Russia Retail Report Q1 2013

The Russian Retail Report examines the long-term potential of the local consumer market, but flags shortterm
concerns about the impact on Russia’s economic outlook of the risk of capital flight and
overdependence on oil.
The report examines how best to maximise returns in the Russian retail market while minimising
investment risk, and also explores the impact of the ongoing crisis in the country’s main export market,
Europe, on the Russian consumer and on the ability of producers and exporters to realise returns in the
short term.
The report also analyses the growth and risk management strategies being employed by the leading
players in the Russian retail sector, as they seek to maximise the growth opportunities offered by the local
market.
Russian per capita consumer spending is forecast to increase by 44% between 2013 and 2016, compared
with a regional growth average of 33%. The country comes third in BMI’s Central and Eastern Europe
(CEE) Retail Risk/Reward Ratings, although it underperforms significantly for Risk.
Among all retail categories, mass grocery retail (MGR) will be the outperformer through to 2016 in
growth terms, with sales forecast to grow much faster than overall food sales throughout the forecast
period, by almost 132% to US$231.46bn by 2016. This would take MGR’s share of the overall food
market from 42.1% in 2013 to 80.8% by 2016.
In the competitive arena, BMI sees upside potential in the fact that the Russian government
has committed to spending billions on infrastructure over the next 10 years, particularly
railroads and highways, which should translate to better logistics for expanding retailers.
Over the last quarter, BMI has revised the following forecasts/views:
? BMI’s below-consensus forecast for Russia’s 2012 real GDP growth of 3.4% appears to be well
placed as leading indicators point towards a further slowdown in economic growth. We have
revised down our forecast for 2013 real GDP growth in Russia to 3.4% from 3.6% previously.
This comes on the heels of a stark shift by the central bank towards monetary policy tightening,
a bias we expect to remain intact over the coming months.
? BMI’s expectation for private consumption to weaken going into 2013 underpins our view for
weaker headline growth. Private consumption has been a key driver of economic growth in
Russia over the past two years. Falling unemployment and rising disposable incomes have seen
household consumption growth average 7.0% year-on-year (y-o-y) in H112, up from 6.1% in the
same period of 2011. However, going forward, tighter access to credit, via higher interest rates
and the likelihood of more prudent lending practices by banks, will translate to weaker
household consumption.
? Leading indicators suggest that these dynamics have already begun to feed through to weaker
consumption – real retail trade slowed into H212, coming in at 4.4% y-o-y in August, down
substantially from the 7.4 % racked up back in January. As a result of these combined dynamics,
we forecast private consumption to increase by 4.2% in 2013, down from our forecast of 4.9% in
2012.

Russia Retail Report Q1 2013

Executive Summary ...................................................................................................................... 5
SWOT Analysis ............................................................................................................................. 7
Russia Retail Business Environment SWOT ............................................................................................................................................................ 7
Russia Political SWOT ............................................................................................................................................................................................ 8
Russia Economic SWOT ......................................................................................................................................................................................... 9
Market Overview ......................................................................................................................... 10
Current Trends ......................................................................................................................................................................................................... 11
Key Players ............................................................................................................................................................................................................... 14
Industry Forecast Scenario ........................................................................................................ 20
Consumer Outlook.................................................................................................................................................................................................... 20
Retail Growth Outlook ............................................................................................................................................................................................. 21
Table: Retail Sales Indicators, 2009-2016............................................................................................................................................................ 22
Table: Retail Sales Breakdown By Key Segment, 2013f ....................................................................................................................................... 25
Macroeconomic Outlook .......................................................................................................................................................................................... 25
Table: Economic Activity ..................................................................................................................................................................................... 28
Regional Retail Outlook .............................................................................................................. 29
Central And Eastern Europe Retail Outlook .............................................................................................................................................................. 29
Table: Central And Eastern Europe Retail Trends, 2009-2016 .............................................................................................................................. 29
Table: Central And Eastern Europe Retail Sales, 2009-2016 (US$bn, unless stated) ............................................................................................ 29
Table: Central And Eastern Europe Retail Sales By % Share, 2009-2016 .............................................................................................................. 31
Regional Retail Trends ............................................................................................................................................................................................. 31
Risk/Reward Ratings .................................................................................................................. 40
Table: Regional Retail Business Environment Ratings ......................................................................................................................................... 40
Russia's Retail Rating ............................................................................................................................................................................................... 41
Limits To Potential Returns ................................................................................................................................................................................. 41
Risks To Realisation Of Returns ........................................................................................................................................................................... 42
Mass Grocery Retail ................................................................................................................... 43
Russia Mass Grocery Retail SWOT ...................................................................................................................................................................... 43
Market Overview...................................................................................................................................................................................................... 43
Table: Structure Of The Mass Retail Grocery Market By Number Of Outlets, 2003-2011 .................................................................................... 45
Table: Structure Of The Mass Retail Grocery Market By Value, 2003-2011 ......................................................................................................... 45
Table: Average Sales Value per Retail Outlet - 2011........................................................................................................................................... 45
Industry Forecast Scenario ....................................................................................................................................................................................... 46
Table: Mass Grocery Retail Sales, 2009-2016...................................................................................................................................................... 46
Table: Sales Breakdown By Retail Format Type................................................................................................................................................... 48
Trade ................................................................................................................................................................................................................... 48
Table: Trade Indicators, 2009-2016 .................................................................................................................................................................... 49
Industry Developments ............................................................................................................................................................................................ 49
Consumer Electronics ................................................................................................................ 51
Russia Consumer Electronics Market SWOT ........................................................................................................................................................ 51
Market Overview...................................................................................................................................................................................................... 52
Computers ........................................................................................................................................................................................................... 52
Table: PC Sales, 2008-2016 ................................................................................................................................................................................. 52
AV ....................................................................................................................................................................................................................... 55
Table: AV Sales, 2009-2016 ................................................................................................................................................................................. 55
Mobile Handsets ................................................................................................................................................................................................. 59
