FMCG SECTOR · 2020. 12. 29. · FMCG SECTOR ANALYSIS 2019-2020 Mary Chachanidze, CFA Managing Director, TBC Capital Tornike Kordzaia, CFA Head of Research, TBC Capital Tamar Zakaidze

FMCG SECTORANALYSIS2019-2020

Mary Chachanidze, CFA Managing Director, TBC Capital

Tornike Kordzaia, CFAHead of Research, TBC Capital

Tamar ZakaidzeSenior Research Associate, TBC Capital

Otar Nadaraia Chief Economist, TBC Group

Aleqsandre Bluashvili Head of Macro-Financial Analysis Division, TBC Bank

2016 2017 2018 2019 2020E 2021E 2022E

5,802 6,165 6,707 6,450 5,950 6,107 6,514

1,286 1,631 2,085 2,720 3,285 3,778 4,344

27% 28% 30% 21% 15% 15%

ORGANIZED MARKET REVENUE & LFL SALES GROWTH (YOY)

2016 2017 2018 2019 2020E 2021E 2022E

3% 8% 9% 6% 9% 6% 5%

15% 47% 82% -15% -83% 116% 169%

20% 14% 6% 7% -30% 7% 40%

4% 10% 13% 4% 1% 7% 10%

THE MARKET WILL SUSTAIN 2019 LEVEL, WITH GROWING SHARE OF THE ORGANIZED PLAYERS AND INCREASED COMPETITION

FMCG MARKET REVENUE (GEL BN & YOY %)

ORGANIZED MARKET MERCH. SALES 2017-2019 (GEL, MLN)

Source: Geostat, SARAS, Survey of selected FMCG retailers, TBC Capital,; Note: *SPAR sales YoY growth reached 59% in 2019, incl. Daily as well as other franchise stores (34% excluding all franchise stores);

**Daily operates under SPAR franchise from 2018; ***Jibe mostly operates in wholesaling trade, its retail trade accounted for 14,4% in total sales in 2019;

****Like-for like (LFL): same-store growth, not taking new stores into account

2

Yo

YG

row

th(%

)

-25%

0%

25%

50%

75%

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Total Revenue

LFL Sales****

6.4 7.0

7.6 8.0

8.8 9.3

9.7 0.3

0.4

0.7 0.6

0.1

0.2

0.6

0.4

0.4

0.5 0.5 0.4

0.4

0.5

7.09

7.80

8.79 9.17 9.23

9.89

10.86

3

4

5

6

7

8

9

10

11

12

13Population expenditures

Tourist expenditures

Restaurant expenditures

ORGANIZED FMCG PLAYERS’ MARKET SHARE (INCL VAT)

• FMCG market is expected to reach 9.23bn GEL in 2020, growing 0.7% YoY. The market underperformed our pre-COVID expectations of 7% growth for

2020, however retained the overall positive dynamics

• Tourist spending and restaurants expenditures on FMCG have plummeted in 2020 with expected drops amounting to GEL 510 Mln and 152 Mln

respectively. The latter amount has partly contributed to the increased household consumption. We estimate the expected increase in population

spending at GEL+727 Mln in 2020

• The organized FMCG market sales is expected to grow by 21% to GEL 2.78bn (excl. VAT) in 2020, having posted 30% rise in 2019. The share of

organized market is expected to stand at 36% in 2020, up by +6pp YoY

• Following the strong growth of Q1 2020, the growth of the organized market amid the pandemic remained primarily fueled by the new store openings

further supported by the tendency of substitution of unorganized FMCG retailers; In contrast, the growth in like-for-like sales was much lower, depicting

the adverse effect of lockdown and reduction of working hours. Additionally, the reduction in purchasing power stimulated sales of low price goods,

increasing the downward pressure on like-for-like revenue growth

82%79%

76% 70%64% 62%

60%

18%

21%

24% 30% 36%38%

40%

7.09

7.80

8.79 9.17 9.23

9.89

10.86

3

4

5

6

7

8

9

10

11

12

13Selected Organized FMCG players' revenue

Unorganized Market Revenue

Selected Organized FMCG Market YoY Growth %

Note: Sales exclude VAT

6%

28%

33%

34%/59%

180%16%

22%16% 74%

3% 27% 72%7%

15% 29%

0

100

200

300

400

500

600

Ca

rre

fou

r

Nik

ora

Tra

de

Ori

Na

bij

i

SP

AR

*

Re

tail

Gro

up

Go

od

wil

l

Zg

ha

pa

ri

Me

mo

/U

niv

ers

am

i/U

ni

Ag

roh

ub

Fre

sco

Ma

da

go

ni

Sp

ar

Fra

nch

ise

Da

ily

** Sm

art

Jib

e**

*

Eu

rop

rod

uct

2019 YoY Growth %

2017 1,382

+28%2018 1,767

+30%2019 2,305

+21%2020E 2,784

MEDIUM-SIZE PLAYERS GRABBING ORGANIZED MARKET SHARE BY SALESAND TRADING AREA

Source: SARAS, Survey of selected FMCG retailers, TBC Capital;

*Market share is calculated based on sales merchandising values excl. VAT; Data for 9M 2020 is interim financial

information provided solely from players and can differ from the final audited;

**Daily started operating under SPAR franchise from 2018; ***In 2017 other players include Magniti and Jibe;

In the next years only Jibe is displayed as Magniti was acquired by LTD Retail Group, operating from 2018;

**** Other selected players include Fresco and Jibe; NOTE: Sales of Spar of 2018 year is adjusted based on

financial statements and independent auditor’s report of 2018; Also sales of Europroduct was corrected in 2018

