Dallas, TX -- (ReleaseWire) -- 10/11/2012 -- Forecasts for Russia suggest household expenditure will cool through H212 and into 2013 following a prolonged period of very strong private consumption growth. This already appears to playing out in second-quarter retail data, with retail sales growth averaging 6.7% year-on-year (y-o-y), down from 7.6% in Q112, and new motor vehicle sales registrations experiencing an even more aggressive slowdown (see chart). Part of the reason for this slowdown is the very high base set in H210 and 2011, when real private consumption growth averaged a strong 6.7%, a rate which will be hard to match over coming quarters.
Key Company Trends as per Russia Food and Drink Market Report Q4 2012:
O’Key To Invest US$500mn: In September 2012, it was reported that O’Key, which is believed to be Russia’s sixth largest food retailer by market share with annual sales of about US$3.1bn, had announced plans to invest US$500mn over a four-year time span to grow its business in Moscow in particular, where it is believed the retailer plans to launch 100 stores. We believe that convenience is going to be a major factor in defining shopping habits, especially in Moscow. O’Key is expected to focus on opening smaller stores over this particular investment horizon to 2016. According to a company presentation by Russia’s largest retailer by annual sales (X5) from June 2012, O’Key accounts for just 1.2% of the overall food retail market in Russia, and 6% when taking into account the 10 largest retailers only.
X5 Loses Another Senior Executive: In August 2012, it was reported that Russia’s largest retailer by annual sales, X5, had lost another senior executive. CEO Andrei Gusev left the company in July 2012, and it was subsequently reported that Jan Fuchs, head of the group’s hypermarket businesses, was to depart in August. Following the departure of CEO Lev Khasis in 2011, X5 has posted a number of relatively poor quarterly same-store numbers, which, despite a slowdown in private consumption growth at the macro level, have been at odds with our near-term views on Russian retail.
Carlsberg Russia Business Shows Promise In H1: In August 2012, Carlsberg’s all important Russian business delivered some encouraging results for the first half of 2012 period after a truly challenging period post-2008, with organic volumes increasing 1% y-o-y.
Polish consumption growth is forecast to be relatively week with 1.5% and 2.1% in 2012 and 2013 respectively as a slowing economy and balance sheet strains weigh on household spending. Real wage growth, which has already been weak or negative since early 2011, will be hit by a slowing investment and external demand, coupled with already high unemployment. Government austerity measures will also cap increases in public sector wages. That said, the long-term outlook for consumption is strong, and we highlight food and drink as being particularly well placed to benefit.
Key Industry Trends as per Poland Food and Drink Market Report Q4 2012:
Jerónimo Martins Q2 Results Show Poland Slowdown: We have written extensively about Portugal-based food retailer Jerónimo Martins’ business in Poland, where it owns the no-frills discount chain Biedronka. Given the economic struggles faced by Portugal, the strength of Jerónimo’s business in Poland has been a godsend for the firm over the past few years. However, judging by the company’s second-quarter results, the growth wheels appear to have come off somewhat.
Same-store growth in Poland slowed markedly from 20% year-on-year (y-o-y) in Q211 to 4.7% in Q212, which, according to Biedronka, is a direct consequence of the slowdown in Poland’s economy. In terms of the group’s performance, net income of EUR84mn missed consensus expectations for EUR90mn.
Jerónimo’s shares are down by about 7.9% in 2012 so far, and while we believe that it has very likely suffered as a result of being an important component of Portugal’s benchmark PSI-20 Index as concerns about the eurozone periphery have intensified, the second-quarter slowdown in Poland is a blow.
Netherlands' household consumption is expected to remain extremely weak in the months ahead. European banks remain heavily exposed to their countries’ sovereign debt, and we expect ongoing balance sheet repair to limit credit extension in the Netherlands. Combined with weaker domestic economic activity that is set to weigh on the Dutch labour market (we forecast unemployment at 6.5% by end-2012) consumer credit demand is also set to remain weak. Recent data from the Dutch Central Bureau of Statistics show that household disposable income is down 0.4% from 2010, and we expect this will continue to weigh on Dutch private consumption growth. Combined with still-declining house prices, which create a negative wealth effect, this is set to keep already weak consumer confidence very low in the months ahead.
Key Industry Trends as per Netherlands Food and Drink Market Report Q4 2012:
Unilever Continues Exit From Frozen Foods: In July 2012, consumer goods giant Unilever announced the sale of its North American frozen meals business to local food producer ConAgra for US$265mn. The move continues Unilever’s movement away from frozen food, with the firm having previously sold its European assets in this sector. The move also continues the drive away from products that are exposed to growth in private labels, with Unilever keen to focus on sectors for which its brand building expertise can be put to best use.
Ahold Margins Under Pressure: As previously noted by BMI, an increase in competitive pressure in the Netherlands’ retail sector is affecting the margins of the country’s largest retailer, Ahold. For the first half of 2012 the firm reported that its underlying operating margins came in at 4.3%, compared with 4.5% in the same period of 2011. Underlying operating margins in the Dutch market fell from 6.2% to 5.4%, representing a fairly dramatic decline.
Consumer outlook in Belarus will largely remain subdued for the remainder of 2012. Indeed, despite strong retail turnover in the first few months of the year, factors such as high consumer price inflation, higher import costs on the back of currency weakness, limited real wage growth and general uncertainty over future policy will continue to temper domestic demand.
Key Company Trends as per Belarus Food and Drink Market Report Q4 2012:
Belarusian Sugar Refineries Expanding Production Capacities: While the country’s sugar refineries have worked to increase their production capacity, further expansion is required to keep up with rising demand. Belgospishcheprom Concern aims to increase its output of white sugar to 720,000 tonnes in 2015, some of which will be aimed at exports. Similarly, Gorodeya Sugar Refinery is increasing its output of dried granulated sugar beet pulp, while Skidel Sugar Refinery is planning to expand its production of citric acid.
Belarusian Euroopt Opens Store in Russia: Belarusian discount retailer Euroopt has expanded in Russia, opening a store in Smolensk in July 2012, as reported by PMR. The Smolensk store is a collaborative effort with the Russian Vtoroy Dom grocery chain. The move followed the June inauguration of a store in Moscow – the first in the country. The company plans to further expand its presence in Russia through the leasing of operating grocery outlets, as in Smolensk.
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