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Transcript of Roland Berger RetailFE 20081220
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MUC-90007-143-09-01-G 1
Retail in Ukraine:Today's realities, tomorrow's possibilities
Kyiv, December 2008
Main conference: Sessions 1 and 2
Olga Sagirova, Partner
Roland Berger Strategy Consultants
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MUC-90007-143-09-01-G 2
During our conference we would like to discuss key strategic andoperating aspects in preparing retail chains for future economicgrowth in light of the current crisis
1
4
3
2 What opportunities exist that will ensure future growth forUkrainian retail chains under current market conditions?
What are the targets and criteria for selecting acquisition targetsfrom the viewpoint of strategic and financial investors?
5
What are the priorities for future value chain developmentunder the current market conditions?
What are the development prospects of the Ukrainian retail marketin light of the economic crisis?
How can Roland Berger Strategy Consultants supportfurther value chain growth?
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MUC-90007-143-09-01-G 3
The Ukrainian retail market is still growing The economic crisiswill bring it to the maturity stage
Dynamic of modern retail markets
Formation Growth Maturity Saturation
DevelopedEurope3)
SouthernEurope2)
CentralEurope1)
Slovakia
TurkeyGreece
Russia
Baltic states
Rumania
Bulgaria
Unorganizedtrade
Rapid growth oforganized trade
Profilingformats
Format
Selectedcountries
Phase
1) Poland, Hungary, Czech Republic 2) Italy, Spain, Portugal 3) Germany, France, Great Britain, Netherlands, Belgium
Poland
Spain
FranceGermany
1 UKRAINIAN RETAIL MARKET
Source: Roland Berger Strategy Consultants
Ukraine
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Even with inflation, the Ukrainian retail market showed rapidgrowth in 2003-2008
4
Real and nominal growth of the Ukrainian retail market, 2003-2008
7,5
1,20,40,70,90,3
2003 2004 2005 2006 2007 2008
30,0
12,6
2,36,9
9,97,1
2003 2004 2005 2006 2007 2008
Food Products
Non-food Products
Inflation, food and non-food products [%] Volume of the Ukrainian retail market [bn UAH]
237
172
130
9468
50
200
163
128
9164
48
2003 2004 2005 2006 2007 2008
Retail turnover in actual prices
Retail turnover in 2002 prices
Source: State Statistics Committee, Roland Berger Strategy Consultants
38%26% 35% 40% 38%
41%22% 33% 42% 22%
Growthvs.previous
year [%]
32%
27%
1 UKRAINIAN RETAIL MARKET
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Despite declining forecasts for industry development in 2009,market consolidation could spur future growth
Key indicators overview of the Ukrainian retail market
Volume of the Ukrainian retail market, 2002-20091) [bn EUR]2)
25
2007
46%
54%
45%
55%
10
2004 2008
44%
38%
31
Optimist.2006
21
32
56%
48%
52%
35%
65%
8
2002
56%
44%
Pessimist.
30
+26% p.a.
62%
Forecast
Food Non-food
Investor attractiveness of theUkrainian market
5
1
+4% -5% In recent years, the Ukrainian
market was one of the most
attractive retail markets worldwide
Market share of foreign retailersis small Few internationalplayers have entered the"overheated" market
Crisis developments in the industryand falling multipliers duringbusiness sales will allow newinvestors to enter the market
Industry consolidation and newplayers' entry will give a newimpetus for industrydevelopment
Source: State Statistics Committee, Roland Berger Strategy Consultants
UKRAINIAN RETAIL MARKET
1) In current prices 2) growth includes EUR inflation
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So far, the share of retail chains is not very significant as apercentage of the overall retail turnover structure The crisis willcontribute to the increase in chains market share
3%
27%
70%
100% = EUR 24.8 bn
2007
Unorganizedmarkets
Organizedmarkets
Other companiesand stakeholders
in retail
5%
13%
14%
15%
16%
37%
Supermarkets
Cash&Carry
Hypermarkets
Discounters
Convenience
Other
Retail sales structure
Retail sales structure in Ukraine, 2007 [%]
Sales structure of chain retail
56%
44%
Chain
Non-chain
24.1 bn
Sales structure of organized retail
100% = EUR 17.3 bn 100% = EUR 7.5 bn
1 UKRAINIAN RETAIL MARKET
Source: State Statistics Committee, Roland Berger Strategy Consultants 6
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Declining buying power will accelerate competition between retailformats
Retail food sales per capita by formats, 2007 [EUR]
Comments2007
Source: Planet Retail, EIU, Roland Berger Strategy Consultants
485
16825
Ukraine Poland Germany
1,302
France
268
7361
Ukraine Poland Germany
1,065
France
244
710
9025
Ukraine Poland Germany France
7
HYPERMARKET
DISCOUNTER
SUPERMARKET
