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International Finance Corporation Private Enterprise Partnership
Ukraine SME Survey and Sectoral Analysis Project
Ukrainian Retail Market
Study funded by
the Ministry of Foreign Affairs of Norway
April 2003
Kyiv, Ukraine
39560
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International Finance Corporation Private Enterprise Partnership
SME Survey and Sectoral Analysis Project
Address 4, Bohomoltsa Street, 01024, Kiev, Ukraine Telephone 38 044 253-0539
Fax 38 044 490-5830 E-mail [email protected]
Web www.ifc.org/ifcext/pep.nsf/Content/ProjectsPublications
Ukrainian Marketing Group
Address 66-B, Chervonoarmiyska Street, 01150, Kyiv, Ukraine Telephone 38 044 220-5643
Fax 38 044 220-5724 E-mail [email protected]
Web www.umg.com.u
Tebodin Ukraine LLC
Address 20, Esplanadna Street, 01023, Kyiv, Ukraine Telephone 38 044 230-2616
Fax 38 044 227-0200 E-mail [email protected]
Web www.tebodin.com
3
Table of Contents
1. Introduction ....................................... ......................................................................................... 5
1.1. Executive Summary..............................................................................................................5
1.2. Definitions of retail formats ...................................................................................................7
2. Retail Market Overview............................. ................................................................................. 9
2.1. General Description of the Ukrainian retail (food and non-food) ...........................................9
2.1.1. Estimated Market Size (food / non-food) ....................................................................10
2.1.2. Number of Retail Outlets and Sales Areas .................................................................13
2.2. Ukrainian Food Retail Sector ..............................................................................................14
2.2.1. History and trends in food retail..................................................................................14
2.2.2 Comparative analysis across CEE countries..............................................................14
2.2.3. Trends in Ukrainian food retail....................................................................................17
2.2.4 Investments in the sector ...........................................................................................19
2.2.5 Customers..................................................................................................................19
2.2.6 Estimated Market Size (food retail) ............................................................................20
2.2.7 Number of Retail Outlets ............................................................................................21
2.2.8 Main food retail formats..............................................................................................22
2.2.9 Key Players in Ukrainian food retail............................................................................24
2.2.9.1 Key food retailers on the Ukrainian market ..........................................................24 2.2.9.2 Factors that influenced the decision to start retail business .................................28 2.2.9.3 Background of retailers ........................................................................................29
2.3. Local practices....................................................................................................................30
2.3.1 Discount / loyalty systems ..........................................................................................30
2.3.2. Seasonality / changes of sales...................................................................................30
2.3.3. Distribution system.....................................................................................................32
3. Administrative Procedures.......................... ............................................................................ 35
3.1. Administrative Barriers........................................................................................................35
3.1.1. Registration of a Business Entity................................................................................35
3.1.2. Permitting procedures ................................................................................................36
3.1.3. Ukrainian legislation on retail. Sanitary regulations and certification of food products 42
3.2. Operational barriers ............................................................................................................44
3.2.1. Infrastructure ..............................................................................................................44
3.2.2. Trade equipment and software...................................................................................44
3.2.3. Human resource issues..............................................................................................45
3.2.4. Supply of goods / Assortment ....................................................................................46
3.2.5. Customs.....................................................................................................................47
3.2.6. Financing of retail.......................................................................................................49
4. Regional Overview .................................. ................................................................................. 50
4.1. Regional Development .......................................................................................................50
4.2. Description of Largest Cities (by number of inhabitants).....................................................53
4.2.1. Kyiv ............................................................................................................................53
4.2.2. Kharkiv .......................................................................................................................56 4.2.3. Dnipropetrovsk ...........................................................................................................58
4
4.2.4. Odesa........................................................................................................................ 60
4.2.5. Donetsk ..................................................................................................................... 62 4.2.6. Zaporizhia.................................................................................................................. 64
4.2.7. Lviv ............................................................................................................................ 66
5. Key Foreign and Domestic Players, New Entrants - Pr ofiles of 25 Retailers...................... 68
5.1. Profiles of key retailers (alphabetical order) ....................................................................... 68
5.1.1. ATB-Market ............................................................................................................... 69 5.1.2. Begemot Shopping Center......................................................................................... 69
5.1.3. Billa............................................................................................................................ 70
5.1.4 Brig ............................................................................................................................ 70
5.1.5. Euromart.................................................................................................................... 71
5.1.6. Fozzy......................................................................................................................... 71 5.1.7 Furshet ...................................................................................................................... 72
5.1.8. Intermarket ................................................................................................................ 73
