Private label in 2012 – Market analysis and development forecasts for 2012-2014

Leading players The retailers in Russia have a short history of private label development compared to the leading companies on the mature European markets. The , Metro Group and Tander are among the first to introduce private labels in their offer in Russia.

Year of launching private labels by leading retailers in Russia

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Retailer Year of private label launch X5 Retail Group 2001 Tander 2002 2004 Lenta 2004 Metro Group 2001 O’Key Group 2007

Source: PMR Publications, 2012 www.pmrpublications.com

While in 2010 Tander was the leader of the private labels market in terms of sales and was followed by the X5 Retail Group and Auchan Group, the situation on the market changed in 2011. In 2011, the X5 Retail Group managed to earn RUB 50.7bn ($1.7bn) due to private X5 Retail Group, labels sales, and Tander gained RUB 46.8 bn ($1.6bn). Regardless of the insignificant gap in private label sales, the X5 Retail Group became the official leader in value terms of the private Metro Group and label market in Russia. Tander are first to One of the most active players on the market of private labels was the Kopeyka retail introduce private chain which boasted the largest share of private labels in the total revenue. However, in 2010 the chain was acquired by the X5 Retail Group. Thus, the X5 Retail Group expanded its labels in Russia. portfolio by such private labels as Romashkino (dairy products), Sladograd and Korolevskiye traditsii (confectionery), Eco and Sunway (juices), and Brigadirskoye (beer). It is important to note that the majority of the leading retailers have ambitious plans on further private label development. The X5 Retail Group plans increasing its private labels’ share up to 50% in Pyaterochka stores, to 25% in Perekryostok supermarkets and to 10% in Karusel hypermarkets (now the shares are estimated at: 17%, 7% and 7%, respectively). Auchan, which launched private labels straight after entering the Russian market (in 2002), intends increasing its own brands’ share in the total sales up to 17% introducing 500-700 SKUs under private label annually. Prisma hopes to increase the share of private label up to 35-40% in the total product range and to 15-25% in the chain’s sales. The O’Key Group plans to increase the share of its private labels up to 70% in the future. Achievement of this goal would mean transformation of the hypermarket chain into a hard discounter format. Unlike many other retailers, the Tander Group believes that the Russian market is not fully prepared to accommodate private labels as it is not saturated with manufacturers’ brands. The company does not plan to considerably increase the private labels share in the product range of its stores (the growth at a slow rate is expected in the future). Sedmoy Kontinent is also very cautious about increasing the share of private labels in its total offer believing that manufacturers’ brands should be well represented on the shelves of the chain’s stores.

www.pmrpublications.com 35 Private label in Russia 2012 – Market analysis and development forecasts for 2012-2014

Lenta store count in Russia, February 2012

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Region City No. of stores St. Petersburg 15 Cherepovets 1 Northwestern Petrozavodsk 1 Veliky Novgorod 1 Pskov 1 Krasnodar 2 Volgograd and Volgograd Province (Volzhsky) 2 Astrakhan 1 South-Volga Novorossiysk 1 Rostov-on-Don 1 Saratov 1 Novosibirsk 4 Barnaul 1 Siberia-Ural Omsk 2 Tyumen 1 Nizhny Novgorod 2 Tolyatti 1 Naberezhnye Chelny 1 Central Penza 1 Ryazan 1 Tver 1 Total 42

Source: PMR Publications based on the company data, 2012 www.pmrpublications.com

Private label programme in Russia  Estimated share of private labels in sales for Lenta stores: 9% in 2010 and 10% in 2011  Estimated share of private labels in the product range for Lenta stores: 13%. The total number of private label items sold at Lenta stores is about 1,700 SKUs, which includes about 700 SKUs in food and 1,000 in non-food categories. Initially, the company offered products under two private labels, namely Lenta and 365 Dney (365 days in English). The product range included both food (biscuits, sugar, coffee, sunflower-seed oil, canned pineapple, etc.) and non-food items (wipes, toilet paper, charcoal, fumigators, etc.). However, later it was decided to add one more trademark in the company’s private labels portfolio, namely the Dolce Albero.

Private labels of Lenta in food category,February 2012

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Private label Description Lenta is a private label for quality products offered at a reasonable price in the upper-medium segment. Lenta The label was developed as an alternative to the leading manufacturer’s brand. Lenta is positioned in the medium price segment and products bearing the Lenta name are priced lower than the national leader. 365 Dney is a private label often acquired by resellers. That is why it is possible to find products under 365 Dney this brand outside Lenta stores. The major advantage of 365 Dney is the price. 365 Dney offers the lowest price of all comparable products offered on regional markets with stable product quality control. Dolce Albero is a private label covering confectionery items. The label is positioned Dolce Albero in the medium price segment.

Source: PMR Publications, 2012 www.pmrpublications.com

www.pmrpublications.com 93 Private label in Russia 2012 – Market analysis and development forecasts for 2012-2014

Selected product categories accommodating private labels in identical package size and different price segments, February 2012

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Product category Retail chain Private label Retail price (RUB) Package/quantity Auchan 73.74 Spaghetti Auchan Kazhdy Den 12.55 500 g Don Gusto 19.93 Kazhdy Den 24.63 Air freshener Auchan 300 ml CleanOK 31.28 Kazhdy Den 11.07 Washing-up liquid Auchan 500 ml CleanOK 22.97 Vivo Grano 24.90 Spaghetti Dixy 450 g Tozhinki 15.90 Ladnye 24.40 Spaghetti Karusel 400 g Krasnaya Tsena 9.90 365 Dney 43.00 Black tea Lenta 100 teabags Lenta 100.00 365 Dney 18.00 Fabric softener Lenta 1,000 ml Lenta 54.00 365 Dney 7.80 Wet wipes Lenta 20 pcs Lenta 16.00 Fine Dreaming 40.99 Cotton pads Metro Cash & Carry 80 pcs Aro 17.69 Horeca Select 159.98 Liquid soap Metro Cash & Carry 5,000 ml Aro 119.99 Fine Dreaming 68.99 Toilet paper Metro Cash & Carry 8 rolls Aro 59.68 X-tra 23.00 Cotton sticks Prisma 200 pcs Rainbow 35.50 X-tra 39.90 Liquid soap Prisma 500 ml Rainbow 70.90 X-tra 72.90 Toilet paper Prisma 8 rolls Rainbow 97.00 Ne pereplachivay 12.90 Black tea Spar 20 teabags Spar 19.90

Source: PMR Publications, 2012 www.pmrpublications.com

Sometimes, private labels representing different price segments differ not only by price. Retailers offer various package sizes for each private labels in the same product category in order to make the value stand out to consumers. For example, the O’Key retail chain tends to offer items under the O’Key brand, positioned in the medium price segment, in larger packaging compared to no-name products in the low price segment. As for the Lenta retail chain, the size of packaging does not correlate to the price positioning of the private label.

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