal-Mart is in preliminary talks to acquire RussianretailerLenta after years of trying to enter the fast-growing market,

sources with first hand knowledge of the matter said. 13 July

2010

Whats Cooking?

, Federal Anti-Monopoly Service

Higher Russian wholesale dairy product prices have led to a 3-18percent increase in retail prices since the start of August.Federal Antimonopoly ServiceAugust 25, 2010


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Overview



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Market Growth: 10% annual growth in the next 5 years. Already one of the 10 largest

retail markets in the world.

Strong Economy: Driven by strong trade balance, growth in productivity and investment,

and fiscal responsibility.

Market Opportunities: With rising incomes, consumers seek greater qualityand choice

offered by modern formats.

Government Support: Relatively liberal policies in consumer economy balance traditional

hurdles.

Strong Local Players Emerging: Russia retailers now emerging with operating

efficiencies

Why Russia ?


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Consumer-BasedResource-

Based

% of GDP 50% 25%

Growth Rate

(2002-04)15-20% 10-15%

Government

InfluenceLimited Significant

PrivatizationEntrepreneurial start ups

after 1990s

Privatized State

Resources in 1990s

Political Risks Adequate Very High

Company Size SMEs and MMEs Domestic Blue Chips

Concentration Varies by Sector High

Investment Under-invested Highly-invested


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Russia is ripe for entry via acquisition.1. Russia remains a fragmented market, and the global financial crisis has left many local players

undervalued.

2. Opportunities for acquisition, especially of regional players, exist as the valuations of these

companies decline.

3. While Russia's political landscape and financial stability are some cause for concern, it remains

an attractive market for short- and long-term opportunities

2

1

3

India reclaims the top spot.1. India remains one of the fastest-growing countries in the world, and with the lowest inflation in

a decade, India is well positioned for further growth.

2. Retailers are tapping Indian shoppers' growing interest in international labels to beat the

current slowdown in sales

3. New players have raced onto the scene at the same breakneck pace as in previous years.

Worlds Top 3 as of now

China expands beyond tier 1 cities.1. Although significantly affected by the global downturn, China's projected GDP growth still

eclipses most other markets.

2. China's western and central regions are less affected than the coastal areas, making them

attractive for expansion or entry.

Source: Global Retail Development Index, A. T Kearney 2009


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Far Eastern Federal DistrictCentral Federal District

North-Western Federal District

Southern Federal District

North Caucasian Federal District

Volga Federal District

Urals Federal District

Siberian Federal District

Federal Districts of Russia


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Moscow

St. Petersburg

Krasnodar

Volgograd

Perm

Samara

Chelyabinsk

IrkutskNovosibirsk

Nizhny Novgorod

Vladivostok

Kazan Yekaterinburg

Novorossisyk

Capital

Major Cities

Sea Ports


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Main modern self-service formats in Russia

Structure of domestic consumption, %, 2002 - 2007


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Russia Retail Analysis 2010Retail in Russia


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Social Indicator & Living Standards


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Operational Insight



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Identification of Property

or a land plotFeasibility report and

opening budget prepared

Approval by the regional

director and branch director

MOU signed with landlord

Legal due diligence

Technical due diligence

Approval by Committee on

Store Openings

Lease agreement or SPA

signed

Repair and maintenance

Purchasing andinstallation of equipment

Personnel hiring and

training

Sublet agreements signed

Store opened

W1 W2 W3 W4 W1 W2 W3 W4 W1 W2 W3 W4

MONTH 1 MONTH 2 MONTH 3

Optimum Roll Out Map


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Store

Positioning

Category

Mix

Financials

by Size

Grade

Space &

FixtureAllocation

A & BCatchment

Assortment

Roll Out

to Store

Guideline of Category Mix & Margin

Comparative Category Margins

Sales Per Square Feet Target & Standard Fixture List

Consumer Decision Tree

Local Characteristics, Assortment

Budget

Step-by-Step Roll Out to Store Strategy


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Russia Retail Analysis 2010Concept of Consumer Decision Tree

Budget

Space Plan

Menu of

Assortments

Planograms

Product on Shelf

Performance

Reports, BI &Analytics


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Russia Retail Analysis 2010-2011Assortment Built Up

National

SKUs

100

Regional

SKUs

25

Local SKUs

15

Seasonal

SKUs 10

Import

SKUs -5

IN/OUT

SKUs - 3

Promo

SKUs - 2

Assortment Type

Number

ofSKUsperA

ssortmentType

l l


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Classify Similar Set of Products

Point of Interrelation

Point of Substitution

Identify the Unique Value Chain

Identify the Manageable Factors

Creation of Category

Identify the Measurable Factors

What are the Consumers needs?