5.1.9. Kit .............................................................................................................................. 73 5.1.10. Klass Supermarket .................................................................................................... 74
5.1.11. Kolibris / Agrocontract................................................................................................ 74
5.1.12. Maxi........................................................................................................................... 75 5.1.13 Megamarket............................................................................................................... 75
5.1.14. Obzhora..................................................................................................................... 76
5.1.15. Rainford ..................................................................................................................... 76
5.1.16. Rorus......................................................................................................................... 77
5.1.17. SPAR......................................................................................................................... 77
5.1.18. Target ........................................................................................................................ 78 5.1.19. Tavriya-V ................................................................................................................... 78
5.1.20. Tiko Market................................................................................................................ 79
5.1.21. VAM Supermarket ..................................................................................................... 80 5.1.22. Velyka Kyshenia ........................................................................................................ 80
5.1.23. West Line................................................................................................................... 81
5.1.24. YUSI .......................................................................................................................... 81
5.2. New entrants ...................................................................................................................... 82
5.2.1. Metro Cash & Carry Ukraine Ltd................................................................................ 82
ANNEXES........................................................................................................................................... 84
Annex 1. Ukrainian political and business environment................................................................... 85
Annex 2. Sources of information .................................................................................................... 88
Annex 3. Retailers Contact List ....................................................................................................... 89
Annex 4. Authorities Contact List ................................................................................................... 93
Annex 5. Contact list of equipment and services for retail companies............................................ 95
Annex 6. Macroeconomic Situation in Ukraine ............................................................................... 97
Annex 7. Retail sector characteristics in countries of Central and Eastern Europe ...................... 101
Annex 8. Barriers for development of supermarket / hypermarket business................................ 107
Annex 9. Guide to permitting procedures in Ukraine .................................................................... 137
Annex 10. Regional development ................................................................................................ 138
5
1. Introduction
1.1. Executive Summary
Objectives
The three objectives of this report are to describe the current situation in the Ukrainian food retailing market1
for potential investors, provide an overview of the main administrative and regulatory barriers to entry, as
well as present short descriptions of the top 25 Ukrainian food retailers in 2002. The sections of this report
address each of these objectives respectively.
This report was prepared for the International Finance Corporation (IFC), member of the World Bank Group,
by Tebodin Ukraine with funding from the Government of Norway. Most of the information was obtained
through face-to-face interviews with key Ukrainian retailers, as well as with local experts such as trade
authorities, merchandise and equipment suppliers, retail promoters, financial organizations, and
consumers2. Detailed data on administrative barriers was provided by the Ukrainian Marketing Group (UMG)
through a quantitative survey of 77 supermarkets and hypermarkets throughout Ukraine.
This report does not represent the opinions of IFC, nor of the Government of Norway.
Main Findings
� In 2002, according to reports of the State Statistics Committee, Ukrainian retail trade turnover
exceeded US$ 12 BN, or US$ 250 per capita, with an annual growth rate of 15% in real terms.
Food retailing comprised approximately 50% of the market.
� The Ukrainian retail market is in an early stage of development. There are only about 2 retail outlets
(both food and non-food) per 1000 inhabitants, and the corresponding retail sales area is only
135 square meters per 1,000 inhabitants. This can be compared to 10 outlets per 1,000 inhabitants
in Poland and 16 in Hungary.
� The market is highly fragmented. There were only approximately 750 “modern format” stores
(supermarkets and hypermarkets)3 in Ukraine in 2002. The share of retail trade going through these
outlets is estimated at less than 10% overall, and at about 19% in Kyiv.
� Today there are approximately 20 food retail chains operating in Ukraine, but only three can be
called national players with stores in more than 3 regions in addition to Kyiv. Of these, only one –
Billa - is a foreign investment. Another foreign investor, Metro, is in the process of entering the
market.
� Over the next 5 years local players will be expanding quickly and foreign players are expected to
enter the market. Key cities – Kyiv, Odesa, Dnipropetrovsk, Kharkiv, Zaporizhia will offer the bulk of
________________________________________________________________________ 1 Definition and description of Ukrainian political and business environment are presented in Annex 1 for reference. 2 See Annex 2 for sources of information and Annexes 3-5 for contact details of retailers, local authorities and other companies 3 See Chapter 1.2 for Definitions of retail formats
Deleted: profiles
6
the opportunity with per capita food turnover in 2002 at $1,125, $338, $310, $302, and $292
respectively.4
� Ukrainian authorities have declared support to foreign retailers interested in entering the country.
As stated in the Instruction of the President of Ukraine dated 28 December 2002 No. 1-1/1658 to
local authorities, they should consider proposals for construction of modern shopping centers and
provide relevant support, facilitate the process of land allotment, and make provisions for land plots
with the required infrastructure for future retail outlets in the regional development plans.
Experience of current retailers clearly shows that good relations with local authorities are a key
success factor in overcoming the administrative barriers to market entry.
� The main administrative barriers to retail in Ukraine center on selection of appropriate retail space,
the high cost of land, and the bureaucracy involved in dealing with state officials. The extent of such
barriers varies significantly, however, depending on whether a company buys, rents, or builds
premises.
� Green-field construction: For retailers who opted for green-field site construction,
obtaining land possession rights was the most significant administrative barrier: three-
quarters cited bureaucratic procedures involved in obtaining permits for land
possession rights as a barrier to doing business. Another 76% of these retailers cited
high prices on land plots as an administrative barrier, while just over half had
difficulties finding suitable land plots.
