PRESENTATION FOR PLMA‘s Roundhouse Conference

European Trends Retailing in Europe and Country Profiles

Nice, 26 February 2015 David Gray Niklas Reinecke

1planetretail.net Retail Analyst Retail Analyst Ageing Society, Single Households, Individualisation, Urbanisation, Mobilisation, Transparency in Production, Loss of Loyalty, Online Shopping, Two Nations Effect, Lifestyle, Situational Usage, Economisation, Cocooning, Smart and Hybrid Shopping, Sustainability, Technological Progress, Energy Saving, Regional Sourcing, Faster Innovation Cycles, Renovation Cycles, Rise of Independent Shopkeepers, Proximity Retailing, Energy Costs, Rising Food Prices, Direct-to-Consumer, Demand for Protection, Verticalisation, Cartel Control, Oligopolisation, Discounting, Multichannel Shopping, Event Shopping, Foodservice, Complexity! Europe from a Macro Perspective Europe from a Macro Perspective - Share of Modern Food Retail Format Sales

A few markets in CEE see very high levels of modern food retail similar to Western European markets.

Europe: 2014 (%)

4 Source: Planet Retail. Europe from a Macro Perspective – GDP Real Growth

Economic recovery is not universal. Markets are in different stages.

. Europe: GDP Real Growth 2014 (%)

+2.1% +1.8% Finland

-0.2% Sweden Norway +1.2%

+2.7% +0.2% +3.0% Estonia +1.5% Russia

+ % Latvia 3.6 Denmark +3.2% Lithuania +1.0.% +0.6% +3.2% Belarus Ireland Netherlands +1.4% United +1.0% +2.5% +8.9% Kingdom +2.4% Belgium Germany Czech Rep +2.8% Ukraine +1,2% +1.1% Slovakia +2.4% +0.4% Austria Hungary France Switzerland Slovenia +0.7% Romania Moldova +5.0% Croatia Italy Serbia+3.4% +1.4% -1.1% Bosnia & -0.8% Herzegovina +3.2% -0.2% -0.5% Bulgaria +4.5% +1.3% +2.1% -6.5% +1.0% Macedonia Georgia Spain Albania Armenia Portugal +0.6% Azerbaijan Greece +0.7%

Cyprus

5 Source: Planet Retail. Europe from a Macro Perspective - Modern Food Retail Format Sales

Despite a current slowdown of the Russian economy, Eastern Europe will see a higher MFRF sales CAGR than Central Europe over the next five years.

Europe: Modern Food Retail Format Sales, 2014-2019f (EUR bn)

1,600

1,400 Western Europe 1,200 Central Europe Eastern Europe 1,000

800

600

400 Modern Food Retail Sales bn) (EUR Retail Food Modern

200

0 In Western Europe, poorly-performing retailers such 2014e 2019f as Metro Group are contributing to the slow growth.

Note: f – forecast Source: Planet Retail 6 Central Europe Grocery Retailing in CEE - Central Europe: Grocery Channels by Sales

Central Europe: Discount stores are poised for strongest growth in the region, followed by Hypermarkets & Superstores and neighborhood stores will remain the largest sales channel.

Central Europe: Channel Sizes by Sales, 2008-2019f (EUR bn) 60

2009 2014

50 )

50 2019f bn

40

42

40

34 34

30 33

28 24

Retail Banner Sales (EUR (EUR Sales Banner Retail 20 15

10 13

13

11

8

3

5

0 1 2 0 Supermarkets & Hypermarkets & Superstores Discount stores Cash & Carries & Wholesale Convenience & Forecourt Non-store commerce Neighbourhood stores clubs stores

Note: Data relates to retailers in the PR database only; f – forecast. 8 Source: Planet Retail Grocery Retailing in CEE - Central Europe: Total Banner Sales of Top 10 Retailers

Central Europe: Both leading Schwarz Group (/) and number two Jerónimo Martins are expected to keep their strong growth.

Agrokor‘s acqusition of Mercator created a new behemoth in the Balcans.

Total Banner Sales of Top 10 Retailers, 2014-2019f (EUR bn) 30,000

25,000

2014 )

20,000 bn 2019f

15,000

10,000 Banner Sales (EUR Banner 5,000

0 Schwarz Jerónimo Metro Group Agrokor Rewe Group EURO Group Martins

Note: f – forecast. Source: Planet Retail

9 1. Country Overview

Poland enjoys growing food retail sales per capita, despite demographic challenges.

