Transcript Document

David Noble
Supervisory Board Director
Boston 29th October , 2003
Introduction
• 1
The Food Retail Market in Russia
• 2
A Brief History of Pyaterochka
• 3
Questions and Answers
2
Overview
An Overview of the Russian Food Retail
Market in 2003
AT Kearney Global Retail Development Index
4
Current Market saturation
Modern retail
area per
inhabitant
Time
pressure
Number of
international
retailers
Countries
Country risk
Weights:
40%
20%
20%
20%
100%
Russia
51
95
76
87
72
Slovak Republic
59
80
59
100
71
China
67
73
41
86
67
Hungary
71
69
53
69
67
India
48
100
94
34
65
Turkey
44
72
76
86
64
Morocco
55
98
88
18
63
Egypt
52
98
88
24
63
Vietnam
49
99
82
17
59
Tunisia
54
85
88
13
59
South Korea
67
44
59
54
58
Chile
56
73
10
58
Legend:
Risky 0
Safe 100
Saturated 0
Not saturated 100
Source: AT Kearney GRDI 2003-( EDS)
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Saturated 0
Not saturated 100
No urgency 0
Urgency 100
Grade
Don't go 0
Go 100
Go Now
Go
Institute of Grocery Distribution’s (UK) Market Index
Country
Rank
% Score
China
1
70%
Italy
1
70%
Russia
1
70%
Japan
4
68%
Hungary
5
66%
India
5
66%
United States
5
66%
Poland
8
65%
Canada
9
62%
France
9
62%
United Kingdom
9
62%
Germany
12
61%
Turkey
13
61%
Status
Priority 1 markets
Priority 2 markets
Top 5 European Grocery Markets (2001)
Country
Grocery Market (€ bn)
Germany
204
France
176
United Kingdom
162
Italy
134
Russia
99
Source: Institute of Grocery Distribution (IGD)
6
Western food retailers in Eastern Europe
Poland
Czech
Republic
Hungary
Romania
12
Carrefour
68
9
Ahold
169
225
Metro
45
9
12
Tesco
63
18
56
Rewe
37
180
150
Intermarché
57
E de ka / A V A
43
Te nge lm a nn
127
A uc ha n
27
C a sino
115
Russia
4
11
1
94
139
4
D e lha iz e
Lidl
7
3
43
18
12
30
20
Population (m)
38.7
10.3
10.0
22.4
145.5
Grocery retail market ($bn)
29.0
9.5
7.5
12.1
89.0
Source: IGD, M+M Planet Retail
Food retail spending in Moscow by outlet type
Supermarkets and hypermarkets
12%
Traditional small
shops and kiosks
58%
Outdoor markets
30%
Source: Moscow City Hall
8
Major food retailers in Russia
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Number of stores
Chain / Company
Gross turnover, $m
2000
2001
2002
2000
2001
2002
Pyaterochka
38
80
135
75
212
501
Perekrestok
28
38
46
156
252
333
Ramstore
9
9
15
125
250
308
Sedmoy Continent
15
22
31
124
201
301
Kopeika
16
23
27
60
116
182
Dixi
23
28
40
20
70
n/a
Bin
n/a
26
32
70
100
120
4
10
16
12
40
82
Paterson
Source: Company data, UFG
Share of top 3 food retailers
Country
10
Market share (%)
Sweden
95%
Norway
86%
Netherlands
83%
Finland
80%
Switzerland
75%
France
66%
Austria
56%
Germany
53%
UK
52%
Hungary
26%
Czech Republic
26%
Slovakia
19%
Poland
11%
Russia
1.1%
Source: ACNielsen, Company estimate for Russia
Why international retailers have not come (Yet!)