� Purchasing space: For retailers having purchased retail space, the cost of premises
was cited as the main barrier by just under half of respondents. While bureaucracy
related to obtaining permits from state officials remained a difficulty for these retailers,
it was cited just over one-third of respondents.
� Renting space: The main difficulties for retailers who rent their premises centered on
high rental rates and difficulties in finding appropriate space for their outlets, cited by
just under half of retailers. Various administrative difficulties related to official
bureaucracy are significantly mitigated, and cited by under 20% of respondents.
� As more than 90% of all food items sold in Ukraine are of local origin, the key difficulties
experienced in ongoing operations by current retailers include the disruption of deliveries,
fluctuating prices and unstable quality of product.
� Personnel issues and finding qualified staff also cause operational concerns: half of retailers cited
the level of staff qualifications as a key barrier, while one-fifth claimed that the low level of staff
culture was a major barrier to their operations.
________________________________________________________________________ 4 See Chapter 4.1 for regional development data
7
1.2. Definitions of retail formats
When speaking about the retail sector, experts sometimes use different languages by giving the same
things various names. For example, some say ‘chain’ retail, while others call it ‘large’ or ‘modern type’, while
all mean ‘retail chain of stores’.
Definitions of key retail formats currently available in the Ukrainian market are presented below. However, in
practice only some retailers have established stores of a clear format and the major market share still
belongs to mixed retail formats. Therefore, at the moment identification of formats in the Ukrainian retail is
rather conventional.
Hypermarket (no chains currently present in Ukraine, only several stores)
� Sales area – at least 5,000 m2
� Range of products – 15,000-30,000 goods (foodstuff share is around 60-70%)
� Gross sales margin – 10 - 20% with discount system
� Target group – end consumers with average and above average income
� Average purchase – UAH 100-120 (USD 20)
� Sections with delicatessen and semi-finished products (of own cookery, mini-bakery)
� Usually new equipment and good interior
� Location – in the city; easy access
� Large parking lot near entrance
� Wide range of non-food items including clothing, footwear and stationery
� Wide range of additional services
Cash & carry (3 chains)
� Sales area – at least 7,000 m2
� Range of products – 15,000 – 30,000 goods
� Gross sales margin – 5 - 10% with discount system
� Target group – owners of shops, restaurants, hotels and other businesses (HoReCa)
In Ukraine also end consumers with average and below average incomes
� Average purchase – UAH 250-300 (USD 50)
� Inexpensive equipment and plain interior
� Location - outside the city
In Ukraine – in industrial zones with inconvenient public transport approach
� Parking near entrance
Supermarket (more than 15 chains)
� Sales area – up to 5,000 m2
� Range of products – 10,000 – 12,000 goods (food accounts for about 80%)
� Gross sales margin – 25-50% with loyalty / club system
In Ukraine gross sales margin in supermarkets is lower at the moment – 15-20%
� Target group – end consumers with average and above average income
� Average purchase – UAH 50-60 (USD 10)
� Sections with delicatessen and semi-finished products and salads (of own cookery, mini-bakery)
� Usually new equipment and good interior
� Location – in the city (residential area); easy access
� Parking near entrance
8
Discounter (3 chains)
� Sales area – up to 1,000 m2
� Range of products – 1,500-3,000 goods (usually only foodstuffs)
� Gross sales margin – 10-20%
� Target group – end consumers with average and below average incomes
� Average purchase – UAH 15-20 (USD 3)
� Private labels
� Location – in the city (residential area); easy access
Ukrainian traditional formats:
� Gastronom – small or medium-size grocery store trading over the counter (sales area < 500 m2)
� Universam – store trading over the counter that sells mainly foodstuff with an additional section for
non-food items (sales area > 500 m2).
� Kiosk – small outlet with sales area up to 10 m2 trading through a window and selling mainly small-
piece items (sweets, chewing gum, beverages, bread and rolls).
� Pavilion – small shop (sales area 20-60 m2) having entrance for consumers (main difference from
kiosk) and offering the same range of products as kiosk.
� Street or open market – covered or open-air market specialized in foodstuffs, non-food items or
mixed. Usually its sales area is at least 1,000 m2.
9
2. Retail Market Overview
2.1. General Description of Ukrainian retail (food and non-food)
Recent retail development is stipulated by the growth of the Ukrainian economy 5 that has demonstrated a positive stable trend since 2000. As shown in Figure 1, in 2000-2001 the retail sector followed the growth of
GDP and industrial production, while in 2002 retail turnover increase outran these two indicators, reaching a
15% rate of growth.
An increase in production volumes by Ukrainian enterprises (especially of foodstuffs and consumer goods manufacturing) has resulted in retail sales growth and contributed to the promotion of retail.
Figure 1. Development trend of main macroeconomic i ndicators (Y-o-Y terms)
Source: State Statistics Committee of Ukraine
On the other hand, retail growth has been propelled by an increase in consumer activity based on steady
income growth (more than 20% annual growth rate over 2000-2002). According to official data, average
annual income per household totaled USD 640 in 2002. Taking into account the incompleteness of official
statistics, this amount can be assumed to be much higher (which makes an average annual income per
household about USD 1,200).
