Russia Retail Analysis 2010-2011

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DOI: https://dx.doi.org/10.13140/RG.2.2.33173.52967

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Russia Retail Analysis 2010-2011

  1. 1. Russia Retail Analysis 2010-2011 Россия Ретал Анализ 2010-2011 Rahul Guhathakurta rahul.gt@ovi.com Rahul Guhathakurta rahul.guhathakurta@aiesec.net
  2. 2. Russia Retail Analysis 2010-2011 “Russian retail chain, X5 Retail Group, has posted a 1Q 2010 net profit of $78.9 million under IFRS. The bottom line is a turnaround of the 1Q 2009 net losses of $82.1 million, with EBITDA up 10% year-on-year to $178.5 million and sales revenue up 36% to $2.54 billion.” “U.S. retail giant Wal-Mart is in preliminary talks to acquire Russian retailer Lenta after years of trying to enter the fast-growing market, sources with first hand knowledge of the matter said.” – 13 July 2010 What’s Cooking? Федеральная антимонопольная служба России, ФАС России Federal Anti-Monopoly Service “ Higher Russian wholesale dairy product prices have led to a 3-18 percent increase in retail prices since the start of August.” Federal Antimonopoly Service – August 25, 2010
  3. 3. Overview Russia Retail Analysis 2010-2011
  4. 4. Russia Retail Analysis 2010-2011 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 quality and 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 ?
  5. 5. Russia Retail Analysis 2010-2011 Consumer-Based Resource- Based % of GDP 50% 25% Growth Rate (2002-04) 15-20% 10-15% Government Influence Limited Significant Privatization Entrepreneurial 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
  6. 6. Russia Retail Analysis 2010-2011
  7. 7. Russia Retail Analysis 2010-2011
  8. 8. Russia Retail Analysis 2010-2011 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. World’s 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
  9. 9. Russia Retail Analysis 2010-2011
  10. 10. Russia Retail Analysis 2010-2011 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
  11. 11. Russia Retail Analysis 2010-2011 Moscow St. Petersburg Krasnodar Volgograd Perm Samara Chelyabinsk IrkutskNovosibirsk Nizhny Novgorod Vladivostok Kazan Yekaterinburg Novorossisyk Capital Major Cities Sea Ports
  12. 12. Russia Retail Analysis 2010-2011
  13. 13. Russia Retail Analysis 2010-2011
  14. 14. Russia Retail Analysis 2010-2011 Main modern self-service formats in Russia Structure of domestic consumption, %, 2002 - 2007
  15. 15. Russia Retail Analysis 2010 Retail in Russia…
  16. 16. Russia Retail Analysis 2010-2011 Social Indicator & Living Standards
  17. 17. Russia Retail Analysis 2010-2011
  18. 18. Russia Retail Analysis 2010-2011
  19. 19. Operational Insight Russia Retail Analysis 2010-2011
  20. 20. Russia Retail Analysis 2010-2011 Identification of Property or a land plot Feasibility 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 and installation 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
  21. 21. Russia Retail Analysis 2010-2011 Store Positioning Category Mix Financials by Size Grade Space & Fixture Allocation A & B Catchment 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
  22. 22. Russia Retail Analysis 2010 Concept of Consumer Decision Tree Budget Space Plan Menu of Assortments Planograms Product on Shelf Performance Reports, BI & Analytics
  23. 23. Russia Retail Analysis 2010-2011 Assortment 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 NumberofSKUsperAssortmentType
  24. 24. Russia Retail Analysis 2010-2011 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? Consumers Consumer Research Shopper’s Feedback Creation of a Category
  25. 25. Russia Retail Analysis 2010-2011 Planograms Source: Colmar Brunton Need to Snack Sweet & Salty Need State Brand Consideration Set Size/Pack Price Favorite 2nd Choice 3rd Choice Something New Satisfaction