• shortage of suitable retail properties
• the difficulty of getting access to land and necessary
permits
• lack of long-term leases
• underdeveloped supply infrastructure
• huge distances between major urban centers
• shortage of qualified retail staff
• BUT IKEA , METRO, AUCHAN, AVA/EDEKA have
taken the plunge
Market Summary
• Russia is among the world’s top 10 grocery
markets with over $100 bn turnover in 2002
• Share of open markets and small shops is still
high
• Domestic food retail chains enjoy strong
growth, but share of top 3 retailers is only 1.1%
• Foreign competition is insubstantial
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Pyaterochka Overview
Pyaterochka: Introduction
• Pyaterochka is the leading grocery chain in
Russia by sales and number of stores
162 own stores and 20+ franchised
• Pyaterochka was formed after 1998 financial
crisis from two food wholesale operations
• First store opened in February 1999
• Positioned as a soft discounter with 3500
products
• Average store size 585 sq m
• Mostly located in residential districts
• EBRD has been a shareholder since 2001
14
New store openings in 1999-2003E: Rapid Growth
Openings in Moscow
Openings in St Petersburg
15
17
1999
21
2000
40
41
27
15
2001
2002
11
2003E
15
Pyaterochka stores
in St. Petersburg and Moscow
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Pyaterochka Proposition
OUR CUSTOMER
Low to middle income group
Average basket ~ $4.5
Frequent shoppers
Majority do not have cars
Live within 1,5 km
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STORE CHARACTERISTICS
Convenient location
Competitive prices
Guaranteed quality of products
Well-chosen range of products
Always in stock
One of Pyaterochka stores in St. Petersburg
18
Inside the store
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Pyaterochka Phase One Strategy
•
•
•
•
Build Pyaterochka brand as fast as possible
Lease all stores rather than buy or build
Increase range from 600 to 3500 SKU’s
Build reputation for low cost quality branded
goods
• Concentrate on supply chain issues
• Introduce best practices throughout
organisation
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Pyaterochka Phase Two Strategy
•
•
•
•
•
•
•
Continue aggressive roll out strategy
Buy well located stores
Build stores when the opportunity arises
Introduce a number of own label products
Leverage buying power to keep prices low
Build consolidated warehouses
Introduce best of breed IT solutions across the
supply chain
• Develop larger format
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Pyaterochka Critical Success Factors
• Keep it simple
– Limited Promotional Activity
– No Internet Home Delivery
– No Credit and Loyalty Cards
• Every day low prices
– Same price in every store in each region
• Well trained employees
– Pyaterochka training school 3 week course
• Source products locally
– 2000 50% of all products imported
– 2003 95% of all products bought locally
• Always in stock
– Very high sales per sq m on a range of 3500 products
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Pyaterochka as a Proxy for Russia - Positives
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• Rapid growth in all forms of organised retail
• Stock market up by over 50% av for each of
last three years
• Increasing interest from Multi Nationals in
setting up local operations
• All big 4 accountants present and very busy
(and expensive)
• EBRD and IFC very active
• Top Law Firms and Investment Banks returning
since 1998 financial crisis
Pyaterochka as a Proxy for Russia - Negatives
• St Petersburg and Moscow reasonably easy
places to do business- regions less so
• A bit of a bubble again with high real estate
prices. Leases still short 5-6 yrs common
• Infrastructure Road & Rail need investment
• Little sale/ lease back activity
• No 3rd Party Logistics Operators- Do it all
yourself!
• Red tape does mean you need a local partner
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Pyaterochka Key Challenges
• Finding appropriate locations
– 2 teams of people in St Pete & Moscow
• Keeping highly trained employees
– Continual learning at training school
– Above average compensation
• Keeping costs low
– Re-investing supplier discounts into lower
prices for customers
• Fight competition
– Outdoor markets, other discounters,
Western operators
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Financials and operating data
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2000
2001
2002*
2003F
38
80
135
187
67.3
190.6
493.2
750.0
EBITDA, $m
3.0
10.7
38.1
58.0
EBITDA margin, %
4.3
5.6
7.7
7.7
Number of stores
Net sales, $m
* A udited, IA S
Key performance measures in 2002:
• Inventory turnover: 11 days
• Average purchase bill: $4.5
• Average daily number of purchases: 296,228
• Sales/sq. metre of selling area: $8.986
• Long term debt/equity: 0.05 (as of end 2002)
Benchmarking Analysis: European Comparables
EBIT ROCE in 2002
69,9%
Pyaterochka
Metro
15,3%
Tesco
14,4%
Carrefour
13,8%
Delhaize
12,1%
Casino
11,9%
Sainsbury
11,8%
Ahold
11,6%
Jeronimo Martins
9,4%
Source: SSSB, Company data (audited IAS)
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Pyaterochka Plans
 Continue rapid organic growth of existing format
in Moscow & St. Petersburg
 Increase purchasing power with suppliers;
enhance gross margins and volume
 Increase share of owned and purpose built
stores to 50/50
 Expand into the regions (through franchising)
 Develop larger format
 Be well positioned to fight eventual competition
from other Russian and foreign retailers
 Become a strong candidate for an IPO
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Conclusion
• Growth in consumer spending in Russia will
further boost development of all retail chains
• Food retail industry is very fragmented, but
entering stage of fast consolidation
• Suppliers need to set up shop in Russia to do
business
• Excellent opportunities for western Suppliers
prepared to invest in Russia
• Logistics and IT services companies in short
supply but translation issues must be tackled
• Own label manufacturers will have massive
demand over next 5 years
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Contact details
Any questions? E mail
David Noble
Supervisory Board Director
Pyaterochka
e-mail: [email protected]
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