Future of CEE Retail

By Miloš Ryba Senior Retail Analyst

Planet Retail Ltd | JUNE 2011

Potential for brand licensing

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About Planet Retail

3

Agenda

1. Prospects for the retail market in Central & Eastern Europe

2. Direct to retail brand licensing

4

5

Market consolidation in Europe

Russia

Azerbaijan

Armenia

Georgia

Ukraine

Belarus

MoldovaRomania

Hungary

Poland

Bulgaria

Greece

Cyprus

FYROMacedoniaAlbania

Serbia

Bosnia & Herzegovina

CroatiaSlovenia

Italy

SlovakiaCzech Rep

Germany

Sweden

Lithuania

Latvia

Estonia

FinlandNorway

France

AustriaSwitzerland

Luxembourg

Belgium

Netherlands

SpainPortugal

UnitedKingdom

Ireland

Iceland

Denmark

Western Europe is a homogenous market

Central and Eastern Europe is diverse

Market share of Top 5 grocery retailers up to 30%

Market share of Top 5 grocery retailers 30% - 60%

Market share of Top 5 grocery retailers over 60%

Prospects for the retail market in Central & Eastern Europe1

6

X Prospects for the retail market in Central Europe1

7

X

X5 Retail Group to remain the clear leader

Prospects of the retail market in Eastern Europe1

8

X

Schwarz Group to double its revenues by 2015

Prospects for the retail market in Central Europe1

9

The crisis has accelerated consolidation

CE retail market was consolidated in 2010

• Poland - Eurocash has acquired Emperia Holding’s wholesale division;

- Zabka sold to PE

• Greece - Atlantic has sold its wholesale division

• Greece – Aldi has divested

• Serbia – Delhaize Group acquiring Delta Maxi

• Serbia – Agrokor has acquired TUS stores

• Slovenia - Agrokor almost acquired Mercator

• Czech Republic - Tesco has acquired Zabka

• Rewe Group - sold its cash & carries

Czech Republic

Estonia

Latvia

Lithuania

Slovakia

HungaryRomaniaSlovenia

CroatiaBosnia &

Herzegovina SerbiaBulgaria

FYRO MacedoniaAlbania

Greece

Poland

Prospects for the retail market in Central Europe1

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Massive potential in the Balkans

Delhaize Group to become the key retailer in the Balkans?

Tesco to enter Romania, Croatia?

What move will Jerónimo Martins make?

Metro Group to sell its hypermarkets ???

RomaniaSlovenia

CroatiaBosnia &

Herzegovina SerbiaBulgaria

FYRO Macedonia

Albania

Greece

Prospects for the retail market in Central Europe1

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Tesco’s competitiveness to increase rapidly.

Expansion of Tesco compact hypermarkets and Tesco Express convenience stores format.

Introduction of e-commerce.

Focus on development of clothing ranges.

Competitive advantage of Tesco Clubcard data.

Introduction of niche private label product ranges:

co-operation with brand licensors.

Prospects of the retail market in Central Europe1

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Schwarz Group’s Lidl - the most successful discount format in Europe.

Soft discount concept with around 2,000 items on offer

Expansion of sales area to 1,200 square metres

Private label accounts for around 70% of Lidl’s turnover.

Move into convenience:

locations in city centres;

fresh bakery and instore oven;

butcher’s counter; and

expansion of fruit and veg

Prospects for the retail market in Central Europe1

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Massive potential for small formats

Room for expansion of compact hypermarkets (cities with populations of 20,000+)

Small formats like discount stores and convenience stores to become the leading format in 20 years

More international value-orientated players to enter Romania (Tesco, JerónimoMartins)

Massive potential for convenience stores like Zabkain PL

Prospects for the retail market in Central Europe2

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Future of retail associations?