Table: Mobile Communications, 2008-2016 ........................................................................................................................................................ 59
Three Most Popular Models In Different Pricing Categories In MTS Retail Network Q311, % Of Total Units Sold ................................................ 62
Industry Forecast Scenario ....................................................................................................................................................................................... 66
Consumer Electronics Market ............................................................................................................................................................................. 66
Table: Consumer Electronics Overview, 2008-2016 ............................................................................................................................................. 66
Industry Developments ............................................................................................................................................................................................ 68
Automotives ............................................................................................................................... 71
Russia Autos Industry SWOT ............................................................................................................................................................................... 71
Industry Forecast Scenario ....................................................................................................................................................................................... 71
Domestic Sales .................................................................................................................................................................................................... 71
Table: Autos Sales, 2010-2016 ............................................................................................................................................................................ 71
Production ........................................................................................................................................................................................................... 73
Table: Autos Production, 2010-2016 ................................................................................................................................................................... 73
Trade ................................................................................................................................................................................................................... 75
Table: Autos Trade, 2010-2016 ........................................................................................................................................................................... 75
Passenger Cars ......................................................................................................................................................................................................... 79
Table: Passenger Car Segment, 2010-2016 ......................................................................................................................................................... 79
Demographic Outlook................................................................................................................. 81
Table: Russia's Population By Age Group, 1990-2020 ('000) ............................................................................................................................... 82
Table: Russia's Population By Age Group, 1990-2020 (% of total) ....................................................................................................................... 83
Table: Russia's Key Population Ratios, 1990-2020 .............................................................................................................................................. 84
Table: Russia's Rural And Urban Population, 1990-2020 .................................................................................................................................... 84
BMI Methodology ........................................................................................................................ 85
How We Generate Our Industry Forecasts ............................................................................................................................................................... 85
Sources ..................................................................................................................................................................................................................... 86Executive Summary ........................................................................................................................................ 5
Table: Slovakia Total Premiums, 2010-2017 ........................................................................................................................................................ 5
Key Insights And Key Risks ........................................................................................................................................................................................ 5
SWOT Analysis ............................................................................................................................................... 7
Slovakia Insurance Industry SWOT ...................................................................................................................................................................... 7
Slovakia Political SWOT ....................................................................................................................................................................................... 7
Slovakia Economic SWOT .................................................................................................................................................................................... 8
Slovakia Business Environment SWOT ................................................................................................................................................................. 8
Life Sector Overview ...................................................................................................................................... 9
Central And Eastern Europe Life Sector Overview .................................................................................................................................................... 9
Table: Central And Eastern European Life Premiums, 2010-2017 (US$mn) ......................................................................................................... 9
Slovakia Life Sector Update ..................................................................................................................................................................................... 11
Life Industry Forecast Scenario ................................................................................................................... 13
Table: Slovakia Life Premiums, 2010-2017 ........................................................................................................................................................ 13
Growth Drivers And Risk Management Projections ................................................................................................................................................ 13
Population .......................................................................................................................................................................................................... 13
Table: Slovakia Insurance Key Drivers, Demographics, 2010-2017 ................................................................................................................... 14
Non-Life Sector Overview ............................................................................................................................. 16
Central And Eastern Europe Non-Life Sector Overview .......................................................................................................................................... 16
Table: Central And Eastern European Non-Life Premiums, 2010-2017 (US$mn) ............................................................................................... 16
Slovakia Non-Life Sector Update ............................................................................................................................................................................. 19
Non-Life Industry Forecast Scenario ........................................................................................................... 20
Table: Slovakia Non-Life Premiums, 2010-2017 ................................................................................................................................................ 20
Growth Drivers And Risk Management Projections ................................................................................................................................................ 21
Macroeconomic Outlook ..................................................................................................................................................................................... 21
Table: Slovakia Macroeconomic Data And Forecasts 2010-2017 ....................................................................................................................... 23
Political Stability Outlook ................................................................................................................................................................................... 24
Table: Europe Security Risk Ratings ................................................................................................................................................................... 26
Healthcare .......................................................................................................................................................................................................... 27
Epidemiology ...................................................................................................................................................................................................... 28
Table: Slovakia Insurance Key Drivers - Disease Adjusted Life Years, 2010-2017 ............................................................................................ 30
Motor .................................................................................................................................................................................................................. 31
Insurance Risk/Reward Ratings ................................................................................................................... 33
Table: Slovakia's Insurance Risk/Reward Rating ............................................................................................................................................... 33
Competitive Landscape ............................................................................................................................... 35
Major Players In Slovakia's Insurance Sector ......................................................................................................................................................... 36
Company Profiles ......................................................................................................................................... 37
