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CIS countries – attractive
for retailers despite
economic crisis
March 2010
PMR
P U B L I C A T I O N S
CIS countries – attractive for retailers despite economic crisis
In the last decade, foreign interest in retail in the CIS countries has risen
dramatically. This is no surprise – the region is inhabited by 277 million people but
does not yet have a well developed retail industry.
Despite their geographic proximity to one another, CIS countries have little in common
in terms of political, social and economic characteristics. The retail industry in these countries
is, therefore, far from being homogeneous, yet it is one of the most dynamically developed
sectors in the CIS.
Among the CIS members, Russia and Ukraine are regarded as the most appealing
locations for investment in the retail segment. The lion’s share of retail turnover generated in
the CIS group of countries is accounted for by Russia.
Shares of the retail turnover in CIS (%), 2008
Armenia
0.5
Uzbekistan
Kyrgyzstan
1.3
0.5
Moldova
Azerbaijan
0.4
1.8
Tajikistan
Kazakhstan
0.3
2.8
Belarus
3.2
Ukraine
12.4
Russia
73.5
Source: Interstate Statistical Committee of the Commonwealth
of the Independent States, 2010
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Interstate Statistical Committee
of the Commonwealth of the
Independent States
1
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CIS countries – attractive for retailers despite economic crisis
Rapid economic development of the CIS countries from 2000 to 2008 led to an increase
in personal incomes, which subsequently drove an increase in the value of total retail turnover.
Since 2000 nominal GDP in the CIS has risen by 71% and, at the end of 2008, amounted to
$2,167.3bn. During the same period, retail turnover rose by 171% and amounted to $758.5bn
in value.
Nevertheless, the global financial crisis has altered the economic landscape of the CIS
countries. In 2009 GDP fell by 7% compared with 2008 and retail turnover decreased by 6%
year on year in volume terms.
Retail trade* and GDP indices in CIS (%, y-o-y change), 2001-2009
20
Indices
15
10
5
0
-5
-10
2001
2002
2003
2004
2005
2006
2007
2008
2009
Retail trade indices
12
12
10
14
14
16
17
14
-6
GDP indices
6
6
8
8
7
8
9
6
-7
* volume indices
Source: Interstate Statistical Committee of the Commonwealth
of the Independent States, 2010
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Up until 2008, both retail trade turnover and GDP had been on the rise. The growth of
the retail sector had been even more dynamic. Since 2009 this has changed and the rate of
growth has slowed. The majority of CIS members – Ukraine and Russia among them – recorded
a decline in the volume of turnover from retail trade last year. However, despite setbacks
elsewhere, several countries recorded positive year-on-year growth in this department. These
were: Azerbaijan, Armenia, Belarus, Tajikistan and Uzbekistan.
Retail trade indices in CIS countries (%, y-o-y change), 2009
17
Ukraine
Moldova
Russia
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-0.1
1
Azerbaijan
Kazakhstan
Note: volume indices
Source: Interstate Statistical Committee of the Commonwealth
of the Independent States, 2010
3
Armenia
-5
9
Kyrgyzstan
-4
Tajikistan
-17
Belarus
-4
Uzbekistan
-6
CIS average
10
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CIS countries – attractive for retailers despite economic crisis
Share of foodstuffs and non-food products in retail turnover
in CIS countries (%), 2009
64
Azerbaijan
36
60
Armenia
40
53
Kyrgyzstan
Tajikistan
Belarus
47
51
49
50
50
Uzbekistan
48
Russia
46
52
54
Moldova
33
67
Ukraine
32
68
Kazakhstan
32
CIS average
0%
68
45
20%
55
40%
Foodstuffs
Source: Interstate Statistical Committee of the Commonwealth
of the Independent States, 2010
60%
80%
100%
Non-food products
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The recession in the CIS area is expected to stimulate mergers and acquisition activity
(M&A) in the retail industry. Retailers experiencing problems become more attractive as
potential acquisition targets. An example of such activity is the acquisition of a 50%-plus-oneshare in the Russian consumer electronics chain Eldorado (operating in Russia, Ukraine and
Kazakhstan) by the Czech entity PPF Group in October 2009. Another example is the takeover
of the 82-supermarket Paterson chain by the Russian retailer X5 Retail Group at the end of
last year.
Many CIS retail chains have already found that, in the current climate, they are unable to
grow at the same rate as had been possible before the crisis and have suspended their capitalintensive projects. The near future is likely to be a difficult period for those medium-sized
national and local players that have taken considerable bank loans to fund their development.
For example, the Ukrainian retailer of consumer electronics and household appliances and
operator of 17 stores, City.com, is on the verge of bankruptcy after having amassed debts
of UAH 200m ($25.1m). In contrast, larger players are likely to be in a better position to
withstand the crisis, with government support or cooperation with international players more
likely to be an option for such organisations.
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CIS countries – attractive for retailers despite economic crisis
Russia
In recent times, Russia has emerged as one of the world leaders in terms of providing an
advantageous retail environment. In fact, owing to its rapid economic growth and favourable
policy framework, Russia is the second most attractive destination for retail after India,
according to the A.T. Kearney Global Retail Development Index (GRDI). The GRDI identifies
the opportunity to invest in organised retail. Russian retail business is considered to be very
attractive since the retail segment is still underdeveloped, logistics networks are beginning to
improve, disposable income has been on increase and the competition level is generally still
low. In addition, the global financial crisis has served to lower the cost of entering the market,
with rental rates, as well as construction material and labour costs, all having fallen.