According to the forecasting figures of the Ukrainian Ministry of Finance6, household income should rise by
more than 25% in 2003 (forecast by International Center for Policy Studies7 predicts a 14.8% increase). This
forecast is based on the positive financial and economic indicators achieved in Quarter I of 2003. This would
give an additional impetus to retail development, as in Ukraine over 80% of income is spent on the purchase
of goods and services. Similarly, about 60% of household income is spent on food purchases.
It is also remarkable that most foreign direct investment (FDI) was directed into the improvement of wholesale and retail trade as well as at the food industry. Each of these sectors attracted USD 854 mn, or,
taken together, more than 30% of the total volume of FDI as of 1 January 2003 (data of State Statistics
Committee).
At present the Ukrainian retailing market is characterized by the major trends described below.
________________________________________________________________________ 5 See Annex 6 for detailed information 6 Source: news of 3 April 2003, published at Podrobnosti (http://www.podrobnosti.ua/) based on UNIAN materials
(http://www.unian.net/) 7 Source: ICPS Macroeconomic Forecasts (http://www.icps.kiev.ua/)
-10
-5
0
5
10
15
20
1997 1998 1999 2000 2001 2002
%
GDP trend
Industrial production trend
Retail trade turnover trend in comparative prices
10
� Consolidation of retail business (instead of existing centralization before the 90’s) and development of
large- and small-scale retail chains
� Vertical integration and acquisition of other businesses (mainly agro and food-processing) by retailers.
Vertical integration provides for stable supply and sales. However, in order to guarantee sales growth and
popularity with consumers, the quality of products manufactured by own enterprises must be very high.
In the opinion of experts, the share of own brands must not exceed 20% of the product category
assortment.
� Construction of shopping centers (malls) in large cities
The market for modern sales areas is not saturated, and 4-5-fold growth in the number of shopping centers
is set to occur within the next 5 years. Shopping centers are developing in large cities where consumers
are ready to pay for the goods and quality of service that they offer.
� Another recent feature is transformation of street markets into shopping and entertainment centers. This
provides for smoother adaptation of customers to the new formats.
� Growth of promotional activity of retailers
Such means of promotion as providing materials at the point of sale, producing leaflets, use of consumer
motivation slogans, support of social and other events are widely employed by retailers.
� Tendency towards merger / association
The League of Professional Retailers is currently being organized in Ukraine. The goal of this
association will lie in pursuing the interests of local retailers (both food and non-food). A similar
industrial union has been active in Russia since 2001: The Association of Retail Trade Companies
(ACORT).
� Dialogue with local authorities, improving relations between retailers and legislative authorities
The majority of owners / managers of local rapidly developing retail outlets in all large cities are also
deputies of the local councils. This provides for smoother resolution of current issues (especially as
concerns land plot allocation).
2.1.1. Estimated Market Size (food / non-food)
The retail trade industry is one of the key sectors of the Ukrainian economy, and its share of Ukraine’s GDP
amounts to about 30% (based on the data of the State Statistics Committee).
Total retail volume declared by all business entities (including physical persons) amounted to UAH 65.6 bn (or USD 12.3 bn) in 2002 (data of State Statistics Committee). This figure is the most realistic available from
official sources to characterize retail turnover, but it does not allow for making comparisons. That is why
further in this report retail sales of enterprises8 only will be taken into consideration.
The difficulty of performing statistical analysis is one of the key hindrances for making correct estimates of
the actual situation in this sector.
________________________________________________________________________ 8 Methodology of State Statistics Committee: retail turnover is determined as the volume of sales of goods to the population
through all operating enterprises (without taking account of their property form) of retail trade network, catering network, as well
as sales by industrial, transport and other non-trading enterprises directly to the population through their pay-offices. Beside this,
retail turnover also includes sales of foodstuffs through the retail network to institutions, organizations and enterprises for
providing meals to their clients (in health centers, kindergartens and schools, hospitals, etc.).
11
The data available from State Statistics Committee of Ukraine cannot be considered comprehensive for the
following reasons:
• it is based on official data from companies (data that differs from reality as some enterprises do not submit the information in a correct way);
• it does not cover all market players rather only those companies that submit information (local regulations do not provide any penalties for non-submission of data to local statistical bodies);
• it is calculated using disputable (non transparent) techniques and methodology;
• it is presented mainly in oblast profile (which makes it extremely difficult to use when analyzing the situation in specific cities).
According to reports of the State Statistics Committee, in 2002 the retail sales volumes of Ukrainian
enterprises totaled UAH 39.7 bn, or approximately USD 7.4 bn, 15% higher than in 2001 and almost 40%
higher than 2000. In year-on-year terms, retail volumes have been growing by 14-15% in real terms (in
comparative prices) for two consecutive years, and promise to maintain that growth rate over the coming
years.
Table 1. Ukrainian retail trade turnover indices: 1 997-2003.
