11

22

The crisis negative influence on retail sales

Dropping of sales volumes- Lowering of consumer demand

- Consumption displacement aside cheaper goods

-15,0%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

Jan 2008

Feb 2008

Mar 2008

Apr 2008

May 2008

Jun 2008

Jul 2008

Aug 2008

Sep 2008

Oct 2008

Nov 2008

Dec 2008

Jan 2009

Feb 2009

Mar 2009

Apr 2009

May 2009

Jun 2009

Jul 2009

Aug 2009

Rates of change of retail turnover in Russia

33

Company (chain)Company (chain)Net debtNet debt, ,

mlnmln.$ .$ 20072007

Net debtNet debt, , mlnmln.$ .$ 20082008

The 7th ContinentThe 7th Continent(Sed’moy Kontinent)(Sed’moy Kontinent) 170170 196196

CarrouselCarrousel 140140 154154

DixyDixy 186186 219219

Magnet (Magnit)Magnet (Magnit) 557557 591591

Х5Х5 1,5421,542 1,9941,994

HolidayHoliday 273273 320320

Kopek (Kopeyka)Kopek (Kopeyka) 402402 440440

Growth of debt burden of chains

44

Russian leading food retailers

№№ Company Company FY 2008FY 2008

Net Retail SalesNet Retail Sales(USD mln)(USD mln)

% % In Top-10In Top-10

% in Total% in TotalMarketMarket

1.1. X5X5 8,8448,844 26.1%26.1% 4.0%4.0%

2.2. Magnit Magnit 5,3265,326 15.7%15.7% 2.4%2.4%

3.3. Metro Metro 5,0775,077 15.0%15.0% 2.3%2.3%

4.4. Auchan Auchan 4,9834,983 14.7%14.7% 2.2%2.2%

5.5. Lenta Lenta 2,042,04 6.0%6.0% 0.9%0.9%

6.6. DixyDixy 1,9231,923 5.7%5.7% 0.9%0.9%

7.7. Kopeyka Kopeyka 1,891,89 5.6% 5.6% 0.7%0.7%

8.8. Seventh Continent Seventh Continent 1,5491,549 3.6% 3.6% 0.9%0.9%

9.9. Viktoria Viktoria 1,2281,228 4.6% 4.6% 0.6%0.6%

10.10. O’Key O’Key 1,0531,053 3.1%3.1% 0.5%0.5%

   Total Total 33,91333,913 100.0%100.0% 15.3%15.3%

55

Formats of retail chains

FormatFormatSales areaSales area, ,

sq.m.sq.m.

AssortAssortment,ment,itemsitems

Share ofShare ofNonfoodsNonfoods,,

%%

Number ofNumber ofbuyersbuyersper dayper day

AverageAveragepurchase purchase

sizesize,$,$

HypermarketHypermarket6000-6000-2000020000

1800018000--4000040000 47%47% 45004500 31,231,2

SupermarketSupermarket1000-1000-50005000

70007000--1500015000 22%22% 21552155 13,413,4

Department Department store store (Economy (Economy classclasssupermarket)supermarket)

500-500-30003000

2000-2000-70007000 29%29% 30403040 7,57,5

DiscounterDiscounter300300

10001000500-500-20002000 15%15% 15601560 7,17,1

cash&carrycash&carry6000-6000-2000020000

2000020000--4000040000 42%42% 22112211 124,3124,3

Convenience Convenience storestore

80-80-400400

1000-1000-30003000 18%18% 12131213 6,26,2

66

Assortment of press products in supermarkets

20%

60%

19%

1%

up to 100items

from 100 upto 200 items

from 200 upto 300 items

from 300 upto 400 items

Assortment allocation in supermarket chains

77

FormatFormatNumber of Number of periodical periodical

itemsitems

Laying out Laying out areaarea,,r.m.r.m.

