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  1. 1. 2nd Issue February 2011 CROSS-BORDER DISTANCE SELLING IN UKRAINE: INFO DIGESTDear Colleagues,It is my pleasure to present you the second issue of our Info Digest on distance selling in Ukraine. We are still confident thatentering Ukrainian market is the right choice for Western distance sellers and are determined to provide you additional informa-tion and assistance.In this issue we provide you information on traditional retailers data and their plans for active development of businesses in 2011.We have a wider article on postal consignment as major tool for cross-border distance selling to Ukraine. Majority of Europeancompanies successfully operating in Ukraine use it. You will find out statistics on Ukrainian households (consumers expenses onclothes and who actually leads in Ukrainian families). As announced in previous issue we also publish details of new Law on Per-sonal Data Protection implementation.We cordially invite you to visit Ukraine in May and participate in International Business Forum “Direct Marketing Days in Ukraine2011”. It is a meeting point of everybody working with direct marketing and in distance selling in Ukraine. Several companies activeon our market started their decision-making in this regard by participating in DM Days. It is a unique opportunity to meet everyoneyou need within 3 days at one place.If you have any questions, comments or additional information please do not hesitate to contact us via e-mail or our Hot Line+380 (44) 495 7885Hope to meet you personally in Kiev on May 25th-27th, 2011 Valentin Kalashnik President of UDMAChanges in ukrainianlegislation anD eConomiCsheaD oF imF staFF mission:ukrainian eConomY is reCoVering aFter the CrisisUkrainian economy is recovering after the crisis, and the ten- Dominique Strauss-Kahn, mentioned, that "Ukrainian economydency for economic growth is becoming evident, according to has returned to the right path, and, among others, the IMF is tothe IMF Mission Chief in Ukraine Athanasios Arvanitis. thank.""Indeed, the mission sees that Ukraine has made a consider- However, the Prime Minister of Ukraine mentioned, that "weable progress," said Athanasios Arvanitis at his meeting with the (Ukraine) are experiencing serious difficulties because of thePrime Minister of Ukraine Mykola Azarov. uncertainty in the global market. The plans we have made to- gether with the IMF, primarily concerning the economic devel-"We appreciate the establishment of financial stability in opment, can become a subject to change in case domestic mar-Ukraine, however, one should keep in mind that last year was ket fails to function at an expected pace."very difficult. Now the banking system is regaining confidence.Also, the inflow of deposits into Ukrainian banks starts to grow The International Monetary Fund approved a 2 1/2-year, $15.2again," stated the head of the IMF Staff Mission in Ukraine. billion SBA loan program for Ukraine in July 2010. Respectfully, Ukraine undertook a number of steps aimed at reforming theMykola Azarov highlighted that the head of the IMF Mission in country to bring more financial stability.Ukraine "positively regarded the social and economic develop-ment in Ukraine in 2010." Source: Worldwide News UkraineDuring the meeting with the head of the National Bank ofUkraine, Athanasios Arvanitis stressed that Ukraine had success-fully implemented most of the requirements according to theStand-By Arrangement. The head of the IMF Mission in Ukrainealso stated that thanks to the mutual efforts of the NationalBank of Ukraine and the Ukrainian government it became pos-sible to bring the inflation rate down to less than 10 per cent.Earlier, in the course of the Yalta Forum organized by Yalta Eu-ropean Strategy, the Head of the International Monetary Fund,
  2. 2. Cross-borDer DistanCe selling in ukraine: Info DIGEST February 2011nbu: QuantitY oF aCtiVe PaYment CarDs in ukrainegreW 1% in 2010Quantity of active payment cards in Ukraine Amount of ATMs grew 4,2% or 1225 ma-grew 1% (or 301 thousand pieces – up to chines in 2010 (total up to 30,2 thousand29,405 million) in 2010, reports website of pieces).National Bank of Ukraine (NBU). As it was reported earlier till October 2010According to the information provided in 140 banks of 176 acting credit and financialfourth quarter of 2010 quantity of active pay- institutions were members of card paymentment cards grew 2% or 583 thousand pieces. system. They were servicing about 40 million of payment cards owners.According to the NBU active payment cardsare cards by which at least one issue missionswas conducted in the past 12 months. In 2009 quantity of active payment cards de- creased on 24,6% or 9,472 million pieces.Total amount of payment cards issued byUkrainian banks grew 4,3% or 1,906 million Source: Finance.uapieces in 2010 (total 46,375 million pieces)uDma sPeCialWho is ProteCteD bY laW on Personal Data ProteCtion?On June 1st, 2010 the Verkhovna Rada of Ukraine adopted noted that with the present law wording, its provision beingLaw “On Personal Data Protection”. The Law came