PRESENTATION FOR PLMA‘s Roundhouse Conference European Retail 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 Poland +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 Supermarkets 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 (Lidl/Kaufland) 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 Tesco Metro Group Carrefour Agrokor Rewe Group Auchan COOP EURO Eurocash 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 (%) Food Retail 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 Groszek. Eurocash © . Eurocash acquired two convenience store 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 Magnit X5 Retail Auchan Dixy 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)Sales (USD Retail Metropolitan 40,000 20,000 0 Moscow 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 X5 Retail Group (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.