Insights of Russian consumer good business

Tikkurila Capital Market Day13.06.2012 St. Petersburg

Regional Director Russia & CIS

Mika Koskinen

What’s Valio in Russia & CIS

© Valio Oy 12.6.2012 2

Valio Russia & CIS

Number 3 on the Russian market right after Pepsico and Danone

Largest Finnish business in Russia & CIS

Sales in Russia and CIS

2 plants in Russia (own one in Moscow, partner plant in Hatchina)

15 export sertified plants in Finland

2 export sertified plants in Estonia

Sales volume 90Mkg and value 320MEUR in 2011. 2012 started on record high level

Market leader in branded cheeses and yellow fats. Top 3 in Moscow and SPb fresh product markets

Market leader in functional and added value products in Russia (HYLA, laktoce free, low-sodium and low-fat)

Best growth potential in the regions and CIS countries

What’s the most feasible target territory for companies making

serious FMCG business in Russia?

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Huge Emerging Country –Enourmous Potential

142 million consumersGrowing consumer powerUndeveloped FMCG Multifold growth potentialDo you need anything else?This is a wrong map!

CIS

300 million consumersGrowing consumer powerUndeveloped FMCG Expanding chainsMultifold growth potential for decades

THIS IS THE RIGHT MAP – GO AHEAD

Retail chains in Russia –grocery sales

Grocery Retail Market Sizes

Biggest food and grocery retail markets by revenue 2011, $trn

Russia Food Expenditure 2000-2014 Food,Retail Sales, Total Value (Per Capita)

Source: Datamonitor

Modern grocers' value market shares

9

Source: Euromonitor International, Retailing Industry

Value (RUB tr) and growth (%) of retail sales in Russia, 2005-2013

Share of Value Sales accounted for by Modern Grocery Retailers

Source: Report Retailing Russia 2011Market analysis and forecasts for 2011-2013

10

Top 30 Developing Countries for Retail Expansion Worldwide*

*By GRDI (Global Retail Development Index)Source: A.T. Kearney Global Retail Development Index.

Top 10 Grocery Retailers –Sales Share By Format (%)

Format Performance in RussiaMoscow and St. Petersburg, 2011

Changes in Clients and Distribution

Sales of consumer goodsSales will continue to focus:

– 2020 – the major part of sales will be carried out through 5-7 retail chains

– The share of independent stores and open markets will be significantly reduced

– Main retail chains will operate throughout the territory of Russia and CIS countries

– Market power of main retail chains will become the dominant.Private labels will grow rapidly.

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Russian Food Retailers

Source: Reuters

Retail Sales Federal Districts of Russia

1. CentralMoscowRyazanTulaTwerVladimirVoronezhYaroslavl

7. VolgaNizhniy NovgorodSamaraPermUfaSaratovKazan

6. UralsYekaterinburgChelyabinskTyumen

3. NorthwesternSt. Petersburg

5. SiberiaNovosibirskKrasnoyarskOmskIrkutsk

2. SouthernKrasnodar Rostov-on-DonVolgogradStavropol

4. Far EastVladivostok

Dairy Category YTD Growth by channels and regions

Source: AC Nielsen

(1.6)

Private label is still an emerging concept on the Russian market. The opportunity is significant due to the economic disparities inherent to the Russian social make-up.

Russian retail chains have identified private label as a key area of focus and we can expect significant developments in 2011/2012 despite the fact that today Russian consumers are very brand oriented and pay close attention to the reputation and quality of brands

One of the key area for retailers is developing awareness and loyalty to PL products as the market is in its early stages

Future performance of private label in Russia will be determined by retailers’ strategies in terms of pricing and assortment

Private Label Development in Russia

Private Label Share %

Country of originFinnishness or your brand name?

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Research ResultsPerception of Finland

Case Valio

16

Dairy products origin is very important factor for usersSt-Pete pays more attention to the origin of milk products

15

5

25

21

27

14

48

56

40

9

10

8

7

1

13

Total

Moscow

St.Pete

The most important (5) One of the most important (4) Important (3) Not very important (2) I don't pay attention

B1. How important is dairy products origin to you? %%5-p. verbal scale (1 – I don’t pay attention, а 5 – it is the most important thing)

%%

Base: Valio loyal users, 200 Rs for each city, 400 Rs in total

Top-2-boxes

36%

32%

39%

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Finland is the preferred producer for both citiesRussia is the second choice, far below Finland

B2. Dairy products of which countries you would buy most probably? Ranking, %%, Top-10 countries

Base: Valio loyal users, 200 Rs for each city, 400 Rs in total

First choice

Moscow St.Pete

50% 60%

13% 30%

6% 2%

6% 1%

3% 2%

5% -

3% 1%

1% 2%

2% 1%

1% 1%

89

75

17

16

21

13

10

22

3

14

54

22

4

3

2

2

2

1

1

1

Finland

Russia

Germany

France

Belorussia

Sweden

Italy

Lithuania

Swiss

Estonia

First choice One of first five

%%

Top-2-boxes

Total Moscow St.Pete

99% 99% 100%

92% 95% 89%

82% 84% 80%

73% 81% 65%

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The leading claim is ‘Produced in Finland’Then goes ‘Produced by Finnish Valio’

Other claims do not force users to buy dairy products strongly

Base: Valio loyal users, 200 Rs for each city, 400 Rs in total

%%

74

64

34

25

25

28

48

48

0

7

14

19

0

1

3

6

0

1

1

Produced in Finland

Produced by Finnish company - Valio

Produced by Finnish recipe

Produced in Russia

Definitely would buy (5) Would buy (4) Not sure (3) Would NOT buy (2) Definitely would NOT buy (1)

B6. Would you buy the following dairy products? %%5-p. verbal scale (1 – Definitely would NOT buy, а 5 – Definitely would buy)

Finnishness – is it a value?

• Finnishness is a value, the closer you are to Finnish boarder the stronger is positive influence

• Country of origing is the strongest claim

• Produced by a Finnish company comes as the second strongest claim

• Produced by Finnish recipe comes as the third strongest claim

• It’s worth of showing Valio’s roots clearly

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And this works: drinking yoghurts made by Finnish recipe and under Finnish control are breaking all expectations!

Thank you!