MARKET SHARE OF SELECTED ORGANIZED FMCG RETAILERS BY SALES IN 2017 – 9M 2020*

3

• In 2019 and 9M 2020 market share of big players has decreased

compared to previous years due to more rapid expansion of several

FMCG retailers

• Besides competing among each other, there is still a big room to

capture market share of unorganized retailers, especially outside the

capital

• Decreased Herfindahl-Hirschman index displays higher competition

among the select organized retail market players. While organized

market is growing and FMCG retailers are opening new spaces, HHI

index dropped to 1,192 in 2019 and is expected to drop to 1,152 in 2020,

indicating that competition in the organized FMCG sector is growing

SHARE OF SELECT PLAYERS BY TRADING AREA 2019 (INNER) 9M 2020 (OUTER)

HHI INDEX OF SELECT ORGANIZED FMCG PLAYERS*

1405 13501192 1152

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2017 2018 2019 2020E

Medium Concentration

Low Concentration

High Concentration

24.0%19.2% 17.1% 16.8%

2.0%

2.5% 3.3% 4.2%

8.0%

7.0% 6.2% 4.7%

3.9% 8.4% 11.3%

8.9% 10.4%12.7%

13.6%

12.2% 13.1%

13.4%14.1%

25.5% 24.3%19.7%

16.7%

19.4% 19.5% 19.1% 18.6%

2017 2018 2019 9M2020

Nikora Trade Carrefour

Ori Nabiji SPAR

Retail Group Goodwill

Agrohub Small organized players

2.9%1.3% 1.1% 1.1%

2.6%

2.1% 1.7% 1.2%

0.7%

1.0%1.0% 1.4%

4.3%

3.6%2.8% 3.2%

3.0%

2.8%

2.8% 2.6%

4.9%

3.9%

3.4% 3.9%

4.3%

4.5%

4.2% 3.3%

1.4%

2017 2018 2019 9M2020

Daily** Zghapari

Memo/Universami/Uni Madagoni

Fresco Europroduct

Smart Other players***

18.8%

14.0%

16.7%

15.0% 13.5%

16.0%

6.0%

19.1%

15.7%

16.8%

15.4%

13.3%

15.3%

4.4%

Nikora Trade

SPAR*

Retail Group

Ori Nabiji

Carrefour

Other Organized Players

Goodwill

2.6%

2.8%

2.7%1.8%

1.9%

2.3%

1.9%

2.4%

2.7%

2.6%1.8%

1.8%

2.3%

1.7% Other selected players****

Zghapari

Memo/Universami/Uni

Europroduct

Smart

Madagoni

Agrohub

2.0% 2.6% 3.1%

8.9%

8.5% 10.1% 10.6%

2017 2018 2019 9M2020

SPAR excl. Daily

SPAR Franchise Daily

10.7%

11.5%

3.3%

4.2%

2019

9M2020

*SPAR Share % Breakdown

SPAR excl. Daily SPAR Franchise Daily

GEOGRAPHYCAL DIVERSIFICATION AMONG SELECT ORGANIZED FMCG PLAYERS IS ON THE RISE

Source: Survey of selected FMCG retailers, SARAS, TBC Capital,

4

TBILISI vs REGION BREAKDOWN OF SALES OF SELECT ORGANIZED PLAYERS (SHARE, %) 2018 - 9M2020

REGIONAL ORGANIZED MARKET BY TRADING AREA (’000) (2018 - 9M2020)

REGIONAL ORGANIZED MARKET BY NUMBER OF STORES (2018 - 9M2020)

• FMCG organized market is expanding in the regions as the trading area concentration of selected players in Tbilisi decreases from

67% in 2018 to 61% in 9M2020

• Total trading area of the selected organized FMCG retailers rose by 40% in 2019 compared to 2018 and is expected to reach

300,000sqm in 2020 (up 19% YoY), while as of 9M 2020 period the indicator stood approximately at 282,000sqm

• Number of stores of selected organized retailers increased by 41% YoY to 1,106 in 2019 and is expected to surpass to 1,400 in

2020 (26.6% YoY growth), while as of 9M 2020 the number stood at 1,300.

• Outside Tbilisi, Adjara, Imereti and Kvemo Kartli lead the regions by the share in trading area (20%, 20% and 17% in 9M 2020

respectively), as well as in number of stores ( 17%, 23% and 14% in 9M 2020, respectively) of the organized market

10%

13%

-

40

80

120

160

200

Tb

ilis

i

Oth

er

Ge

org

ia

Th

ou

san

ds

20%6%

13%

45%-9% 16%

8%

10%

31%

139%

-

5

10

15

20

25

Ime

reti

Ad

jara

Kv

em

o K

art

li

Sa

me

gre

lo

Sh

ida

Ka

rtli

Ka

kh

eti

Mts

kh

eta

-Mti

an

eti

Sa

mts

kh

e-

Jav

ak

he

ti

Gu

ria

Ra

cha

-Sv

an

eti

Th

ou

san

ds

YTD Growth %

67% 61% 61%

33% 39% 39%

2018 2019 9M 2020

Share of Regions %

Share of Tbilisi %

15%

22%

0

100

200

300

400

500

600

700

800

Tb

ilis

i

Oth

er

Ge

org

ia

21%

27%

15%

35%17%

10%

17%

22% 36%

100%

0

20

40

60

80

100

120

140

160

Ime

reti

Ad

jara

Kv

em

o K

art

li

Sa

me

gre

lo

Ka

kh

eti

Sh

ida

Ka

rtli

Mts

kh

eta

-Mti

an

eti

Sa

mts

kh

e-J

av

ak

he

ti

Gu

ria

Ra

cha

-Sv

an

eti

YTD Growth %

65% 60% 58%

35% 40% 42%

2018 2019 9M 2020

Share of Regions %

Share of Tbilisi %

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

20

18

20

19

9M

20

20

Total Memo Fresco Universami Carrefour Europroduct Zghapari SPAR excl.Daily

Agrohub Ori Nabiji Goodwill Nikora Trade Smart Madagoni Jibe Retail Group SparFranchise