Low-cost format has significant growth potential Buyer focus to a larger extent on price more
than on quality Non-food assortment and introducing ones' own
brands will be key issues facing this segment
Segment has the main growth potential,especially in middle income level cities
Pre-requisites for future demand will beconditioned on the development of new tradingtechnologies and the developments of one's
own brands
Markets format's presence is relativelysaturated, but growth prospects still exist
Further growth due to consolidation and filling-inof previously uncovered niches in certainregions
1 UKRAINIAN RETAIL MARKET
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During the financial crisis companies have limited options left inattracting external funds Search for internal growth reservesbecomes vital
Source: Roland Berger Strategy Consultants
Possible fund attraction sources to secure further growth
LOANS SHAREHOLDER CAPITAL
Bank loans, bonds
INTERNAL GROWTH
Today's most realisticmethod
Focused growth,accurate work withinternal efficiency andliquidity
Internal efficiencyincrease
Private placement(strategic investors, direct
investment funds, etc.)
The amount of loansoffered has been cut
Loan value is going up
Attraction of strategicinvestors is still possible
but often means sale of
part or all of theirbusiness
Investment funds andFIGs become more
interested in retail butremain cautious
IPO/SPO
Share value is falling
In such situation most
companies havecancelled IPO
2 FUNDING SOURCES FOR FURTHER GROWTH
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9/15MUC-90007-143-09-01-G 9Source: Roland Berger Strategy Consultants
Requirements of strategic and financial investors to potential partnersare very similar
Criteria requested and assessed by strategic and financial investors are very similar
These criteria could be separated into 3 main groups:
Profitability
Professionalism
Transparency
Retail chains should consider these criteria during further business build-up and take
them into account when making decisions and designing the future business model
Only upon retailers fulfilling requirements and implementing the designed action plan
regarding every key criterion will investors be ready to pay a fair price for company
shares
Key requirements of strategic and financial partners
3 INVESTOR TARGETS AND CRITERIA
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The crisis, which began as a result of external environmentalconditions, exposed many problems inside of retail chains
Comments
The current liquidity crisis has beenprovoked mostly by externalenvironment conditions: an abrupt
increase of funding costs Simultaneously, in the most cases the
crisis revealed internal problems andunpreparedness of companies tooperate in a volatile environment, forthe following reasons:
No clear market strategies Operational inefficiency of
companies, no control over costs,
expansion periods, etc. Ill-considered investment policies
Classification of crisis situations
CRISIS CHARACTERISTICS
Strategy crisis
Performance
crisis
Liquidity crisis
Destroying
Threatening
Crisis
preconditionedby internal
environment
Crisis
preconditionedby external
environment
CRISISTYPES
STAGES
OF CRISIS
CRISIS SOURCES
4 INTERNAL DEVELOPMENT PRIORITIES
Source: Roland Berger Strategy Consultants
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A recovery program should address the main problems Fromoperational liquidity issues to structural transformations in thebalance sheet and business model
Development of the initial concept and anti-crisis measures concept
EMERGENCY MEASURES AND LONG-TERM MEASURES
4 INTERNAL DEVELOPMENT PRIORITIES
Source: Roland Berger Strategy Consultants
STRATEGIC CONCEPT
Strategic positioning Value creation model Strategy of shop formats Regional strategy Shop portfolio management
Category management Trading unions and
franchising Increasing productivity due
to IT application
Structural changes (structureis stipulated by strategy)
Organizational structure
Value chain (outsourcing,insourcing)
Optimization/ formation ofmain processes
OPERATIONAL CONCEPT
Actions to increase operational effectiveness
Supplier portfolio optimization
Goods flow optimization
Product range optimization
Shop portfolio optimization
Cost-cutting including personnel costs
Actions to enhance liquidity
Cutting investments
Closure of separate shops and warehouses
Inventory optimization
Outsourcing
Accounts payable/receivable management
Recurrent check of main initialconditions for recovery measures
FINANCIAL CONCEPT
Structural cleansing
Structure change/balance
management
Reassignment of debts
Liability management
Injection of own capital
Actions for liquidity enhancement
Increasing capital
Private Equity, etc.