Achmea ............................................................................................................................................................................................................... 37
AEGON ............................................................................................................................................................................................................... 39
Allianz ................................................................................................................................................................................................................. 42
AXA ..................................................................................................................................................................................................................... 45
BNP Paribas Cardif ............................................................................................................................................................................................ 48
ERGO ................................................................................................................................................................................................................. 51
Generali PPF Holding ........................................................................................................................................................................................ 54
Groupama ........................................................................................................................................................................................................... 59
MetLife ................................................................................................................................................................................................................ 62
QBE Insurance Group ........................................................................................................................................................................................ 65
UNIQA Group ..................................................................................................................................................................................................... 68
Vienna Insurance Group ..................................................................................................................................................................................... 71
Country Snapshot ......................................................................................................................................... 75
Table: Slovakia's Population By Age Group, 1990-2020 ('000) ........................................................................................................................... 76
Table: Slovakia's Population By Age Group, 1990-2020 (% of total) .................................................................................................................. 77
Table: Slovakia's Key Population Ratios, 1990-2020 ......................................................................................................................................... 78
Table: Slovakia's Rural And Urban Population, 1990-2020 ............................................................................................................................... 78
BMI Methodology .......................................................................................................................................... 79
Insurance Risk/Reward Ratings ............................................................................................................................................................................... 80
Table: Insurance Business Environment Indicators And Rationale ..................................................................................................................... 81
Table: Weighting Of Indicators........................................................................................................................................................................... 82Executive Summary ........................................................................................................................................ 5
Table: Total Premiums, 2010-2017 ...................................................................................................................................................................... 5
Key Insights And Key Risks ........................................................................................................................................................................................ 5
SWOT Analysis ................................................................................................................................................ 7
Slovenia Insurance Industry SWOT ...................................................................................................................................................................... 7
Slovenia Political SWOT....................................................................................................................................................................................... 8
Slovenia Economic SWOT .................................................................................................................................................................................... 8
Slovenia Business Environment SWOT ................................................................................................................................................................. 9
Life Sector Overview ..................................................................................................................................... 10
Central And Eastern Europe Life Sector Overview .................................................................................................................................................. 10
Table: Central And Eastern European Life Premiums, 2010-2017 (US$mn) ....................................................................................................... 10
Slovenia Life Sector Update ..................................................................................................................................................................................... 12
Life Industry Forecast Scenario ................................................................................................................... 14
Table: Life Premiums, 2010-2017 ....................................................................................................................................................................... 14
Growth Drivers And Risk Management Projections ................................................................................................................................................ 15
Population .......................................................................................................................................................................................................... 15
Table: Insurance Key Drivers, Demographics, 2010-2017 ................................................................................................................................. 15
Non-Life Sector Overview............................................................................................................................. 17
Central And Eastern Europe Non-Life Sector Overview .......................................................................................................................................... 17
Table: Central And Eastern European Non-Life Premiums, 2010-2017 (US$mn) ............................................................................................... 17
Slovenia Non-Life Sector Update ............................................................................................................................................................................. 20
Non-Life Industry Forecast Scenario ........................................................................................................... 22
Table: Non-Life Premiums, 2010-2017 ............................................................................................................................................................... 22
Growth Drivers And Risk Management Projections ................................................................................................................................................ 23
Macroeconomic Outlook ..................................................................................................................................................................................... 23
Table: Slovenia - Economic Activity, 2011-2016................................................................................................................................................ 26
Table: Macroeconomic Data And Forecasts, 2010-2017.................................................................................................................................... 26
Political Stability Outlook ................................................................................................................................................................................... 27
Table: Europe Security Risk Ratings .................................................................................................................................................................. 29
Healthcare .......................................................................................................................................................................................................... 29
Epidemiology ...................................................................................................................................................................................................... 32
Table: Insurance Key Drivers, Disease Adjusted Life Years, 2010-2017 ............................................................................................................. 33
Motor .................................................................................................................................................................................................................. 35
Insurance Risk/Reward Ratings ................................................................................................................... 37
Table: Slovenia's Insurance Risk/Reward Rating................................................................................................................................................ 37
Table: Central And Eastern Europe Insurance Risk/Reward Ratings .................................................................................................................. 38
Competitive Landscape ................................................................................................................................ 39
Main Players In Slovenia's Insurance Sector ........................................................................................................................................................... 40
Company Profiles .......................................................................................................................................... 42
Allianz ................................................................................................................................................................................................................. 42
ERGO ...............................................................................................................................

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