Daily

Share of Tbilisi (%) Share of Regions (%)

NUMBER OF UNORGANIZED PLAYERS ON THE DECLINE; TOURISM DEPENDENT REGIONS HIT THE MOST IN 2020

Source: GeoStat, Survey of selected FMCG retailers, SARAS, TBC Capital,

NUMBER OF ACTIVE ORGANIZATIONS IN FMCG 2015 – 2019 REGISTERED BAZAARS BY REGIONS 2008 – 2019

• Number of active organizations involved in FMCG sales decreased by more than 13% for the last four years till 2019, depicting the

increasing formalization of FMCG Market in Georgia

• In terms of regions, Kakheti, Imereti and Samegrelo delivered highest growth rates of FMCG expenses, however the turnover in

Tbilisi, Adjara and Mtskheta-Mtianeti, which were most exposed to the demand from tourism & restaurants, were hit hardest.

Regional demand was also backed by the migration to the rural areas from the capital amidst the pandemics

• Tbilisi and other regions display increasing market penetration from 2017-2019 and growth trend is expected in 2020 as well

76 63 64

65

48 43

28

24 25

21

25 25

16

18 15

25

13 11

10

9 9

26

18 16

267

218 208

2008 2014 2019

Tbilisi Imereti

Samegrelo-Zemo Svaneti Kakheti

Kvemo Kartli Adjara

Shida Kartli Other Regions

FMCG EXPENSE BY REGIONS (GEL BN) IN 2017 – 2020E

5

-6%

-4%

-2% -1%-4%

-3%

-4%

2%

-4%-2%

-2%

0

1,000

2,000

3,000

4,000

5,000

6,000

Tb

ilis

i

Ime

reti

Sa

me

gre

lo &

Ze

mo

Sv

an

eti

Ad

jara

Ka

kh

eti

Kv

em

oK

art

li

Sh

ida

Ka

rtli

Sa

mts

kh

e-

Jav

ak

he

ti

Gu

ria

Mts

kh

eta

-M

tia

ne

ti

Ra

cha

-L

ec

hk

hu

mi

2015-2019 CAGR 2015-2019

3.3

5.9

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Tb

ilis

i

Oth

er

Ge

org

ia

1.1

0.9

0.9

0.8

0.7

0.6

0.4

0.2 0.2

0.1 0.0

-

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Ime

reti

Kv

em

oK

art

li

Ad

jara

Ka

kh

eti

Sa

me

gre

lo

Sh

ida

Ka

rtli

Sa

mts

kh

e-

Jav

ak

he

ti

Gu

ria

Mts

kh

eta

-M

tia

ne

ti

Ra

ch

a-

Le

ch

kh

um

i

Sv

an

eti

SHARE OF FMCG EXPENSES BY REGIONS (%. 2019)

25%

50%

75%

100%

Mts

kh

eta

-M

tia

ne

ti

Ad

jara

Tb

ilis

i

Sa

mts

kh

e-

Jav

ak

he

ti

Kv

em

oK

art

li

Gu

ria

Ka

kh

eti

Ra

cha

-L

ec

hk

hu

mi

Ime

reti

Sa

me

gre

lo

Sh

ida

Ka

rtli

Population Tourism Restaurants

AS THE EXPANSION OF ORGANIZED MARKET CONTINUES, SOME MAJOR REGIONS REMAIN UNDERPENETRATED

Source: Geostat, Survey of selected FMCG retailers, SARAS, TBC Capital

6

ORGANIZED MARKET PENETRATION (%) AND TOTAL FMCG EXPENDITURE (GEL MLN) IN 2019 AND 2020E

• As described in our previous report, the FMCG retailers are entering the underpenetrated locations. In 2020 the first

store of the organized market appeared in Racha. At the same time expanding market penetration in Svaneti and

Guria. There is still a great untapped potential for growth in Kakheti and Samtskhe-Javakheti. Market Penetration in

Tbilisi stands at 56% in Tbilisi in 2019 and is expected to reach 58% in 2020

Adjara 2020

Imereti 2020

Kvemo Kartli 2020

Shida Kartli 2020

Samegrelo 2020

Kakheti 2020

Mtskheta-Mtianeti 2020

Samtskhe-Javakheti 2020

Guria 2020Svaneti 2020

Racha 2020

Adjara 2019

Imereti 2019

Kvemo Kartli 2019Shida Kartli 2019

Samegrelo 2019

Kakheti 2019



Guria 2019

Svaneti 2019

Racha 20190%

4%

8%

12%

16%

20%

24%

- 200 400 600 800 1,000 1,200

Org

an

ize

d M

ark

et

Pe

ne

tra

tio

n %

FMCG Expenditures (GEL MLN)

Adjara 2020

Imereti 2020

Kvemo Kartli 2020

Shida Kartli 2020

Samegrelo …

Kakheti 2020


Samtskhe-Javakheti 2020Guria 2020

Svaneti 2020

Racha 2020

Adjara 2019Imereti 2019

Kvemo Kartli 2019

Shida Kartli 2019

Samegrelo 2019

Kakheti 2019



Guria 2019

Svaneti 2019Racha 2019

0%

4%

8%

12%

16%

20%

24%

190 210 230 250 270 290 310 330 350 370 390

Org

an

ize

d M

ark

et

Pe

ne

tra

tio

n %

FMCG Expenditure per Household (GEL)