Injection of loan capital Assets implementation
Other funding forms
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Strategic concept should prepare the company for a new wave ofgrowth
Logic of strategic chain development Key questions
What is the mid- and long-term target of the chain
development?Mission and vision
What format should be focused on later? What marketsegment will be the most attractive?Format strategy
What regions should be developed as high-priority oneswith regard to market attractiveness and entry costs? How
to achieve profitable growth?Regional strategy
Marketing strategy How to ensure maximum flexibility in marketing policyfor increasing the chain's turnover and gross margin growthas well as cutting stocks and releasing working capital?
Product range Prices Location Promotion
How to standardize all chains supporting processes inorder to speed up order processing and reduce costs
(procurements, logistics, in-shop processes, regionalrepresentative offices and HQ)?
How to optimize the chain's management system fortimely and focused company value enhancement?
Functional strategy
Supply chain In-shop operations
Organization and staff
Planning and controlling
Evaluation system for efficiency and motivation
IT
Source: Roland Berger Strategy Consultants
4 INTERNAL DEVELOPMENT PRIORITIES
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The current situation requires focusing the entire managementsystem on recovering from the crisis and implementing a balancedgrowth strategy
Development of strategicroadmaps Prioritizing Balanced Scorecards Target KPIs for each
management level Introduction of KPI scales and
target values
Development of planningprocesses at theCC/regional/shop level (top-down and bottom-up) Stages Order of interaction and
decision making Periods Joint management bodies
Formats and order of presenting documents and reportsdepending on the management level
Implementation of the monitoring and controlling systemwithin the existing IT system
Optimization of efficiency evaluationprocesses
System of divisions' performanceevaluation aimed at incentives/motivation
Planning stage
Efficiency monitoring,controlling and evaluation stage
Change Management
stage
Balancedmetrics
Planningand
budgeting
Managementinformationsystem
Efficiencyestimation
Motivationsystem
Organizationalstrategy
Corporate strategy
Adaptation of tools andstructureof incentivefunds
Determination of scalesfor key performanceindicators and frequencyof bonuses depending onsizes of stimulation funds
Source: Roland Berger Strategy Consultants
MANAGEMENTSYSTEM
4 INTERNAL DEVELOPMENT PRIORITIES
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Roland Berger can support retailers in a wide range of consultingservices
Company
Business
efficiencyBusiness
growth
Strategicalliances/ Mergers and Acquisitions
Businessvalue increase Formatand regional strategies
Strategicaudit and due diligences
Strategy
Target consumer analysis
Brand management Salesorganization
Pricing
Market analysis / Marketing and sales
Innovative management
Process of new product entry Process of product development
Innovation/New product development
New sales channels
2
E-commerce
Reengineering of core business processes and
organizational structure
Business processes reengineering
Cost-cutting Liquidity management
Restructuring
Availabilityof shelf stock
Efficiencyof in-shop processes Organizational structure of shop and headcount
planning
Servicequality improvement
In-shop operations
Organization
Strategy/Bestglobal experience Implementation
Category management
5 ROLAND BERGER STRATEGY CONSULTANTS
Source: Roland Berger Strategy Consultants
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Roland Berger Strategy Consultants is the largest strategic consultancyof European origin
Amsterdam I Bahrain I Barcelona I Beijing I Berlin I Brussels I Bucharest I Budapest ICasablanca I Chicago | Detroit I Dsseldorf I Frankfurt I Hamburg I Hong Kong I
Istanbul I Kyiv I Lisbon I London I Madrid I Milan I Moscow I Munich I New York I ParisI Prague I Riga I Rome I So Paulo I Shanghai I Stuttgart I Tokyo I Vienna I Warsaw I
Zagreb I Zurich
36 offices in 25 countries
Turnover of EUR >600 m
2,000 employees76% international projects
Turnover growth in Asia 50%
Turnover growth in CEE 24%
5 ROLAND BERGER STRATEGY CONSULTANTS
Source: Roland Berger Strategy Consultants