Period
Macroeconomic indices 1997 1998 1999 2000 2001 2002
Retail trade turnover, UAH mn 18,933 19,317 22,151 28,757 34,417 39,691
Retail trade turnover, USD mn 10,168 7,886 5,362 5,286 6,407 7,447
Retail trade turnover increase, Y-o-Y terms, % 2.0 14.7 29.8 19.7 16.1
Retail trade turnover increase in comparative prices, Y-o-Y terms, % 0.2 - 6.6 - 7.1 8.1 13.7 15.0
Retail trade turnover per capita, UAH 374 384 444 581 707 825
Retail trade turnover per capita, USD 254 210 238 237 171 155
Source: State Statistics Committee of Ukraine
The trend in Ukrainian retail trade turnover over the last 6 years is presented in Figure 2. Though retail
turnover in local currency showed stable growth, the situation is different when analyzing the same indicator
in hard currency. The drop of 1998-1999 was the consequence of the Russian financial crisis of August
1998 that had also influenced the Ukrainian economy. The crisis resulted in the sharp devaluation of
Ukrainian currency and a consequent cutback in consumer activity.
The continuos growth in retail turnover volumes started in 2000. As noted above, this trend is related to
overall improvements in the Ukrainian economy, which lead to an increase in consumer activity.
Figure 2. Ukrainian retail turnover 1997-2002.
19 1922
29
34
40
108
5 5 67
1997 1998 1999 2000 2001 2002
Retail turnover, total, UAH bn Retail turnover, total, USD bn
Source: State Statistics Committee of Ukraine
12
Food sales make up approximately 50% of total retail sales. This indicator is relatively high (for comparison,
in Germany and Poland food sales amount to less than 40% of retail turnover9), as non-food retail is
undergoing a revival after a deep crisis in the mid 90-ies.
Figure 3. Commodity structure of Ukrainian retail t urnover.
Source: State Statistics Committee of Ukraine
Ukrainian goods make more than ¾ of total retail turnover (see Figure 4). At the same time, their share is
much higher in food sales (almost 94%).
Figure 4. Commodity structure of Ukrainian retail t urnover in 2001 by origin of goods.
61%
94%
76% 24%
6%
39%
0% 20% 40% 60% 80% 100%
non-food
food
all goods
produced in Ukraine imported
Source: State Statistics Committee of Ukraine
________________________________________________________________________ 9 Source: Polish Official Statistics http://www.stat.gov.pl/english/index.htm; Federal Statistical Office of Germany http://www.destatis.de/; Frankfurt-based retail analysis company M+M EUROdATA (http://www.mm-eurodata.com)
44%
63%
52%
50%
48%
56%
37%
48%
50%
52%
0% 20% 40% 60% 80% 100%
1990
1995
2000
2001
2002
food non-food
13
2.1.2. Number of Retail Outlets and Sales Area
As data on the number of retail outlets differs, information from different sources is presented in this section.
At the beginning of 2002, Ukrainian retail was characterized by the following indicators:
� Official figures from the State Statistics Committee declare that at the beginning of 2002 there were
96,393 retail outlets in Ukraine. The total number of outlets had reduced by 37,269, or almost 28%, compared to 1995 (see Table 2). Similarly, the number of kiosks remained at the same level, but the
number of stores (both food and non-food) decreased considerably. The reduction in the total number of outlets is connected to a process of consolidation in the retail
sector and an increase of number of stores of modern format. However, their share in the total
number of outlets is still less than 1%10.
� Sales per retail outlet amounted to UAH 357,049 (or USD 66,989) as of the end of 2001. This makes
about a 30% increase over the previous year.
Table 2. Number of retail outlets and their special ization.
as of the year end Number of outlets Sales area, '000 m2
1995 2000 2001 2001 to 1995, +/- 1995 2000 2001 2001 to 1995, +/-
Retail outlets, total 133,662 103,246 96,393 - 28%
Stores, total, incl. 109,528 77,885 72,277 - 34% 10 ,950 7,029 6,515 - 41%
- food 46,338 31,503 28,780 - 38% 4,565 2,800 2,570 - 44%
- non-food, incl.: 37,994 25,790 24,947 - 34% 4,614 2,484 2,330 - 50%
univermags 733 223 175 - 76% 656 291 252 - 62%
- mixed type 25,196 20,592 18,550 - 26% 1,771 1,745 1,615 - 9%
Self-service stores, incl.: 23,826 4,471 3,639 - 85% 2,337 535 548 - 77%
* food 9,407 1,461 1,213 - 87% 769 160 188 - 76%
* non-food 8,553 1,054 867 - 90% 1,173 188 172 - 85%
* mixed type 5,866 1,956 1,559 - 73% 395 187 188 - 52%
Kiosks, total 24,134 25,361 24,116 0% n/a n/a n/a
Source: State Statistics Committee of Ukraine
Retail Density
The number of retail outlets per 10,000 inhabitants equals 20 (or 2 outlets per 1,000 inhabitants). Available sales area (both food and non-food) is currently about 135 m2 per 1,000 inhabitants whereas the norm for available sales area that existed in the Soviet Union was 215 m2 per 1,000 inhabitants.
Total sales area of retail outlets amounted to 6,522,366 m2 as of the end of 2002.