ORGANIZED MARKET PENETRATION (%) AND FMCG EXPENDITURES PER HOUSEHOLD (GEL) IN 2019 AND 2020E

MONTHLY FMCG EXPENDITURES PER HOUSEHOLD (GEL)

34% 35% 34% 36% 37% 39% 36% 35% 31%

0

50

100

150

200

250

300

350

400

Tb

ilis

i

Ge

org

ia

Ad

jara

Kv

em

oK

art

li

Ka

kh

eti

Sa

me

gre

lo-

Ze

mo

Sv

an

eti

Sh

ida

Ka

rtli

Oth

er

Ime

reti

2011-2019 Share in total consumer expenses

FORMAL MARKET PENETRATION BY EXPENSE 2017 – 2020E

24%

19%

17%

15%

14% 13%

10%10%

9%

3%

9%

0%

5%

10%

15%

20%

25%

30%

Mts

kh

eta

-M

tia

ne

ti

Ad

jara

Ime

reti

Kv

em

oK

art

li

Sh

ida

Ka

rtli

Sa

me

gre

lo

Ka

kh

eti

Sa

mts

kh

e-

Jav

ak

he

ti

Gu

ria

Ra

cha

-L

ec

hk

hu

mi

Sv

an

eti

58%

15%

0%

10%

20%

30%

40%

50%

60%

Tb

ilis

i

Oth

er

Ge

org

ia

USA

UKGermany

France

Latvia

TurkeyRussia

Georgia: 4,986 ,

Azerbaijan

R² = 0.72

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

- 20,000 40,000 60,000 80,000 100,000

Fo

od

Ex

pe

nd

itu

res

pe

r C

ap

ita

GDP Per Capital

LONG TERM TRENDS ON FMCG MARKET SIGNAL GROWTH IN FMCG SPENDING AS WELL AS CONTINUOUS FORMALIZATION

Source: World Bank, Geostat, TBC Capital

WEIGHTS OF FOOD IN CONSUMER BASKET % VS GDP PER CAPITA

FOOD EXPENDITURES PER CAPITA VS GDP PER CAPITA

SHARE OF ORGANIZED MARKET IN FMCG % VS GDP PER CAPITA

• The share of food expenses in consumer basket

tends to be lower in developed countries, whereas the

absolute value of these expenditures tends to increase

with the GDP per capita

• More consolidation is observed on developed

markets worldwide. The share of organized retail

stands at 8% in India, 20% in China with the share of

the unorganized retail market decreasing as the

wealth of the country rises. The share of organized

retail in US is 85%, 89% in Japan and as much as 92%

in the UK. The share of organized FMCG market has

been growing in Georgia from 18% in 2016 to 30% in

2019. It is further expected that this share will reach

36% by the end of 2020

• The estimated benchmark for organized FMCG

market penetration in Georgia by 2022 is 40%,

Considering current level of the GDP per capita (PPP)

in Georgia and other developing and developed

countries, we project that organized market share

could reach 40% in 2022. To achieve this benchmark,

organized FMCG’s market share should increase by

15% CAGR over the next three years.

7

USAUK Germany

France

Latvia

Turkey

Russia

Georgia: 4,986 , 30.76%

Azerbaijan

R² = 0.7078

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

- 20,000 40,000 60,000 80,000 100,000

Fo

od

We

igh

ts in

Ba

ske

t

GDP per Capita

IndiaGeorgia 2016:

4,305 , 18%

China

Georgia 2019: 4,986 , 30%

RussiaTurkey

USA

JapanUK

R² = 0.6671

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

- 20,000 40,000 60,000 80,000 100,000

Org

an

ize

d M

ark

et

Sh

are

%

GDP per Capita

CROSS-SAMPLE ANALYSIS - INDICATIONS

FOR GEORGIA:

• THE MEDIUM-TERM GROWTH POTENTIAL

FOR ORGANIZED MARKET AT 15%

• 2022 MARKET PENETRATION: 40%

NONCASH PAYMENTS BECOMING DOMINANT IN FMCG IN 2020

Source: TBC Capital, Google Mobility index; *Change compared to first 5 weeks of 2020, Data for Georgia is unavailable from 5/19/2020 to 7/2/2020

NONCASH TRANSACTION VOLUMES & NUMBER 2019-2020 (YoY %)

• Volume of consumer noncash payments in FMCG sector

rose sharply by 82% YoY in April-2020 and number of

transactions increased slightly by 11% YOY as consumers

were buying in bulk

• Over the 10-month period in 2020 volume of consumer

noncash payments in FMCG rose by 50% YoY and number

of transactions by 27% YoY

• Due to the Covid-19 pandemic consumers have changed

their shopping habits and increased their spending on

grocery during 10:00 – 18:00 hours on weekends while

transactions at retail stores have declined from 18:00

o’clock onwards compared to 2019

• Even though the number of visits to grocery stores has

declined amid pandemic, online ordering of food has edged

up and amounted to 2% of total FMCG sales in 2020 while it

constituted on average 0.2% of total sales in 2019

• FMCG retailers have started to further develop e-commerce

sales channels as online services are gaining great

importance for grocery consumers in Georgia

• Average check size is higher while grocery store foot traffic

has fallen amid pandemic. Based on the surveyed market

players average ticket size increased by 32% on average in

9 months period of 2020 compared to the same period in

2019

CONSUMER AGE (YoY %)