  26. 26. Russia Retail Analysis 2010-2011 Case Study: Pepsi’s Power of 1 (One)
  27. 27. Russia Retail Analysis 2010-2011 Case Study: Pepsi’s Power of 1 (One)
  28. 28. Russia Retail Analysis 2010-2011 Case Study: X5 Retails Business Transformation
  29. 29. Russia Retail Analysis 2010-2011 Robust Financial Planning Diversified Retail Asset Portfolio Rejuvenated Leadership Improvement in IT Systems Need based Centralization/ Decentralization Operational Organization Factors for Stable Growth Reduction in Operating Cost Retail Excellence
  30. 30. Russia Retail Analysis 2010-2011 Source: Dixy Retail, Russia - 2009
  31. 31. Profit Driven Marketing Strategies Russia Retail Analysis 2010-2011
  32. 32. Russia Retail Analysis 2010-2011
  33. 33. Russia Retail Analysis 2010-2011
  34. 34. Russia Retail Analysis 2010-2011
  35. 35. Russia Retail Analysis 2010-2011 STRATEGY TECHNOLOGY UPGRADES
  36. 36. Impact of Financial Crisis On Consumer Behavior & Buying Pattern (2008-2010) Russia Retail Analysis 2010-2011
  37. 37. Russia Retail Analysis 2010-2011
  38. 38. Russia Retail Analysis 2010-2011
  39. 39. Russia Retail Analysis 2010-2011
  40. 40. Russia Retail Analysis 2010-2011
  41. 41. Russia Retail Analysis 2010-2011 * Suggested By: Ms. Ekaterina Monakhova , Regional Business Development Manager, Nielsen Retail Measurement Service through Consumer 360 Degree - Integrated Approach Presentation on 22nd April 2009
  42. 42. Emerging Trends in Retail based IT Systems Russia Retail Analysis 2010-2011
  43. 43. Russia Retail Analysis 2010-2011 Source: X5 Retail Group Investment Relation Press Release - 2010 Q1
  44. 44. Russia Retail Analysis 2010-2011 A typical Retail IT Infrastructure Blue plan Source: X5 Retail Group Annual Report 2010
  45. 45. Russia Retail Analysis 2010-2011 Retail Company ERP System-Integrator Utkonos SAP R3 Retail In-house team Dixy 1C In-house team Microsoft Axapta In-house team Kvartal, Krepost, Kopilka 1C In-house team L’eutal 1C 1C BIT Microsoft Axapta Columbus IT Partner X5 Retail Group SAP IS Retail, SAP HCM, SAP EM Capgemini Oracle Transportation Module (integrated with SAP)
  46. 46. Russia Retail Analysis 2010-2011
  47. 47. Russia Retail Analysis 2010-2011 1. The Russian retail market remains highly fragmented. The structure includes open markets, street kiosks, pavillions, small served independents (Gastronoms, Produkti) and supermarkets/hypermarkets. 2. Local retailers are stepping up their expansion. They benefit from first-mover advantage and 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 in those shops are imported as shoppers are extremely brand-conscious. 4. Format diversification is currently at the core of the retail chain’s 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
  48. 48. Russia Retail Analysis 2010-2011 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 Industry” participation 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
  49. 49. Russia Retail Analysis 2010 3. Optimization of the corporate management structure to achieve maximum cost efficiency 4. Strengthening Public Private Partnership •Active participation in Federal target programs (FTP) and State Defense Order •Attraction of State funding for CAPEX to provide for future growth projects •Developing knowledge-intensive businesses together with the State 5. Winning Strategy for Brands •Create a robust portfolio •Build powerful go‐to‐market capabilities •Fortify an advantaged supply chain •Attract and develop a world‐class team Recommended Recipe … Cont’d
  50. 50. Rahul Guhathakurta rahul.guhathakurta@aiesec.net
  51. 51. Russia Retail Analysis 2010-2011 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, Faculty of Economics

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