CBA Hungary - one of the best working retail associations in CE

However, other retail associations are losing members

COOP Czech R., COOP Slovakia

CBA Croatia

Aibe in the Baltics

Lewiatan Polen

Lack of a joint strategy is a huge threat for independent retailers, but an opportunity for big players

Prospects for the retail market in Central Europe1

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Stiff competition in small towns

Prospects for the retail market in Central Europe1

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Discount stores, drugstores and convenience stores are the fastest growing channels in the medium term

Schwarz Group to retain its position as leader in Central Europe

The Eastern European retail scene remains in the hands of Russian retailers

Market consolidation to continue. Retail associations in jeopardy

Massive potential in the Balkans

Conclusions1

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Direct to retail (DTR) brand licensing offers mutual benefits for both licensors and retailers

Licensors:

greater transparency;

greater control over contract negotiations and terms; and

greater control over brand image

Retailers:

differentiate their private label products from branded goods;

control over product development and sourcing; and

gain higher margins

X Direct to retail brand licensing2

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Disney Consumer Products (Disney) is by far the leading global licensor.

4,000

4,500

4,900

5,000

5,000

5,500

6,000

6,600

9,000

27,200

4,000

5,700

5,000

5,100

5,500

6,000

5,000

6,500

30,000

The Cherokee Group

Hasbro **

Marvel Entertainment *

Sanrio

Major League Baseball

Nickelodeon & Viacom Consumer Products

Warner Brothers Consumer Products

Phillips-Van Heusen

Iconix Brand Group

Disney Consumer Products

Worldwide: Top Global Licensor Sales, 2008e-2009e (USD mn)

2008e

2009e

Note: *= acquired by Disney Consumer Products in late 2009; ** = 2008 unknown; e - estimate.Source: www.brandlicensing.eu

X Direct to retail brand licensing2

20

Leading licensors have already partnered with some of the largest grocery retailers.

Co-operation between brand licensor and retailers, 2010

©D

isne

y; P

eanu

ts;

War

ner

Bro

s; C

hero

kee;

Rai

nbow

Med

ia P

te.

X Direct to retail brand licensing2

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Potential in the food category lies in children’s and niche product ranges.

Child-orientated products are the most important in the grocery ranges.

Currently, only child-specific products are labelled with licensed characters in categories such as:

ambient (sweets, cereals); drinks; dairy products; and pre-packed fruit and vegetables

Potential lies in large product categories with emphasis on the healthy aspects and fun of:

niche product categories like local products; pharmacy (OTC products); and alcohol

X Direct to retail brand licensing: GROCERY2

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There is great potential for licensors at Tesco in non-food ranges.

X Direct to retail brand licensing: KEY STUDY - TESCO2

Tesco also co-operates with Disney in its non-food as well as food lines

Tesco plans to expand its clothing range:

extend its F&F range into the premium segment;

introduce F&F into overseas stores; and

possibly roll out standalone F&F clothing stores.

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There are great opportunities for local licensors in national markets.

X Direct to retail brand licensing: LOCAL VS INTERNATIONAL BRANDS2

Global licensors tied up with leading retailers

However, an opportunity arises for local licensors:

Consumers in Poland, Germany and Austria prefer key local brands to international brands.

Grocery retailers apply a dual strategy (Aldi)

Challenge - introduction of a national character overseas

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Huge potential for DTR licensing in emerging markets

X Direct to retail brand licensing: KEY STUDY - JERÓNIMO MARTINS2

Biedronka co-operates with local as well as international licensors in Poland (Disney, Mattel).

Its assortment of brand licensed private label products is wide, offering:

non-food products such as Spiderman school bags (Disney) and

food products like yoghurts with Shrek (DreamWorks Animation).

Brand licensing increases consumers’ trust in private label products, which is low in emerging markets

Biedronka (Jerónimo Martins) uses in-house characters in its grocery product ranges. However, they could be soon replaced with licensors’ brands.

© B

iedr

onka

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DTR brand licensing to expand rapidly, boosted by development of private label product ranges

Food - potential in children’s categories, offering fun and a healthy lifestyle imagine

Non-food - potential in clothing and healthy and beauty sector

Discounters successfully implementing DTR strategies

DTR in emerging markets in the medium to long term

Conclusions2

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Miloš RybaSenior Retail Analyst

Planet Retail LtdT: +44 (0)207 728 5600F: +44 (0)207 728 4999

milos.ryba@planetretail.net

Link to the Direct to Retail Brand Licensing report: tinyurl.com/DTR-report

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