ConsumersConsumer

Research

Shoppers

Feedback

Creation of a Category

R i R il A l i 2010 2011


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Russia Retail Analysis 2010-2011Planograms

Source: Colmar Brunton

Need to Snack

Sweet & Salty

Need State

Brand Consideration Set

Size/Pack

Price

Favorite

2nd Choice

3rd Choice

Something New

Satisfaction

R i R il A l i 2010 2011


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Russia Retail Analysis 2010-2011Case Study: Pepsis Power of 1 (One)


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R i R t il A l i 2010 2011


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Russia Retail Analysis 2010-2011Case Study: X5 Retails Business Transformation

R ssia Retail Anal sis 2010 2011


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Robust FinancialPlanning

DiversifiedRetailAsset

Portfolio

RejuvenatedLeadership

Improvement in ITSystems

Need basedCentralization/

Decentralization

OperationalOrganization

Factors for Stable Growth Reduction in Operating Cost

Retail Excellence


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Profit Driven Marketing

Strategies


Russia Retail Analysis 2010 2011


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STRATEGY TECHNOLOGY UPGRADES

R i R t il A l i 2010 2011


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Impact of Financial Crisis

On Consumer Behavior &

Buying Pattern (2008-2010)




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* Suggested By: Ms. Ekaterina Monakhova , Regional Business Development Manager, Nielsen Retail Measurement Service

through Consumer 360 Degree - Integrated Approach Presentation on 22ndApril 2009


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Russia Retail Analysis 2010-2011b


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1. The Russian retail market remains highly fragmented. The structure includes openmarkets, street kiosks, pavillions, small served independents (Gastronoms, Produkti) and

supermarkets/hypermarkets.

2. Local retailers are stepping up their expansion. They benefit from first-mover advantageand an understanding of both Russian consumers and the bureaucratic system

3. Growth of the market share of premium outlets such as Azbuka, Vkusa and Globus

Gourmet in order to cater for the supply of premium F&D goods. The majority of goods inthose shops are imported as shoppers are extremely brand-conscious.

4. Format diversification is currently at the core of the retail chains strategy for Russia.Following on the success of premium shops, retail chains are diversifying their retail formats

by trying out smaller shops with a better quality of service. Others such as X5 are trying out

large Cash &Carry formats to appeal to a more popular base.

5. Consolidation: Retail consolidation is well underway (e.g. merger of Pyatero &

Perekrestok which gave rise to the X5 group) and is set to increase further

Observations



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1. Value creation

Gaining competitive advantage through customizing private-label

products to fit complex demands of the large national consumers,

eventually a private-label-to-brand formation

Increasing Local Industryparticipation in the new products

Research and Development

Additional earnings from utilizing available commercial resources

including optimized use floor space in various retail formats.

2. Observing strict financial discipline

The TSR and ROIC are core indicators for investment decisions

Transparent system of KPIs for all Retail and FMCG distribution

companies

Organizing effective process of business management

Using best world practices to provide for efficient usage of the funds.

Recommended Recipe


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Bibliography

1. PMR Publication

2. AC Nielsen Europe CPS Data

3. X5 Retail Group Investment Relation Press Release - 2010 Q1

4. Business Analytika, Renaissance Capital

5. GfK GeoMarketing Reports

6. Nielsen Shoppers Trend 2009 Report

7. A.T Kearney GRDI Index 2009

8. Russia through crisis Nielsen consumer research, 1st wave November-December 2008

9. Russian Retail Chains vs. Foreign Retailers: Changes within the Industry and Supplier-Retailer Relationships - Olga

Tretyak, Moscow State University, Faculty of Economics and Marina Sheresheva, Moscow State University, Facultyof Economics

russia retail analysis 2010-2011

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