Table 3. Retail density indicators (based on 2002 r esults) 11
Retail trade turnover in 2002 Density of retail trade outlets, units per 10,000 inhabitants Sales area, m2
Region
Total, UAH mn per capita, UAH Total incl. stores To tal per 10,000 inhabitants
Ukraine 39,691 825 20 15 6,522,366 1,346
Source: State Statistics Committee
________________________________________________________________________ 10 See Chapter 2.2.7 for details 11 Breakdown per oblast is presented in Annex 10 (Table A.10.1)
Deleted: ¶¶
14
2.2. Ukrainian Food Retail Sector
2.2.1. History and trends in food retail
With the breakup of the USSR, one of the world’s largest food retail chains disappeared. This centralized
chain had been built up over many years and in the late 80’s comprised 800,000 stores across the Soviet
Union, of them more than 116,000 in Ukraine. One-time Prodtorgs and Silpos (food retail regulating
departments in each city district and in the countryside), wholesale food storage, storage for fresh fruit and
vegetables etc. ‘disappeared’ quickly and no substitute has yet come to take their place.
In the former system all shops had their mission: either an ordinary food retail outlet with all main food groups
presented, or a specialized outlet (trade in fresh fruit and vegetables, baby food, food for diabetics, etc.)
Thus, in recent years certain attempts have been made to build up a new distribution and retail system using
both old and new elements.
2.2.2 Comparative analysis across CEE countries
This subchapter presents a comparative analysis of food retail sector developments in the countries of Central
and Eastern Europe (CEE). Data on major trends (by country) are given in Annex 7.
As the Ukrainian retail sector is in the initial stage of its build-up, different development models can be applied.
Based on expert opinion, Ukraine is most likely to follow the Russian model, where local companies dominate
at the moment but foreign retailers gain increasingly more ground. At the same time, the share of modern
formats in Russian retail turnover remains small (about 4-5% in 2002).
On the other hand, experts believe that the Ukrainian authorities are trying to replicate the Polish experience
in their attempt to prevent quick development of retail chains. However, they are attempting to accomplish this
before market saturation, while in Poland it is being initiated afterwards.
Ukraine: At the end of February 2003 the Council of Entrepreneurs under the Cabinet of Ministers of Ukraine announced that it had started working on the draft law ‘On Retail Chains in Ukraine’ together
with the Ukrainian Ministry of Economy. As of April 2003, there is no detailed information on this
document. However, experts believe that it will be aimed at the protection of local retailers and may
become another hindrance in the way of foreign investors.
Poland: In November 2002 the Polish Sejm passed a law on retail trade, designed to defend small retailers from encroachment by large chains. The law limits and declares the assortment of goods
offered by retail chains and sales conditions. Therefore, stores with sales area exceeding 400 m2 are not
allowed :
- to sell goods or services at a price that does not include a markup (exclusion is made only for
special reasons)
- to sell goods for which customers can pay in coupons issued by large chains
Moreover, there is a special limitation for discount chains: the share of private label products cannot
exceed 20% of total sales of the chain.
The major differences in retail market development in CEE countries are outlined in Table 4 below.
15
Table 4. Comparison of food retail developments in CEE countries
Country Share of modern formats in retail turnover Dominating chains Market fragmentation
Poland considerable foreign high
Czech Republic considerable (about 70%) foreign low
Hungary considerable (about 50%) foreign low
Lithuania considerable (about 60%) local low
Russia insignificant (less than 10%) local high
Ukraine insignificant (less than 10%) local high
In the graphs below the main market indicators of the CEE countries are compared.
Basic comparison allows drawing the conclusion that the Ukrainian retail market is far behind similar markets in other CEE countries.
The amount of foreign direct investment attracted per one Ukrainian is 3.3 times less than per one Russian, 14.3 times less than per one Pole, and 32.6 times less than per one Hungarian (see Figure 5).
Figure 5. Foreign Direct Investment (cumulative as of end 2001), USD per capita
Source: national statistics agencies Comparison of retail turnover per capita shows that (according to official statistics) an average Ukrainian spends 4 times less on purchases of food and non-food items than an average citizen of the Baltic States, and 17.5 times less than an average Pole.
Figure 6. Retail turnover in CEE countries in 2001, USD per capita
* There are two figures given for Ukraine. USD130 is the official data on retail turnover provided by the State Statistics Committee of Ukraine. USD 466 is an estimation made on the basis of official data on consumer expenditures, also provided by the Statistics Committee of Ukraine .
Source: national statistics agencies
2,900
2,257
1,276
959720
29689
-
500
1,000
1,500
2,000
2,500
3,000
Hungary Estonia Poland Latvia Lithuania Russia Ukraine
558 542 514 466
2,280
1,880
707
-
500
1,000
1,500
2,000
2,500
Poland Hungary Russia Estonia Latvia Lithuania Ukraine*
130
16
Ukrainian retail chain outlets are also less developed than those in other countries (see Figure 7). For
example, in Poland there are 98 outlets per 10,000 inhabitants while in Ukraine there are only 20.
