Russia and the Ukraine
The financial crisis is having a significant impact on the entire Russian and Ukrainian economies, including the retail and consumer goods sector. The market value of retail companies has dropped significantly. Market players and experts are expecting a big wave of bankruptcies and M&A to take place this year. Following debt refinancing and liquidity problems, consolidation has already begun in Russia. The process is supported by the Russian government, which compiled a list of the biggest retailers and the state banks authorized to finance their operations – including acquisitions of smaller or regional chains. Recent M&A deals show a considerable decline in acquisition prices. In addition, costs of entry have fallen due to significant drops in rent, construction materials and labor costs. So there is a window of opportunity for international investors to enter an attractive market at low cost – at least in the medium term.
At the same time, in contrast to developed countries, the economic outlook for Russia for 2009 is still positive. GDP growth forecasts range from 2 to 3.5%, and inflation is expected to decrease from 13.5% in 2008 to 10-12%. The weakening ruble makes producing in Russia cheaper than importing. The consumer sector will be one of the drivers of economic growth, but the market landscape will change significantly. There will be a shift in mass consumption from premium to cheap products and retail formats. But luxury consumption will remain on a high level. Due to the ongoing marked consolidation increasing M&A activities from international and large Russian companies are expected. Some international retailers like IKEA, Billa and Auchan are already planning to expand on the Russian market during the crisis. The newcomers, including H&M and Selgros, are going to use the opportunity and start operations in Russia. Also in the consumer goods sector, companies like Nestle, Tata, SAB Miller and Danone are currently developing their capacities in Russia and expanding distribution.
With annual growth rates of about 25% the Ukrainian retail market is the fastest growing in Europe. Yet the market share of chains in the non-market retail is still low at about 44%. So there is significant potential for further development of modern formats. Despite high market attractiveness, only few international players like Metro, Zara, Obi and Spar have gained significant market share. Roland Berger expects many retailers to open stores in the Ukraine in the next few years. The Ukrainian economy will face recession in 2009 but recovery is expected for 2010. The growth of consumer prices will slow down in the following two years. That makes the market attractive to international players. Over the past few years, the overheated real estate market was one of the key market entry barriers alongside land availability. But the situation has changed.
The crisis has therefore cleared the way for M&A activities in Ukrainian retail. Market players with reliable sources of financing, like Billa and Metro of the Ukrainian chain Furshet, are continuing to develop and grow. Other companies, like the Russian firms Mosmart, X5 and Vester or the Serbian Delta Maxi Group, are planning to leave the market. For 2009, the window of opportunity is wide open.
At the same time, in contrast to developed countries, the economic outlook for Russia for 2009 is still positive. GDP growth forecasts range from 2 to 3.5%, and inflation is expected to decrease from 13.5% in 2008 to 10-12%. The weakening ruble makes producing in Russia cheaper than importing. The consumer sector will be one of the drivers of economic growth, but the market landscape will change significantly. There will be a shift in mass consumption from premium to cheap products and retail formats. But luxury consumption will remain on a high level. Due to the ongoing marked consolidation increasing M&A activities from international and large Russian companies are expected. Some international retailers like IKEA, Billa and Auchan are already planning to expand on the Russian market during the crisis. The newcomers, including H&M and Selgros, are going to use the opportunity and start operations in Russia. Also in the consumer goods sector, companies like Nestle, Tata, SAB Miller and Danone are currently developing their capacities in Russia and expanding distribution.
With annual growth rates of about 25% the Ukrainian retail market is the fastest growing in Europe. Yet the market share of chains in the non-market retail is still low at about 44%. So there is significant potential for further development of modern formats. Despite high market attractiveness, only few international players like Metro, Zara, Obi and Spar have gained significant market share. Roland Berger expects many retailers to open stores in the Ukraine in the next few years. The Ukrainian economy will face recession in 2009 but recovery is expected for 2010. The growth of consumer prices will slow down in the following two years. That makes the market attractive to international players. Over the past few years, the overheated real estate market was one of the key market entry barriers alongside land availability. But the situation has changed.
The crisis has therefore cleared the way for M&A activities in Ukrainian retail. Market players with reliable sources of financing, like Billa and Metro of the Ukrainian chain Furshet, are continuing to develop and grow. Other companies, like the Russian firms Mosmart, X5 and Vester or the Serbian Delta Maxi Group, are planning to leave the market. For 2009, the window of opportunity is wide open.
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