into effect non-transparent and different interpretation possibilities it willon January 1st, 2011. be quite difficult to reach specified goals. According to the lawyer Eveniy Zakharov, one of the main law disadvantages isLaw formation and adoption is based on mutual agreement absence of personal data division at least into two groups. “Thesigned between European Union and Ukraine called “Coop- first group is personal data of general character which could beeration Matrix”. One of the conditions accordingly is Ukraine’s distributed without personal data owner permission. Namely:obligation to validate and implement convention on personal name, surname, patronymic, date of birth, nationality, etc…data protection. Thereby, Ukraine has made yet another step The second group is sensitive data: health state, personal life,on its way to becoming democratic and European country. credit history, taxation, real estate, etc. Non-division on suchHowever some provisions of the given Law leave representa- groups makes some of the law provision simply meaningless”.tives of the effected business spheres asking questions be- Another essential disadvantages of the law is imprecise de-cause these provisions are inadvisable, hardly implementable termination of the “data base” itself. “Almost everyone hasand barely controllable. electronic address book. According to the law such books areThe Law foresees creation of Specialized Authority vesting considered to be personal data and they have to be registeredcontrolling and supervising powers in personal data protection in corresponding register”, reported Mr. Zaharov.issues. So call-centers, banks, insurance companies, marketing According to Valentin Kalashnik, President of Ukrainian Asso-agencies, list broking agencies and other companies in some ciation of Direct Marketing and founder of Public Initiative “Foror other way connected with personal data basically get new personal data protection legislation harmonization” such lawcategory of state inspecting services with almost unlimited uncertainty could lead to abuses by the bureaucrats. “We arepowers. Such Specialized Authority was created in December talking about additional cost and additional excuses to raise2010. Currently it consists of one person – its Head. funds. As an entrepreneur I am interested in no intervening inThe Law also provides creation of the State Register of person- my business life but at the same time I am also interested in fairal data lists. The owners of Personal Databases (PDB) would play rules” underlined Mr. Kalashnik.have to register obligatorily in the stated register all used and/ The entrepreneurs reported that their expert group had de-or stored PDBs. Moreover PDB owners would have to inform veloped proposals on Law improvement and are ready to pro-the Authority every time when administrator, processing aims, vide their elaborations to the authorities.location, etc. of such PDBs change. Obviously that implemen-tation of such provision law is extremely difficult. There are According to the materials of www.pdp.net.uamany complications and peculiarities, for example registrationapplication form applicant one should state information aboutDB administrator and its location (e.g. hosting place); law cre-ators didn’t take to account the fact that often DB owner oradministrator doesn’t know exact location of the host. Moreo-ver if personal data base is part of the web site change ofthe hosting provider will automatically make data base ownerinform authorized organ about such change.While discussing this issue representatives of different branchassociations agreed that the existence of the law regulatingactivities connected with personal data use and protection isvery important. At the same time entrepreneurs and lawyers 2
  3. 3. Cross-borDer DistanCe selling in ukraine: Info DIGEST February 2011market neWsukrainian retail Plans aCtiVe eXPansion in 2011Retail players operating on Ukrainian market plan active expansion in 2011.Quantity of new FMCG chain stores in 2011 in Ukraine will grow at least 43%. Such forecast was provided by consulting agency"GT Partners Ukraine" experts for LigaBusinessInform.According to the "GT Partners Ukraine" prognosis quantity of new stores and growth of general retail turnover in 2011will notably outgrow figures reached in 2009 and 2010. They calculate 350-420 new chain FMCG selling points will beopened in 2011.Food operators acting on Ukrainian territory opened 245 new stores (excluding stores that changed its entitlement as a result ofmerger) in 2010 and 250 selling points in 2009. Currently around 45 food retailers have already announced their desire to opennew stores in 2011. Presumably the most active players of food market in Ukraine in 2011 will be players actively opening new stores in the previous year. Namely: “ATB-market” (Dnepropetrovsk), “Ukrainian Retail” (Donetsk), “Fozzy Group” (Kiev), “Pakko Holding” (Lutsk), “PBB Group” (Dnepropetrovsk), “Barvinok” (Lvov), “SPAR-Ukraine” (Kiev), etc. "According to our prognosis retail market consolidation growth will con- tinue in 2011 as well. We expect