This document discusses consumer trends in Russia and opportunities for collaboration between retailers and suppliers. It notes that Russian consumers are increasingly demanding but also value family and tradition. While the economic crisis has impacted spending, consumers in large cities are less affected. The document recommends that retailers and suppliers partner to improve in-store experiences for shoppers through better organization, product availability, and joint use of technologies.

1. “ Listening to the Boss” Stephen Schueler Procter and Gamble 1 June’2’ 2010

2. Key for business is to keep the BOSS happy!

3. Meet Our Bosses, The Ivanovs: Olga and Igor… Olga is 35 y.o Igor is 37 y.o. They have one child

4. P&G is focused to build full understanding of consumer, shopper and environment Talk to people Visit people at their homes Observe people In-store Register and analyze purchases Conduct Quantitative studies Model and predict consumer and market behavior

5. Life in Moscow Moscow drives the trends for Russia! Incomes are the highest here They can afford to buy premium products They like to try novelties in the market In the regions lower income per capita So they use mid-tier products They lag behind some aspects (lower ownership of durables, PC etc.)

6. Russians are highly educated, doing skilled work vs. other countries Source: TGI, 2005, age 15+ USA NCS 05/06, age 18+ % Russia Poland USA High education - urban women - urban male 32 38 11 9 25 26 Employment - urban women - urban male 58 75 36 52 57 70

7. Key Russian consumer trends Getting more and more demanding, rational and smart Increasing importance of traditional human values “love-home-family” Investing in future and experiences Highly involved in Health & Beauty

8. Getting more demanding, rational and smart Rely only on personal budget Quality, reliability and customization Shopping is planning and value growing expectations

9. Increasing role of traditional values Love-home-family, safety and well-being Help others & charity TOP 5 VALUES Russians, % 2007 2009 HOME 80% 86% FAMILY 75% 81% LOVE 60% 78% WELL-BEING 70% 75% SAFETY 63% 73%

10. Invest in future and experiences Appearance, health maintenance and preventive measures Personal and children education Thirst for experiences # 2009 vs. 2007 FITNESS CLUBS 140 BEAUTY SALONS 125 TOP 5 CONCERNS OF RUSSIANS ECONOMY JOB SECURITY WORK/LIFE BALANCE HEALTH CHILDREN EDUCATION AND WELLFARE

11. She is highly involved in Health and Beauty 2009 – She purchases more cosmetics and skin care products. Shopping for beauty is considered as “time for myself” and is expected to be a pleasurable experience. Source: TGI Russia, 2009 FOM fact-book 2009, MCA 2003 Usage of cosmetics (%), 2000-2009 Women 45+ Moscow Russians are heavily beauty focused 57 89 Being well dressed is important, % 41 90 Be attractive for men is important, % WE Russia

12. What did we learn regarding Crisis Impact on Russian Consumer?

13. 2008 Crisis Hit 2008-09 economic changes have affected Ivanovs’ welfare

14. Purchasing Power in Moscow, St Petersburg and the top cities won’t decline significantly: Absolute income level is high. Unemployment risk is lower. Consumers have alternative sources of income. Share of FMCG in consumption basket is lower to save on. While small cities are more strongly affected by the crisis: Township enterprises are suffering financial difficulties. leading to consumption crisis in regions. Retailers are revising their plans in regions. Families living in big cities are not as affected by crisis as their friends in smaller cities of Russia Novosibirsk Krasnoyarsk Vladivostok Ekaterinburg Volgograd Saratov Moscow St.Petersburg Kazan Samara Izhevsk Omsk Chelyabinsk Perm Ufa

15. The Ivanovs reflected financial constraints in their spending behavior Cut down on out of home entertainment Postpone some home improvements Cut travelling Started saving on non-essential food and clothes Shopping behavior became more rational Source: Crisis Tracker consumer research

16. The Ivanovs are stressed, more than ever before 1) Life is very busy 2) Now they have less possibilities to pay for free time and retreat Source: TGI and Crisis Tracker (COMCON) Russian consumers saved on: Eating out 38% Leisure, travels 24% Hobby, sport 23%

17. The Ivanovs changed their shopping behavior: P&G crisis tracker JFM’2009 % consumers Changes In Product Usage Russia Ukraine 2009 2009 Switched to cheaper stores 18 24 Switched to cheaper brands 16 16 Up-sized 9 10 Down-sized 3 4

18. How could we together improve the lives of Russian Consumers post-crisis?

19. Forced to change store Looks for information on news and promotions Expects to find the right product for her Expects to be treated like a valued customer Meet the shopper needs in-store Consumers are lost in front of the shelves:

20. Opportunity for joint collaboration between Retailers and Suppliers to improve in-store experience: 1. Help to organize departments & categories according to SHOPPER NEEDS 2. Drive PRODUCT AVAILABILITY on-shelf

21. Shopper behavior differs by trade channel She does BIG time-consuming shopping for WHOLE FAMILY in Hypermarkets She EXPECTS PROFESSIONAL HELP in baby Stores She BROWSES AND LOOKS FOR INFO/EXPERIENCES in Perfumery She COMES TO SOCIALIZE to Open Market She makes ROUTINE purchases at BEST PRICE in Discounter She is ready to PAY MORE for BEST QUALITY in Pharmacy

22. Design right Shopping Experience for each channel Relevant Assortment Right Shelf based on Shopper Decision Tree Right Category Adjacency within the Department Right Navigation Right Promotional Strategy

23. EXAMPLE: Grooming Category Re-design in KARUSEL Male Grooming Category Shoppers 70% of shoppers buy Blades & Razors from the main shelf Highly planned purchase - above 70% High level of loyalty on Blades&Razors (retailer loses 66% if OOS) Key Actions Blades & Razors in Open Access Shelving according to Shopper Decision Tree Loss prevention procedures implemented R esults 1. Growth index: Blades & Razors +89% Shave Category Total +50% 2. Shrinkage decreased 2 times

24. Improving Product Availability In-Store Shelf OOS reduction Joint Root Cause Analysis Category-specific approach Leverage technology to optimize Supply Advanced EDI; GDSN Reduce Shrinkage Focus on high pilferage items/ implement “Roadmap”

25. Improving Shelf Availability: Win/Win opportunity between Suppliers and Retailers Target < 5% Focus on Baby Diapers. Key Actions: Improving service ex-P&G via by-customer volume forecasting Assortment alignment/ non-active EAN codes in Retailer/P&G database clean-up Joint work with retailers to improve category planograms based on SKU turnover Test Category Space Extension

26. Enabling Technologies in Joint Integration Areas P&G and METRO: Integration of advanced EDI into daily business procedures 3 full-time employees work-reduction (Joint value for P&G and METRO); Assured data accuracy in invoicing documents Service level increase by 14 points Implementation of advanced electronic data flow Switch to Direct Deliveries via MGL Information flow optimization and automation of core logistics processes

27. Reducing Shrinkage ECR approach Traditional approach Mistakes in processes Mistakes during goods acceptance Internal theft External Theft (30%) Losses/ shrinkage

28. In Summary: It starts with deep understanding of the Russian consumer and environment Suppliers and Retailers should partner to turn this knowledge into winning in-store solutions; Those who collaborate most effectively will best meet the needs of their consumers

29. THANK YOU