2%

20%

34%

25%

13%

5%

1%2%

21%

33%

24%

13%

5%

1%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0-19

20-29

30-39

40-49

50-59

60-69

70+

10M 2019

10M 2020

82%

11%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Jan

-19

Fe

b-1

9

Ma

r-19

Ap

r-19

Ma

y-1

9

Jun

-19

Jul-

19

Au

g-1

9

Se

p-1

9

Oc

t-19

No

v-1

9

De

c-19

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oc

t-2

0

10M

20

19

10M

20

20

Volume (LHS) Number of Transactions (RHS)

8

TIMING (10M2019 & 10M 2020) MOBILITY IN GROCERY & PHARMACY*

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oc

t-2

0

No

v-2

0

EU & UKGeorgia*CIS (excl. Russia)

0%

2%

4%

6%

8%

10%

12%Work Days 2019

Work Days 2020

0%

2%

4%

6%

8%

10%

0:0

0

2:0

0

4:0

0

6:0

0

8:0

0

10:0

0

12:0

0

14:0

0

16:0

0

18:0

0

20

:00

22

:00

Weekend 2019

Weekend 2020

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

20

19

20

20

Kakheti Svaneti Adjara Mtskheta-Mtianeti

ShidaKartli

Racha-Lechkhumi

Samtskhe-Javakheti

Guria Samegrelo Imereti Tbilisi KvemoKartli

Cards Issued in Georgia International Cards

SHARE OF INTERNATIONAL NONCASH PAYMENTS IN FCMG

FINANCIAL METRICS FOR GEORGIAN AND INTERNATIONAL FMCG RETAILERS

Source: SARAS, Bloomberg, REWE Group, Survey of selected FMCG retailers, TBC Capital;

*, **. *** IFRS financial metrics, incl. IFRS 16 impact; Note #1: NET DEBT considers interest bearing liabilities of the retailer minus cash & cash equivalents; Interest bearing

liabilities: loans, bonds and financial lease liabilities: Note #2: Inventory days are calculated as follows: inventory balance divided by COGS, adjusted by the amount of retro bonuses;

Note #3 Carrefour Group (EU) excludes Georgia

PROFITABILITY FOR REGIONAL FMCG RETAILERS IN 2019*

• The profitability ratios of Georgian organizedFMCG retailers are on average the same comparedto the organized retailers in different countries.Gross margins vary from 20-25%, the same range asit was in 2018.

• Gross margin of Georgian FMCG players decreasedslightly to 20.6% compared to 20.7% in 2018 whileEBITDA margin increased from 3% in 2018 to 7% in2019. Furthermore, NET DEBT/EBITDA ratio rosefrom 2.3x in 2018 to 3.3x in 2019

• Key impact on financials and ratios: EBITDA andNET DEBT Ratios are higher primarily due to theinitial application of IFRS 16 in 2019. Under newaccounting standard IFRS 16 the elimination oflease expenses had a positive effect on EBITDAwhile higher lease liabilities led to increase in debtratios, respectively (as all leases are treated asfinance leases, with the exception of short-termleases and low value leases).

• Moreover, application of IFRS 16 resulted in a lowerof rent/to sales ratio, amounted to 1.5% in 2019while excluding IFRS 16 impact this ratio accountedfor 4%

• Average current ratio for Georgian FMCG sector isof less than 1, in line with peers and stands at 0.6 in2019

• Average inventory days ratio of Georgian FMCG isin-line with other peer countries, except Russia,Turkey and UK. As for the account payable days,Carrefour reported the largest indicator among theselected retailers

• In 2019 Average inventory turnover and payabledays for Georgian retailers remain unchanged in2018 and 2019 (36 and 73, respectively)

• Organized FMCG market expansion in Georgia leadto higher average payable days to suppliers andpressure on current ratio. It is mainly driven by thestrong bargaining power of Georgian FMCGretailers, so that suppliers are safe to provide longerpayment days to the them.

9

SOLVENCY FOR REGIONAL FMCG RETAILERS IN 2019**

LIQUIDITY METRICS FOR REGIONAL FMCG RETAILERS IN 2019***

Note: Non-IFRS Financial Metrics for

Georgian FMCG retailers excl. IFRS 16

Impact:

EBITDA margin: 4.2%

NET DEBT/EBITDA: 1.8x

24%22%22%22%21%

0% 7% 6%10% 9% 8% 8% 8%

0% 7% 6%10% 9% 7% 8% 8%

0%

5%

10%

15%

20%

25%

30%

RE

WE

(G

erm

an

y)

Ca

rre

fou

r G

rou

p (

EU

)

Le

nta

/Ma

gn

it (

Ru

ssia

)

BIM

/Mig

ros

(Tu

rke

y)

Ge

org

ian

re

tail

ers

RE

WE

(G

erm

an

y)

Ca

rre

fou

r G

rou

p (

EU

)

Le

nta

/Ma

gn

it (

Ru

ssia

)

BIM

/X5

(T

urk

ey

)

Ge

org

ian

re

tail

ers

Ma

xim

a G

rou

p (

Th

e B

alt

ics)

TE

SC

O/S

ain

sbu

ry's

(U

K)

RE

WE

(G

erm

an

y)

Ca

rre

fou

r G

rou

p (

EU

)

Le

nta

/Ma

gn

it (

Ru

ssia

)

BIM

/X5

(T

urk

ey

)

Ge

org

ian

re

tail

ers

Ma

xim

a G

rou

p (

Th

e B

alt

ics)

TE

SC

O/S

ain

sbu

ry's

(U

K)

Gross margin EBITDAR margin EBITDA margin

14.9

10.2

7.5

5.9

3.2 2.9 2.6

3.8 3.0 2.9 3.1

1.5

3.3 4.0

0

2

4

6

8

10

12

14

16

Ca

rre

fou

rG

rou

p (

EU

)