several deals of bigger players merging small operators", – GT Partners Ukraine experts report. The following type of stores: “supermarkets”, “discounters” and “next door store” will be actively opening in 2011 in Ukraine. Moreo- ver, quantity of newly opened hypermarkets will exceed data of 2010 when 4 new hypermarkets were opened. Source: Liga.netoVer halF oF all ukrainian householDs are leDbY WomenAccording to the Family and Gender Department of Minis- Numerous households (consisting of five and more people) istry of Family, Youth and Sport Affairs over half of all Ukrain- mainly presented in rural areas (14% vs. 6% in urban).ian households are led by women in both urban and ruralsettlements. Large households (consisting of four and more persons) prevail in Western part of Ukraine: Zakarpattya, Volyn’, Lvov, Ivano-Men, aged 30-59, are in charge of 1/3 households. In 2010 as in Frankovsk, Chernovtsy, Ternopol and Rovno regions (50-32%).2009 every fifth household is a young family. Number of households in Ukraine in 2010 was 17,5 million.Share of households led by people of retirement age is higher 69% thereof are located in urban settlements (43% in citiesin rural areas than in urban ones (49% vs. 37%). with population more than 100 000; 26% in cities with popula- tion less than 100 000) and 31% – in rural ones.The most popular households in Ukraine are still householdsconsisting of two people (29,1%) Source: Kiev.ua 25% of households led 20% of households led 14% of households led 10% of households ledby women aged 55 and older by women aged 30-45 by men aged 60 and older by people aged 18-29 3
  4. 4. Cross-borDer DistanCe selling in ukraine: Info DIGEST February 2011ukrainian FamilY sPenDs 400 uah on ClothesmonthlYEvery sixth family spends up to 100 UAH monthly, every fourth CountrY-ProDuCers oF Clothes anD shoesone – from 100 to 300 UAH and every fifth one – from 300 to500 UAH, reports Sociological Group “Reyting (Rating)”. solD in ukraine16% of respondents purchase clothes and shoes monthly, 41%– once or twice per season, 22% – once or twice per year, and13% – rarer than once per year.The most active clothes buyers are people from West and North(Kiev being the leader), the less active – people from East. RU CN PL UA TR BYAccording to the results of research: EC-EU other countries• youth is more active in clothes buying 20% 27% 11% 19% 8%• people of over 60 year old purchase clothes less than once 22% 5%per year 16%• the most active consumers are women and people living inurban area.Respondents with monthly income 3 000 UAH and over are Altogether about 42% respondents pay no attention tobuying clothes twice as much than respondents with income the country of producer while purchasing.less than 1 000 UAH. Employed population buy clothes 1,5times more often than unemployed though there are active Almost third part of people among the reasons why they dopeople and in this category: students and housewives. not buy clothes of Ukrainian production stated small quantity of sales points or its absence at all. The crucial reason for notThe more educated person the oftener she/he purchases buying Ukrainian clothes and shoes was inconformity of “price/clothes and shoes. Singles are more active than married quality” criteria (45%) and low production quality (37%). Otherones in terms of buying; however married people are more 31% said small assortment and 14% – non-compliance with theactive than divorcees. fashion trends.434 thousanDs oF loYal Consumers For “FoXtrot”ComPanY in 2010Company “Foxtrot. Households appliances” was founded in1994 and currently is one of leaders in household appliances andelectronics retail in chain segment in Ukraine and Moldova. Thecompany is presented in 102 regions and districts of Ukraine.Total shopping space is more than 200 000 square meters.The company reports that at the beginning of 2011 there were3 million members of “Comfort Program”. New possibilities of“comfort” card attract new consumers alongside with existingconsumer continue using their privileges and unique services.Last results of to the development of loyalty programs in Ukrainestate that “Comfort Program” showed the best figures in non-food retail according to the criteria of citizens’ involvement.The program is in top-10 of high-demanded loyalty programsamong the population (together with large food retailers).“Comfort” cards owners make purchases three times oftenerand their average receipt sum is 45% higher than those cus-tomers having no such cards. Moreover, repurchases made byloyal consumers card owners make not less than 40% of gen-eral volume of repurchases”, says Kirill Popov-Cherkasov, headof loyalty program and CRM department.Source: Trademaster.com.ua 4