Monthly Monthly average average

turnover per turnover per one POSone POS

HypermarketHypermarket  260-350 260-350

SKUSKUFrom From 5 м 5 м and moreand more

35 - 46 35 - 46 thousand thousand

euroeuro

SupermarketSupermarket

  125 – 260 125 – 260 SKUSKUFromFrom 1 1 up up

toto 5 м  5 м 

  4,5– 114,5– 11 thousand thousand

euroeuroConvenience storeConvenience store

Department storeDepartment store   70 – 100 70 – 100 SKUSKU  

FromFrom 1 1 up up to to 2,5 м 2,5 м 

  

2,3 – 5,7 2,3 – 5,7 thousand thousand

euroeuro  DiscounterDiscounter

cash&carrycash&carry   160 – 260 160 – 260 SKUSKU 1,5 – 6,5 м 1,5 – 6,5 м 

  11,4 – 3011,4 – 30thousand thousand

euroeuro

Press in various retail chains

88

The crisis impact on press distribution in retail chains

-12%

15%

-25% -5%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

print run sales, item

sales revenue, rub.

ad profit Cumulative rates of revenue downfall

99

Dualism of printed mass media

Publishing houses ad profits; 1,3

billion euro.

Overall market sales turnover

(retail+subscription1,7

billion euro

The structure of Russian printed mass-media in 2008

Press goods have the dualism character :

1. The goods providing the required information for the buyer.2. Advertising vehicle.

The idea of dualism obviously highlights the possibility for the distributor to raise his profits referring to the dualism idea:

- Dealing with the advertising tool (such as a newspaper or a magazine) the distributor should also get the certain income from the advertising placed in the titles.

1010

The costs breakdown of press distribution in supermarket chains

Bonus costs:

The conclusion of the long-term contract for goods delivery to the chain (under tender conditions).

The distributor entrance bonus for one POS in supermarket chain make 1400 -5500 euro and about 12500 euro for one POS in hypermarket chain

Trading & purchasing activity in POSes of chain.

Initiating of the registration card of a commodity item in chain is about 70 - 280 euro for the title.

Providing the retail POSes with the specialized trading equipment

The cost of 1 running meter of the equipment for laying out and promoting the goods is about 300 - 600 euro.

Bonus awarding for the sales volume gained.

The payments for sales volume is about 5 - 15 % of the total profit gained for the goods sold in chain.

Promo activity in POSes

The payments for carrying out of the promo-actions and promo laying out can be 3 % -10 % of the sales volume of the ad goods or of the fixed amount for carrying out of single promo action

1111

The law on trade regulationStipulates the following restrictions for

chains in terms of dealing with suppliers

Cooperation among sales chains and suppliers will be subject to the contracts on deliveries and services; Suggested to abrogate the practice to pay the bonuses (entrance bonuses ) except the awarding bonuses stipulated for the sales chains for sales volume gained; Suggested to stipulate the refund terms for suppliers vis-a-vis sales chains Suggested to avoid any direct and constantly ongoing prices restrictions Suggested to review the issue on attributing to cost the awarding bonuses «for sales volume» by suppliers and on attributing to cost the losses of sales chains.

1212

The specific features of Russian press distribution

in supermarkets chains.

Working on the basis of the contracts on purchase and sale

Remission is carried out on the basis of the repurchase agreement

Pricing forms according to trading margins

The price is not normally indicated on the cover of titles

The supplier must pay so called entrance bonus to get to the chain

1313

The strong parts of Russian press distribution system

The distributors fix both pricing and margin level

The distributor owns the goods

Various agreements and compromises might be reached with both the publishing houses and retailers

The refunds level makes 20-30%

1414

The future developments of distribution business

Sales of print runs of press products per single POS will continue to fall down

Distributor incomes of press sales will continue to fall down

The possible approaches for success :

Developing of distribution and accompanying goods; Developing such key factors as logistic and extra client services Cost cutout by means of assortment shrinkage The transition from printed goods distribution to content distribution. Implementation of press dualism idea in order to scale up the distribution profits Combining the contract on sales & purchases with the agents contracts for services

1515