Ma

xim

a G

rou

p(T

he

Ba

ltic

s)

RE

WE

(Ge

rma

ny

)

TE

SC

O/S

ain

sbu

ry's

(U

K)

BIM

/Mig

ros

(Tu

rke

y)

Ge

org

ian

reta

ile

rs

Le

nta

/Ma

gn

it(R

uss

ia)

EBITDA / INTEREST EXPENSE

NET DEBT/EBITDA

88 8473

6053

483838 40 36 34 32

57

20

0.8 0.8

0.6

0.70.7

0.9

0.7

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0

10

20

30

40

50

60

70

80

90

100

Ca

rre

fou

rG

rou

p (

EU

)

BIM

/Mig

ros

(Tu

rke

y)

Ge

org

ian

reta

ile

rs

RE

WE

(Ge

rma

ny

)

Ma

xim

a G

rou

p(T

he

Ba

ltic

s)

Le

nta

/Ma

gn

it(R

uss

ia)

TE

SC

O/

Sa

insb

ury

's(U

K)

Average payable days Inventory days Current Ratio

FINANCIAL METRICS FOR GEORGIAN AND INTERNATIONAL FMCG RETAILERS

SELECTED FMCG RETAILERS’ SALES/SQM IN DIFFERENT MARKETS IN 2018 & 2019 (USD)

• Along with the increasing penetration of the organized market sales per square meters in Georgia continues to decline. In GEL

terms sales per/sqm was down 12% YoY in 2019 and is expected to decline by 3.5% YoY in 2020.

• In USD terms sales/per sqm of selected Georgian FMCG players is one of the lowest among foreign peers. However, price

differences between countries may significantly distort the picture. To account for this, sales/per sqm are adjusted by purchasing

power difference.*** With this adjustment Georgian retailers come on top of peers and show the space for further expansion

10

SELECTED FMCG RETAILERS’ SALES/SQM IN DIFFERENT MARKETS IN 2018 & 2019 (in PPP; International Dollars**)

14,5

23

11,1

97

10,0

75

9,8

53

9,5

01

8,4

58

7,3

27

6,0

75

6,4

82

5,4

08

3,9

59

12,2

95

11,4

96

9,5

69

10,2

81

9,0

67

8,7

56

7,3

33

6,3

45

6,2

64

5,3

38

4,0

38

11,3

34

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Georgianretailers

Tesco (UK) Maxima Group(The Baltics)

REWE(Germany)

Lenta /Magnit(Russia)

Migros(Turkey)

Kroger (USA) Carrefour (EU) Seven & IHoldings Co

(Japan)

Cencosud(Chile)

Soriana(Mexico)

2018 2019 2020

10,1

76

8,5

59

7,3

27

6,0

35

5,8

53

5,2

78

3,9

46

3,4

67

2,7

40

1,8

70

9,9

99

8,4

98

7,3

33

5,8

38

5,3

12

5,2

44

3,7

32

3,1

47

2,6

96

1,9

35

Tesco (UK) REWE(Germany)

(Euro)

Kroger (USA) Seven & IHoldings Co

(Japan)

Maxima Group(The Baltics)

Carrefour (EU) Lenta /Magnit(Russia)

Cencosud(Chile)

Migros(Turkey)

Soriana(Mexico)

2018 2019 2020E

In GEL

Source: Bloomberg, IMF, Survey of selected FMCG retailers, TBC Capital;

*Note: Selected organized FMCG retailers average sales/sqm is 15% higher in Tbilisi and -22% lower in Adjara region in 2019, compared to the country average. As for other

regions, the metric is also less than country average, mainly driven by lower purchasing power and smaller population density

**Sales/per sqm is adjusted by PPP conversion factors using IMF estimates; ***Purchasing power parity (PPP) conversion factor is a spatial price deflator and currency converter

that controls for price level differences between countries, thereby allowing volume comparisons of gross domestic product (GDP) and its expenditure components:

4,6

99

3,7

48

3,2

97

0

2,000

4,000

6,000

8,000

10,000

12,000

Georgianretailers*

12,006 10,565 10,200

Source: Survey of selected FMCG retailers, TBC Capital; *Inventory days are calculated as follows: inventory balance divided by COGS, not adjusted by the amount of retro bonuses

*FAO Data, **GeoStat Data

PROFITABILITY & LIQUIDITY METRICS FOR GEORGIAN SELECTED FMCG RETAILERS’ 9M 2019 – 9M 2020 (Non-IFRS)

11FINANCIAL METRICS FOR GEORGIAN SELECTED FMCG RETAILERS AND DISTRIBUTORS

• Gross margin for Georgian selected FMCG retailers remains the same (21.2%) in 9M 2019 and 9M 2020, impacted by the fact that in 2020 FMCG

retailers revenue has been generated mostly from the sales of low-margin products and compensated by the income of cashback from the

suppliers/distributors.

• On the contrary, EBITDA margin edged up from 2.7% in 9M 2019 to 3.6% in 9M 2020, driven by the internal and external factors. Internal factors

represent effective cost optimization done by FMCG players. while external factors are cost cuttings of income taxes on salaries as a result of tax relief

and exemptions for businesses according to Georgian government Covid-19 economic stimulus plan. Furthermore, this improved growth has been

derived from the rental expenses reduction facilitated by the approved agreement between the landlords and tenants caused by Covid-19 crisis.

However, pandemic has resulted in rising costs for businesses and FMCG retailers incurred additional expenses in dealing with the challenges related

Covid-19 such as employees transportation during the restrictions, extra cleaning and safety gear, etc.