Population, 2014f (million) Metropolitan Food Retail Sales per capita, 2014f (EUR) 3.0 2.6 1.4 2,926 1,968 1,809

Warsaw Katowice Lodz Warsaw Katowice Lodz In terms of consumer spending, leading Polish cities promise a market size equivalent to some of the smaller Central European countries. Central Europe: Consumer Spending in Selected Polish Cities vs. Central European markets, 2014f (EUR bn)

) 70 62 59 bn 60

50 43 40 30 26 26

20 13 12 10

Consumer Consumer spending (EUR 0 Hungary Warsaw Slovakia Katowice Croatia Lódz Cyprus

Note: f – forecast 10Source: Planet Retail Grocery Retailing in CEE - Poland

Fast channel change in CEE: e.g. Poland’s discount share of food retail is the largest in the CEE region.

POLAND: Channel Development in Food Retail, 2000-2020 (%)

100

90

80

70

60

50

40 Food Retail (%) FoodRetail 30

20

10

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Hypermarkets & Superstores Supermarkets & Neighbourhood Stores Discount Stores Others

11 Source: Planet Retail 2. Competitive Environment

Eurocash

Eurocash became the largest wholesaler in Poland after acquiring Tradis Distribution in 2012. It is also increasingly experimenting with convenience stores channel.

. Eurocash partners with nearly 10,000 retail stores across the country. Abc Mini Bistro in an abc store offering snacks and . Creating synergies with Tradis and its partners like the beverages. It is currently Lewiatan network is the main priority. It is also investing in available in 300 stores.

the outlet expansion of its own banners like .

Eurocash © © . Eurocash acquired two chains in 2014, Inmedio and 1 minute. Inmedio also operates Inmedio Café.

. In Q3 2014, Eurocash launched e-grocery site frisco.pl. Eurocash cash & carry is still the core business of Eurocash Group. . A partnership with independent franchise network abc is expanding fast, currently consisting of 6,170 stores. The network introduced abc Mini Bistro in 2013, a concept strategy suggested by Eurocash.

Inmedio Café allows shoppers to read their newspapers as they have

a hot drink or a snack.

Carimali © ©

12 Grocery Retailing in CEE - Competitive Environment

Biedronka in Poland

Biedronka in Poland: Total Banner Sales per • EUR800 million investment in 300 new stores in channel, 2014e Poland from 2015-2017

• More proximity penetration, battling with Zabka Drugstores EUR9.3 billion 1% • Calls for massive investment into logisitics Banner Sales in Poland • Mulling over online grocery operation in Poland

• Internationalisation on the agenda: Romania, Russia, Ukraine and Turkey 2,587 Biedronka Discount Stores discount stores 99% 99% Turnover from discount channel

Notes: e- estimate, f – forecast 13 Source: Planet Retail Eastern Europe Grocery Retailing in CEE – Eastern Europe: Grocery Channels by Sales

Eastern Europe: Supermarkets & Neighbourhood stores remain the most important channel followed by Hypermarkets & Superstores.

The impact of the Ukraine crisis alongside a deteriorating economic environment in Russia will cause slower growth rates going forward.

Eastern Europe: Channel Sizes by Sales, 2008-2018f (EUR bn)

80 2009 2014 2019f

) 70

bn Unlike Central Europe, 67 60 discount stores have virtually 61 no impact in Eastern Europe.

50 48

40

42 39

Retail Banner Sales (EUR (EUR Sales Banner Retail 30

20 24

10

9

10

8

7

2

6

4 4 0

Supermarkets & Neighbourhood Hypermarkets & Superstores Cash & Carries & Wholesale clubs Non-store3 commerce Convenience & Forecourt stores stores

Note: CAGR calculated in EUR. Data relates to retailers in the PR database only; f – forecast. Source: Planet Retail 15 Grocery Retailing in CEE – Eastern Europe: Total Banner Sales of Top 10 Retailers

Eastern Europe: All top 10 retailers are expected to generate growth with some of them even at double digit CAGRs.

Importance of Russia is illustrated by the fact that three of the top 5 players in the region come from Russia. Total Banner Sales of Top 10 Retailers, 2014-2019f (EUR bn) 30,000

25,000 2014

) bn 20,000 2019f

15,000

10,000 Banner Sales (EUR Banner

5,000

0 X5 Retail Auchan Group Metro Lenta O'Key M.video ATB Market Adeo Group Group

Source: Planet Retail Worth mentioning is the absence of the discount players including giant Lidl.

16 Grocery Retailing in CEE – City Data

Moscow remains the largest retail market by far in CEE, with the largest population and the highest per capita spending levels.

CEE: Metropolitan Retail Sales, 2014-2019 (USD mn)

160,000 Five of the region’s top 10 cities are located in former 140,000 Soviet territory. Food imports into Russia are 120,000 currently restricted by sanctions, which partly 100,000 serve to bolster domestic agriculture. Nonetheless

80,000 Russian cities will remain of high interest for many FMCG groups’ long-term 60,000 growth plans.