Despite this favourable climate for investment, the Russian retail segment witnessed
significant decline during 2009 due to the effects of the global financial crisis and a slowing
economy, both of which have led to low consumer confidence and a contraction in consumer
spending. In 2009 total retail turnover in Russia amounted to RUB 14,516.9bn ($494.9bn) – a
year-on-year increase of just 4.3% and 23.8 p.p. lower than the growth rate reported one year
earlier. In volume terms, retail trade turnover fell by 5.5% compared to the equivalent 2008
figure. However, in January 2010 retail turnover increased in volume by 0.3% year on year,
which marks the first growth since the onset of the economic crisis.
According to the Federal State Statistics Service 1,152,900 people work in the retail
industry in Russia, a figure equating to 3.1% of the country’s total workforce. In addition,
each of the seven federal districts exhibit considerable differences in terms of the current
stage of development of the retail markets, competition level and thus, their development
prospects. These differences are influenced by the number of people inhabiting each of the
federal districts, their purchasing power and also the number of retail outlets in each district.
For example, the smallest, but most populous federal district, the Central Federal District,
which includes Moscow, is the largest retail market in the country, accounting for one-third of
retail sales in the country.
Structure of retail trade turnover in Russia by types of trade (%), 2009
Medium enterprises
3.3
Sales of goods in retail
markets and fairs
13.6
Organisations except
small and medium
entrepreneurship
31.2
Small businesses
25.8
Individual entrepreneurs
out of market
26.1
Source: Rosstat, 2010
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2
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As of November 2009
CIS countries – attractive for retailers despite economic crisis
In addition to the aforementioned factors, the current structure of the retail segment in
Russia should also be taken under consideration. The majority (almost two thirds) of turnover
from Russian retail is generated by traditional channels, individual entrepreneurs in the form of
open-air markets, fairs, bazaar stands, hawkers’ trays, kiosks and small corner shops.
The Russian retail segment is fragmented, as illustrated by the fact that the top five
retailers, together, account for just 7% of all sales. The current situation is seen as being an
attractive environment for M&A activity, both for domestic and foreign retailers.
Largest retail market players in Russia, by sales revenue ($ m), 2008
�
Retailer
1
2
3
4
5
6
7
8
9
10
X5 Retail Group
Tander
Auchan Group
Metro Group
Eldorado
Euroset
M.Video
Lenta
O’Key
Dixy Group
Country of
origin
Russia
Russia
France
Germany
Russia
Russia
Russia
Russia
Russia
Russia
* Auchan hypermarkets only
Source: Report “Retail in Russia 2009”, PMR, 2009
Chains
Pyaterochka, Perekrestok, Karusel
Magnit
Auchan
Metro Cash and Carry, Real
Eldorado
Euroset
M.Video
Lenta
O’Key, O’Key Express
Dixy, Megamart, Minimart, V-Mart
2008 Sales
($ m)
8,892
5,348
5,165*
5,076
3,873
3,202
2,883
2,350
2,028
1,948
Store
count
1,101
2,582
33
60
450
4,245
162
36
36
493
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Ukraine
Prior to the onset of the global financial crisis, there were many ongoing investment
projects in Ukraine. With an annual growth rate of around 18% in 2008, the Ukrainian retail
market was one of the fastest developing in Europe. However, the impact of the crisis has been
severe. In 2009 Ukrainian retail turnover fell by -16.6% year on year and amounted to UAH
442.8bn ($55.5bn).
Many factors contributed to this decline. Firstly, interest rates rose to 15-25%, thus limiting
the ability of retail chains to expand while simultaneously having the effect of increasing the
value of their debts. Secondly, the crisis resulted in the Ukrainian real estate market being hit
hard, which resulted in the suspension or abandonment of many retail construction projects.
Thirdly, devaluation of the national currency (Ukrainian hryvnia) caused the price of imported
goods to rise dramatically. Fourthly, in October 2009 the Ukrainian government officially
announced its plans to develop and increase the share accounted for by traditional open-air
markets (bazaars), where agricultural products, including meat and milk, would be sold.
The Ukrainian retail industry can be described as unconsolidated. In 2008 the total share
accounted for by the twenty retail operators combined was just 21% and the share accounted
for by the top ten was just 18%. As a point of comparison, in Hungary the top ten retailers
account for an 88% share of sales and in Slovenia, the figure is higher still –99%.
Including retail trade turnover of
enterprises (legal persons) engaged
in retail trade, estimated data on
sales of goods in markets and by
natural persons (businessmen).
3
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CIS countries – attractive for retailers despite economic crisis
The crisis has cleared the way for M&A activities in Ukrainian retail. Market players with
reliable, stable sources of financing, such as Auchan, Metro Cash & Carry and the Ukrainian
chain Fozzy Group, are continuing to develop and grow.
Largest retail market players in Ukraine, by store count, 2009
�
1
2
3
4
5
6
7
8
9
10-11
10-11
Company
Chains
ATB Market
Fozzy Group
Furshet
PAKKO Holding
ATB
Silpo, Fora, Bumi, Fozzi
Furshet
Vopak, Pakko
Fresh, Arsen, Kvartal, Soyuz,
Fresh-Market
Brusnytsia
EKO-Market
Nash Kray, Nash Kray-express
Velyka Kishenya, Prosto Market
Rukavyczka
Rainford
Evrotek
Ukrainian Retail
EKO
VolWest Group
Kviza Trade
Lvivholod
Rainford
Source: GT Partners Ukraine, 2010
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Store
count,
2009
372
298
99
86
Store
count,
2008
292
283
102
85
Number
of regions
present
14
24
21
10
74
9
11
68
67
55
48
43
43
38
65
58
52
30
14
5
14
13
18
1
4
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