• Average payable days for selected Georgian FMCG retailers’ stand almost at the same point in both years period. Inventory days increased slightly

from 31 to 32.

21.2%

2.7%

21.2%

3.6%

0%

5%

10%

15%

20%

25%

Gross margin EBITDA margin

9M 2019 9M 2020

31

59

32

59

0

14

28

42

56

70

Inventory Days* Average Payable Days

9M 2019 9M 2020

-30%

-20%

-10%

0%

10%

20%

30%

40%

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oc

t-2

0

Meat Price Index Dairy Price Index

Cereals Price Index Oils Price Index

Sugar Price Index Food Price Index

0%

5%

10%

15%

20%

25%

30%

35%

Jan

-20

Fe

b-2

0

Ma

r-2

0

Ap

r-2

0

Ma

y-2

0

Jun

-20

Jul-

20

Au

g-2

0

Se

p-2

0

Oc

t-2

0

Alcoholic Beverages & Tobacco

Bread & Cereals

Oils & Fats

Vegetables

Meat Products

Sugar, jam, honey, chocolate & confectionery

Milk, cheese, eggs

YOY PRICE CHANGES OF PRODUCT CATEGORIES** (%, 2020Y) YOY PRICE CHANGES OF PRODCT CATEGORIES*** (%, 2020Y)

FMCG PRICE TENDENCIES AT A GLANCE

• Retail prices on food and non-alcoholic beverages in Georgia rose sharply in 2020 compared to 2019 period: The largest consumer price

increases were observed from March to June (CPI at 16.1% in April, 14.7% in May) while in September and October it declined to 6.3% and 5.5%,

respectively

ANNEX: FMCG REGIONAL MAPPING;ACRONYMS AND ABBREVIATIONS

Source: GeoStat, Survey of selected FMCG retailers ,TBC Capital:

*Organized market footprint - Number of selected FMCG retailers' stores

12

ABKHAZETI

SAMEGRELO

RACHA-LECHKUMI

IMERETISHIDA KARTLI

SAMTSKHE-JAVAKHETI

GURIA

ADJARA

KVEMO KARTLI TBILISI

MTSKHETA-MTIANETI

KAKHETI

REGIONAL DISTRIBUTION OF FMCG MARKET*

Organized market footprint: 755Population: 1,185kFMCG market size: GEL 3,331mln

Organized market footprint: 61Population: 310kFMCG market size: GEL 779mln










Organized market footprint: 127Population: 487kFMCG market size: GEL 1,072mln

SVANETI

CAGR Compound Annual Growth Rate

CPI Consumer Price Index

E Estimated

EBITDA Earnings Before Interest, Taxes, and Depreciation

EU European Union

FAO The Food and Agriculture Organization of the United Nations

FMCG Fast Moving Consumer Goods

FX Foreign Exchange

GDP Gross Domestic Product

GeoStat National Statistics Office of Georgia

GNTA Georgian National Tourism Administration

HHI INDEX Herfindahl Hirschmann Index

IMF International Monetary Fund

IFRS International Financial Reporting Standards

NBG National Bank of Georgia

PPP Purchasing Power Parity

SARAS Service for Accounting, Reporting, and Auditing Supervision

Sqm Square Meters

VAT Value Added Tax

LEGAL NOTICE

This publication (the “Publication”) has been produced and distributed by the “TBC Capital” LLC (the “TBC Capital”). It is provided to our clients for informationpurposes only, and TBC Capital makes no expressed or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particularpurpose or use with respect to any data included in this Publication. TBC Capital is operating and performing its professional services on the territory of Georgiaand is duly authorized to produce and distribute this Publication on the territory of Georgia. The Publication does not constitute an offer of, or an invitation by oron behalf of, any company indicated in Publication or TBC Capital to subscribe or purchase the investment and shall not form the basis of, nor may itaccompany, nor form part of, any contract to acquire the investment in any jurisdiction. The distribution of the Publication and the offer or sale of theinvestment may be restricted by law in certain jurisdictions and the Publication does not constitute an offer of, or any invitation by or on behalf of any companyor TBC Capital to offer or sell the investment in any jurisdiction in which such offer or invitation is not authorized or to any person to whom it is unlawful tomake such an offer or invitation. Accordingly, the investment may not be offered or sold, directly or indirectly, and the Publication may not be distributed in anyjurisdiction, except in accordance with the legal requirements applicable to such jurisdictions. Persons who come to possess the Publication are required by theTBC Capital to inform themselves about and to observe any such restrictions. Neither TBC Capital nor its affiliates accept any liability to any person in relation tothe distribution or possession of the Publication in or from any jurisdiction. The Publication is not investment research and has not been prepared in accordancewith legal requirements designed to promote the independence of investment research. The Publication is not intended to provide the basis of any investmentdecision, credit or any other evaluation and is not to be considered as a recommendation by TBC Capital to participate in the transaction/s described therein. Allinformation contained in the Publication is subject to change without notice, and neither TBC Capital nor any of its affiliates is under any obligation to update orkeep current the information contained in the Publication. The delivery of the Publication at any time does not imply that the information in it is correct as ofany time after its preparation date or that there has been no change in the business, financial condition, prospects, creditworthiness, status or affairs of theIssuer or anyone else since that date. TBC Capital does not undertake to update the Publication or to correct any inaccuracies therein which may becomeapparent. Descriptions of the companies or the securities or other financial instruments of any company or securities underlying or related to such instrumentsor the markets or developments mentioned in the Publication are not intended to be complete. The Publication may include forward-looking statements, but notlimited to, statements as to future operating results. Any “forward-looking statements”, which include all statements other than statements of historical facts,involve known and unknown risks, uncertainties and other important factors beyond TBC Capital’s control that could cause the actual results, performance orachievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Suchforward-looking statements are based on numerous assumptions regarding present and future business strategies and the environment operating in the future.By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may notoccur in the future. No assurances can be given that the forward-looking statements in this document will be realized. TBC Capital does not intend to updatesuch forward-looking statements. All statements of opinion and all projections, forecasts, or statements relating to expectations regarding future events or thepossible future performance of investments represent TBC Capital’s own assessment and interpretation of information available to them currently. ThePublication may not be reproduced, redistributed or published, in whole or in part, without the written permission of TBC Capital, and neither TBC Capital nor anyof its affiliates accepts any liability whatsoever for the actions of third parties in this respect. Without limiting any of the foregoing and to the extent permittedby law, in no event shall TBC Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees have any liability for (a) any special,punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or other financial loss, even ifnotified of the possibility of such damages, arising from any use of this Publication or its contents.