  5. 5. Cross-borDer DistanCe selling in ukraine: Info DIGEST February 2011uDma sPeCialConsignment to ukraineThere are several ways of doing business in Ukraine. Logisti- or several addressees. Such service is convenient for distancecally speaking one can enter the market using direct import or selling companies conducting regular dispatches addressed toenjoy the advantages of postal consignment. one or several addressees from once country to another or several countries in b2c segment. The most attractive featureThe first option is generally know and understood: a company of consignment to Ukraine is tax and duty free shipment of upis organized in the target country; the goods are certified in it to 200 EUR value b2c parcels.and are delivered and legalized in the country; delivery to theend consumers is done internally. Second option is trickier one Development of postal consignment to Ukraine started inbut offers many advantages at the launch face (testing the mar- 2005 when Neckermann entered Ukrainian market and con-ket). This instrument is a basis for cross border distance selling. signment agreement was signed between National Ukrain- ian postal operator Ukrpochta and Slovak Post. CurrentlyPostal consignment is an international service on delivery, cus- Ukrpochta has agreements with Czech Post, Deutshe Posttoms clearance and dispatch of mailings and parcels to one and Finish Post.In 2009 the first private postal operator together with Canadi- • Direct mail (catalogues, addressed mailings)an-Ukrainian Company ROSAN offered its services in the con- • CODsignment market as well. • Customs clearance • International money transfersWithin the last 5 years following distance selling companies • Trackingentered Ukrainian market via postal consignment: Yves Roch-er, Mir Knigi, Magnet Blanche Port, Bon Prix, Witt, Cellbes, 4 It is important to understand that using postal consignmenthome, 3 Pagen, La Redoute. means using it two ways: when parcels are delivered via this channel the money are supposed to be transferred back. AndPostal consignment includes the following services: there is a need of special procedure of consumer returns han-• International transportation services dling. For more information contact respective postal opera-• В2С parcels and small parcels delivery tors or UDMA. Source: Ukrainian Direct Marketing Association 5
  6. 6. Cross-borDer DistanCe selling in ukraine: Info DIGEST February 2011international business Forum“DireCt marketing DaYs in ukraine 2011”“Direct Marketing Days in Ukraine 2011” (26–27 May 2011, Competence DayKiev, Ukraine) is the largest business forum of the direct mar- Knowing WHAT to do we can pass on to WHO and HOW. Lit-keting industry on the territory of the Eastern Europe and CIS erally – which competences and character features should mod-countries since 2000. Two-day’s journey into the world of per- ern marketing manager have? Does he or she have to be smart,sonal communications from classic rules of making friends with good-looking? Should he or she take the lead of everything andthe customers to the key trends – presented by the leading everyone, be able to enjoy life and be always ready to create?experts of the national and international market – this is all And the main thing – how to fit everything into 24 hours….about DM Days in Ukraine. МО Day Distance selling in Ukraine is not too bright industry from thethe Forum will last several days: view of publicity. But the pace of its development and rising turnovers imply the confidence in the near future prosperity.Loyalty Day The main drivers of the industry are going to reveal the truth.The message is always the same! Love your customer just like Direct Hit Dayyou love yourself :) Don’t send any spam, don’t call withoutreason, don’t send texts at night, take care of your customer, Practice, practice and practice! Implemented ideas, provenprotect him and give him joy – and the customer won’t look results. Source of ideas. Pride in the colleagues and envy offor some other provider! competitors – all this at the public defense of the best projects of the season 2010-2011 according to the competent jury.Communication Strategy DayIs the direct marketing style business possible? Yes, moreover, Day OFFit is impossible to run it in any other way! While many market- Nothing contributes to the good perception of informationing people were leading towards personal communications, and exposure to the subject than active rest and communica-these tools have already come to take over. tion with colleagues. This is why the moments of rest are well fitted into the program of the Forum – WELCOME Party, GALADM Tools Day Party, Relax breaks and even the city tour around Kiev in springAre mobile and social media marketing among the DM tools? blossom!Experienced DM specialists have no doubt about that. As theyimply personalized communication. But does one understand Organizer: OS-Direct Marketing Group and Ukrainian Directthe specific features of these instruments? Practice of applica- Marketing Association (UDMA).tion? Skills of effective application? Unfortunately, very oftenthis is not the case. Let us correct the situation! For more detail, do not hesitate to contact organizing committee. In next digest you will find: Please feel free to write us at distance_selling_in_UA@uadm.com.ua • Changes in Ukrainian legislation and economics if you want to decline or recommend digest to your colleagues. • Market news • Ukraine and social networks © UADM, 2011 6