Metropolitan Retail Sales (USD mn)(USD Sales Retail Metropolitan 40,000

20,000

0 St Petersburg Warsaw Budapest Prague Samara Bucharest Katowice Kyiv Nizhni Novgorod 2014 2019 Note: f – forecast. 17 Source: Planet Retail 3. Competitive Environment

Magnit became the grocery market leader in Russia in 2013.

Magnit operates supermarkets & neighbourhood stores, hypermarkets and drugstores across Russia.

. Store numbers increased from 4,055 in 2009 to 9,711 in 2014f.  Far ahead closest rival (5,483 stores in 2014). . 31.6% year-on-year sales growth for 2014.  present in seven federal districts and 2,108 cities in

Russia with 9,711 stores. Magnit© “Enjoy…”  2015 capex is RUB65 billion*, mostly scheduled for store expansion. SERGEY GALITSKIY  The retailer recorded 14.5% like-for-like sales growth in Founder & CEO, Magnit 2014, together with a 4.5% rise in traffic generation. (on H1 2014 results)

Magnit’s strict financial control is the backbone of its ambitious expansion drive, with a strong focus on efficiency. $1.9 bn Magnit investment budget, 2014

18 *USD/RUB= 34.4 (2014) 1. Corporate Overview

Magnit is renowned for running all its operations in-house, from logistics to agricultural production units. Centralisation rate is 86%.

. National and international suppliers (1,000 in total) contribute 55-60% of Magnit’s product assortment. . Private label assortment of 605 SKUs: 27 distribution centres, 2014  The majority being food items.  11% private label sales share. . Curated product assortment across regions:  Ambient food in less wealthy regions 4,000  Emphasising fresh produce in more affluent cities. local suppliers working with Magnit

5,938 company-owned trucks, 2014

19 Strategic Initiatives

Magnit’s regional conquest: Founded in Southern Russia 20 years ago, the retailer is currently in almost every region in Russia.

North-West: 520

Central: 3,000

South: 1,980

N. Cacausus: 343 Urals: 936 Volga: 2,698 Siberia: 234

Note: Map as of Q3 2014 20 Source: Company Reports/ Planet Retail Channel Trends 4. Retail Trends: Channel proliferation and convergence

HYPERMARKETS Big Box servicing online Hypermarkets opening home delivery, Click & dedicated discount Collect, Drive formats. areas and formats.

E-COMMERCE DISCOUNTERS

C-stores as Discounters opening E-commerce more convenience- fulfillment outlets. based formats. C-STORES 22 4. Discount Stores

-> Discounters need new ideas for impulse and convenience products! 23 4. Discount Stores

Discounters - How do they grow? The all-purpose grocers skimming off the cream.

Fighting Fighting Cash & Carries Supermarkets

Ambient staples for bulk New categories and buying, multi packs, no extended specialist food services, no frills ranges, fresh fish, more environment. brands and selected services.

Fighting Fighting Hypermarkets Convenience Stores

Adding non-food and deli City centre locations; instore food categories on an Fighting bakeries; food-to-go; opportunistic basis. Online? premium food; pre-selection, quick shopping.

24 4. Discount Stores

Discounters are shifting from hard to smart discounting - broadening their offers but staying loyal to their buttress of success.

. Nord/Süd and Lidl remain the most important discount operators. . Consolidation process. . From hard to smart discounting. . Adaptations to national demands. . Proximity retailing. . E-commerce challenging for discounters. . Partly investment in own production! . Brand listings at Aldi!

25 4. Supermarkets & Neighbourhood Stores

26 4. Convenience & Forecourt Stores

More frequent trips, smaller stores, tighter budgets, proximity > Demand for smaller pack sizes.

27 4. Convenience & Forecourt Stores

The growth of convenience stores calls for massive investment into logistics and locations, while being a threat for forecourt operators.

. Franchising important - similar to independents in the sector . Restaurants, cafés or bistros . Retailers must invest in shopper data . Forecourt stations will lose market share . … but be taken over by food retailers! . Click & collect options!

28 4. Hypermarkets & Superstores

Hypermarkets are readjusting non-food assortments

29 6. Key Findings

Europe cannot be viewed as one market.

Channels blurring. Proximity rising. E-commerce growing. Discounters softening. Hypermarkets specialising, readjusting non-food ranges: increase productivity; increase format profitability; scale back less profitable ranges.

STORES BECOMING SMALLER in food and non-food: Demand for smaller pack sizes.

Still growth in big box. Broad traditional sector. Shift to modern trade at varying speed.

30