Figure 7. Number of retail outlets in 2001 per 10,0 00 inhabitants
Source: national statistics agencies
As shown in Figure 8, modern formats have a relatively low share of retail turnover in Ukraine and Russia -
about 10%, vs. 50-70% in Poland, Hungary and the Czech Republic.
At the same time, the share of street markets in Ukraine and Russia is high (30-50%) compared to 10% in
Poland and 1% in the Czech Republic and Hungary.
Figure 8. Retail turnover distribution between reta il formats, 2002
Source: GfK Polonia, 2002; ACORT; experts’ estimates
161
9883
3120
0
20
40
60
80
100
120
140
160
180
Hungary Poland Estonia Russia Ukraine
1421
81 1
17
32
20
4 6
12
17
22
6 3
37
23
28
63
40
10
1
1 26
50
7 3 7
3 3 4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Poland Czech Hungary Russia Ukraine (estimate)
Hypermarkets Supermarkets Discounters Groceries Street markets C&C Others
17
2.2.3. Trends in Ukrainian food retail
The following trends accompany Ukrainian food retail development:
� Development of large-scale formats and transition to self-service technology. Establishment of new
retail formats on the basis of the old food stores / loss of specialization of the old outlets
Such retail formats as hypermarkets and supermarkets have quickly gained popularity as a substitute
for old-format stores. This has led to the purchase of almost all former univermags, universams and
gastronoms and the set-up of new retail outlets instead. Thus, the majority of stores became multi-
profile, trading both in food and non-food, and stores with a narrow-specialization have almost
disappeared.
� Use of modern retail technologies including equipment of retail outlets and IT solutions for chain stores
� Establishment of distribution centers by the largest retail chains
Following worldwide practice, further development of distribution centers will continue with the growth of
retail chains.
� Appearance of private labels
Though there are only a few examples of private labeling in Ukrainian retail, this segment is expected to
grow soon. Private labels have already appeared at Furshet (Furshet brand for canned vegetables and
ravioli), Silpo (Baba Galia for flour), Euromart (Euromart brand for disposable tableware and ravioli) and
ATB (ATB brand for cereals, napkins); all of these products are manufactured locally. Spar has also
placed private labels on the shelves of its stores, but all 150 items are imported.
� On-line stores and delivery services development
Some chains (like Furshet, Megamarket, Tavriya-V) have developed their Internet sites with
incorporated on-line stores where consumers can buy products without leaving their homes. Home and
office delivery services have recently become an additional means of increasing consumer loyalty.
� Development of franchising retail
Retail on franchising terms is currently represented by Spar. This growing chain is owned by a
Ukrainian company that bought a franchise from Spar International.
� Low level of foreign investments in Ukrainian food retail
18
Forecast for Ukrainian retail market development The current period in the development of the Ukrainian retail market is characterized by dynamic changes.
Supermarkets12 are mushrooming and the fight for consumers is ahead.
As international experience shows, tough competition between the chains starts when the share of
supermarkets in a city’s retail turnover comes close to 30%. Therefore, severe competition is expected to
break out within the next 2-3 years.
Local experts think that in two or three years the leaders among large retail chains will be finally shaped in
Ukraine. These retailers will differ only in some aspects, including the presence of private labels on the
shelves of supermarkets and offers of additional advantages to consumers.
In the opinion of retailers and producers, the share of supermarkets in retail turnover within the next 5 years
can reach 20-40%, depending on the region. The largest share is to be gained in Kyiv and such cities as
Dnipropetrovsk, Odesa and Lviv, where the level of consumption is relatively high. In other regions,
supermarkets have decent opportunities to enlarge their share, and these will definitely grow from the current
level of under 10%.
New entrants and their plans
Over the next 5 years both international and new local players are expected to appear in the Ukrainian retail
market. It is expected that they will toughen the competition and contribute to the development of the retail
sector.
� Metro AG is entering the Ukrainian market with its wholesale subdivision – Metro Cash & Carry . It has
already set up a local branch – Metro Cash & Carry Ukraine, and the opening of its first outlet has been
scheduled for 24 August 2003 (see chapter 5 for details).
� Having gained positive experience in Russia, such companies as French Auchan and Turkish Migros
(which operates in Russia as Ramstore) are considering a south-west move to Ukraine.
� Europe’s largest retailer Carrefour (France) has already announced its development plans in Russia
and is expected to enter the Ukrainian market.
� Leading British retailer Tesco is also carefully observing the situation in the Ukrainian market.
Perspective retail formats:
In the opinion of retailers, the most convenient and, therefore, prospective formats of food retail are:
� supermarkets of 1,000 – 2,000 m2 sales area located in the residential districts (neighborhood
supermarkets);
� wholesales and retail stores (cash & carry) with more than 5,000 m2 sales area;
� hypermarkets of at least 8,000 – 10,000 m2 sales area;
� mega shopping centers (more than 20,000 m2 sales area).
