1. RUSSIA
FEBRUARY 2 3, 2012
Russia Forum Buzz
Retail: Stabilization Period
█ X5 Retail Group CEO Andrey Gusev opened the discussion, saying that the
Russian food retail industry is a technological pioneer and a major investment
growth catalyst. The sector accounts for over 20% of national GDP. The biggest
players invest hundreds of millions and even billions of dollars every year. Industry
growth hinges on the macroeconomic environment. In this light, the company is
moderately upbeat on 2012, particularly the second half of the year, as global
policymakers exert efforts to remove existing imbalances and oil prices soar at
near record levels, which, all together, should support household income growth.
Therefore, one may argue that the Russian retail sector is now approaching its
trough point, which should be followed by sustainable recovery. This refers to LFL
rates, which X5 Retail Group expects to be in positive territory this year.
█ Magnit CEO Sergey Galitsky emphasized the uniqueness of the situation, when
multi billion dollar Russian companies are growing by 35 40% and still
managing to retain 7% EBITDA margins. This may only be compared with the
British retailers, though they boast far less impressive growth rates. Therefore,
Mr Galitsky deems the current cautious and even negative attitude to the
Russian retail sector unfair and undeserved. The major challenge for the industry
is ongoing population decline, which may have a sequential impact on retail.
Therefore, he believes the government needs to come up with new efficient
migration and human preservation policies, as population trends will shape the
landscape and future of Russia retail. That said, Magnit is quite upbeat on its
2012 growth outlook. Addressing supplier relationships, Mr Galitsky
underscored that healthy competition underlies an efficient market – every
retailer is striving to get better purchasing terms, which is not easy given the still
highly fragmented retail market (with the biggest players holding 3 5%) and
high consolidation on the side of consumer producers (which can account for as
much as 15 20%). Finally, LFL growth is naturally distorted by roaring rollout
and, hence, cannibalization. This is why, at this stage of development, it should
not be viewed as the single most important performance indicator.
█ Dixy Group President Ilya Yakubson noted that Russian retail is an exceptional
industry, distinguished by rapid growth and private investments. The company
sees plenty of untapped potential stemming from the vast territory
underpenetrated by modern retail. But ongoing aggressive expansion makes it
hardly possible to consistently show positive LFL traffic inflow. Arguably, 2011
was the first year when competition kicked in as a critical factor affecting the
industry. But this also had a positive impact – local retailers already employ
more advanced and efficient technologies than some international competitors.
www.TheRussiaForum.com

2. FEBRUARY 2 3, 2012 RUSSIA FORUM BUZZ – RETAIL: STABILIZATION PERIOD
█ ROLF Founder Sergey Petrov commented that auto retail is emerging from the crisis, as shown by
40% growth last year. But the history of auto retail development indicates that growth decelerates
after car penetration reaches 300 cars per 1,000 people, while Russia currently has 240. Therefore,
new drivers should play in to stimulate further growth. A good example is auto loans, which
accounted for 44% of sales last year. Another trend is some changes in car segmentation tilting
toward more expensive cars, such as SUVs.
█ Svyaznoy CEO Maxim Nogotkov explained that despite the high penetration of mobile devices, Russia
is still characterized by low frequency of replacement (it is 60% lower than in Europe), so handset sales
should see expansion (and 50% of revenues falls on smartphones). That said, new types of mobile
devices (including tablets and e readers) act as a key driver for sales expansion. The company saw
25% revenue growth in 2011 and projects a further 30% expansion in 2012. Furthermore, jewelry
chain Pandora (another business of Mr Nogotkov) delivered a decent performance in 2011. While he
noticed some cautious consumer behavior in October November 2011, the situation reversed in
December, driving revenues more than 40%.
█ Detsky Mir Chairman Georgy Kravchenko estimates the market size at $30 bln, on a rough
calculation, and said that comparison with European countries indicates that spending per capita
may double in the next five years. Unlike the food retail industry, there is massive upside to
margins, while competition intensifies as franchisees of global retailers penetrate the Russian
market with established assortment and business processes. The company is the largest player,
but its market share is just 5%, which indicates consolidation opportunities. Overall, 2011 was
positive for the company. The retailer opened 20 stores and delivered LFL growth of 15%.
Importantly, brand awareness is very supportive for top line performance; revenues per store are
much higher in those cities where the company operates a number of stores.
Panel
Aleksander Torbakhov Deputy Chairman of the Management Board, Sberbank of Russia
Artem Bektemirov CEO, Pharmacy Chain 36.6
Sergey Galitskiy CEO, Magnit
Andrey Gusev СEO, X5 Retail Group
Georgy Kravchenko Chairman of the BoD, Detsky Mir – Center
Maxim Nogotkov CEO, controlling shareholder, Svyaznoy
Sergey Petrov Delegate of the Fifth State Duma of the Federal Assembly of Russian Federation, Founder of ROLF
Ilya Yakubson President, Dixy Group
2 TROIKA DIALOG

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