Mary Chachanidze, CFAManaging Director

Otar NadaraiaChief Economist, TBC Group

Tornike Kordzaia, CFAHead of Research

Aleqsandre BluashviliHead of Macro-Finance Department, TBC Bank

Tamar ZakaidzeSenior Research Associate

Ana MjavanadzeAnalyst

Andro TvaliashviliResearch Associate

Juli AvlokhashviliIntern

Luka ChigilashviliResearch Associate Tel: +995 32 2 272727

Email: [email protected]: www.tbccapital.ge; www.tbcresearch.geVladimer Choghoshvili

Intern

This publication (the “Publication”) has been produced and distributed by the “TBC Capital” LLC (the “TBC Capital”). It is provided to our clients for information purposes only,and TBC Capital makes no expressed or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect toany data included in this Publication. TBC Capital is operating and performing its professional services on the territory of Georgia and is duly authorized to produce anddistribute this Publication on the territory of Georgia. The Publication does not constitute an offer of, or an invitation by or on behalf of, any company indicated in Publication orTBC Capital to subscribe or purchase the investment and shall not form the basis of, nor may it accompany, nor form part of, any contract to acquire the investment in anyjurisdiction. The distribution of the Publication and the offer or sale of the investment may be restricted by law in certain jurisdictions and the Publication does not constitute anoffer of, or any invitation by or on behalf of any company or TBC Capital to offer or sell the investment in any jurisdiction in which such offer or invitation is not authorized orto any person to whom it is unlawful to make such an offer or invitation. Accordingly, the investment may not be offered or sold, directly or indirectly, and the Publication maynot be distributed in any jurisdiction, except in accordance with the legal requirements applicable to such jurisdictions. Persons who come to possess the Publication arerequired by the TBC Capital to inform themselves about and to observe any such restrictions. Neither TBC Capital nor its affiliates accept any liability to any person in relation tothe distribution or possession of the Publication in or from any jurisdiction. The Publication is not investment research and has not been prepared in accordance with legalrequirements designed to promote the independence of investment research. The Publication is not intended to provide the basis of any investment decision, credit or any otherevaluation and is not to be considered as a recommendation by TBC Capital to participate in the transaction/s described therein. All information contained in the Publication issubject to change without notice, and neither TBC Capital nor any of its affiliates is under any obligation to update or keep current the information contained in the Publication.The delivery of the Publication at any time does not imply that the information in it is correct as of any time after its preparation date or that there has been no change in thebusiness, financial condition, prospects, creditworthiness, status or affairs of the Issuer or anyone else since that date. TBC Capital does not undertake to update the Publicationor to correct any inaccuracies therein which may become apparent. Descriptions of the companies or the securities or other financial instruments of any company or securitiesunderlying or related to such instruments or the markets or developments mentioned in the Publication are not intended to be complete. The Publication may include forward-looking statements, but not limited to, statements as to future operating results. Any “forward-looking statements”, which include all statements other than statements ofhistorical facts, involve known and unknown risks, uncertainties and other important factors beyond TBC Capital’s control that could cause the actual results, performance orachievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-lookingstatements are based on numerous assumptions regarding present and future business strategies and the environment operating in the future. By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. No assurances can be given thatthe forward-looking statements in this document will be realized. TBC Capital does not intend to update such forward-looking statements. All statements of opinion and allprojections, forecasts, or statements relating to expectations regarding future events or the possible future performance of investments represent TBC Capital’s ownassessment and interpretation of information available to them currently. The Publication may not be reproduced, redistributed or published, in whole or in part, without thewritten permission of TBC Capital, and neither TBC Capital nor any of its affiliates accepts any liability whatsoever for the actions of third parties in this respect. Without limitingany of the foregoing and to the extent permitted by law, in no event shall TBC Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employeeshave any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or otherfinancial loss, even if notified of the possibility of such damages, arising from any use of this Publication or its contents.

LEGAL NOTICE

Mary Chachanidze, CFAManaging Director

Otar NadaraiaChief Economist, TBC Group

Tornike Kordzaia, CFAHead of Research

Aleqsandre BluashviliHead of Macro-Finance Department, TBC Bank

Tamar ZakaidzeSenior Research Associate

Ana MjavanadzeAnalyst

Andro TvaliashviliResearch Associate

Juli AvlokhashviliIntern

Luka ChigilashviliResearch Associate Tel: +995 32 2 272727

Email: [email protected]: www.tbccapital.ge; www.tbcresearch.geVladimer Choghoshvili

Intern

Documents

FMCG SECTOR · 2020. 12. 29. · FMCG SECTOR ANALYSIS 2019-2020 Mary Chachanidze, CFA Managing Director, TBC Capital Tornike Kordzaia, CFA Head of Research, TBC Capital Tamar Zakaidze