________________________________________________________________________ 12 Hereafter, all modern retail formats are meant, if not specified
19
2.2.4 Investments in the sector
Major foreign investments in Ukraine’s food retail market include:
� Western NIS Enterprise Fund (USG Investment Fund) was the first major foreign investor in the
development of retail and wholesale in Ukraine. In 1999, this USG funded institution invested
USD 2.4 mn into development of the first cash-and-carry chain in Ukraine (Euromart). In 2000, another
equity fund – Commercial Capital – provided for the second investment inflow in the amount of
USD 4.5 mn. Though great expansion plans have been declared, the Euromart chain still consists of
5 outlets: 2 in Kyiv and 1 each in Kharkiv, Dnipropetrovsk and Zaporizhia.
� Austrian Euro-BILLA has invested more than USD 20 mn in the development of a western type
supermarket chain in Ukraine. When starting its activity, BILLA announced plans to open 5-7
supermarkets under the BILLA brand every year in Ukraine for the next five years. However, as of
January 2003, there were only 8 supermarkets operating in the BILLA chain (3 in Kyiv, 2 in
Dnipropetrovsk, 2 in Kharkiv and 1 in Zaporizhia). Worth mentioning is that at present BILLA is the only
western managed retail chain in Ukraine (until Metro’s start up).
� German Metro AG is entering the Ukrainian market with its wholesale subdivision – Metro Cash &
Carry. It has already set up a local branch – Metro Cash & Carry Ukraine, and the opening of its first
outlet has been scheduled for 24 August 2003 (construction started on 11 February 2003). Metro plans
the development of cash & carry chain in Ukraine through establishment of outlets in the largest cities:
first, in Kyiv, and later in Dnipropetrovsk, Odesa, Donetsk, Kharkov, Zaporizhia.
2.2.5 Customers
It is the opinion of experts that official statistics present the typical end consumer in Ukraine as poorer than he
really is. In this section only actual data reflecting real consumer abilities and preferences are provided.
Portrait of average customer of supermarkets:
Age: 22-60
Monthly income: ≥ USD 100 (per family member) Frequency of visiting supermarkets: 12 times a month, or approximately 2-3 visits a week
Transport: 45.6% - on foot, 29.4% - by own car, 23.5% - by public transport
Loyalty to the selected store: most customers tend to go to supermarkets of other chains as well.
Average bill in supermarkets Average regular purchase: UAH 30-100 (depending on city)
Average holiday purchase: UAH 50-200 (depending on city)
Product categories bought: 80-90% - food
Average consumer buys 100-120 items during a month
Source: UMG survey, data from retailers
Visits to supermarkets are becoming an alternative for family entertainment. Shopping enjoys wide popularity
both with adults and with kids who like to drive in carts and grab sweets and toys. Worth mentioning is that
unplanned purchases make up to 70% of purchases, therefore the total amount of the bill can often surprise
the consumer at the check-out terminal.
Western consumers have higher brand awareness than their Ukrainian counterparts. Lack of brand loyalty is
considered to be one of the reasons why Western retailers are slow to enter Ukrainian market.
20
However, the brand thinking of local customers is being developed. Most visitors to supermarkets are not very
eager to buy products from unknown manufacturers and prefer products of well-known brands (especially
local). However, for some people price is still a key issue and unbranded products are purchased mainly
because of the opportunity to save money.
Fruit and vegetable juices manufactured by Odesa Baby Food Cannery represent one of the first good
examples of unbranded products. This juice series has been highly rated by customers as all juices are
made from fresh fruit. Another comment: these juices appeared in Tetra Pak cardboard packaging of white
color with no pictures and only the name of the juice on it, at first surprising consumers by its plain design.
2.2.6 Estimated Market Size (food retail)
Food sales make up approximately 50% of total retail sales. According to official information from the State Statistics Committee, food retail turnover reached nearly USD 4 bn in 2002. However, estimated food retail turnover currently exceeds USD 13 bn for Ukraine , when estimates are based on current figures for
consumer spending from the State Statistics Comittee, and the share that food purchases claim of this total
expenditure amount.
The comparative increase in both food and total retail turnover is presented in Figure 9 below. Similar to the
decrease in total retail turnover, the drop in food retail turnover in 1998-1999 was a consequence of the
financial crisis of August 1998, which resulted in a sharp drop in the Ukrainian currency’s purchasing power,
and a consequent cutback in consumer activity. In addition to this, the Ukrainian population has shown a
negative trend since 1994.
Figure 9. Food retail turnover compared to total re tail turnover 13
* Estimation, made on the basis of official data on consumer expenditures.
Source: State Statistics Committee of Ukraine
________________________________________________________________________ 13 These figures are taken from official data on retail / food retail turnover from the State Statistics Committee of Ukraine. As noted in the text, if official figures are assessed in a bottom-up approach (ie figures for consumer spending are used as a basis to calculate turnover) retail turnover exceeded USD 13 billion in 2002 (*). Such obvious discrepancies in official data are ignored by the State Statistics Committee of Ukraine at present.
11
8
5 56
7
26
75
3 3 3 4
13
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1997 1998 1999 2000 2001 2002 2002*
US
D b
n
Retail turnover, total Food retail turnover
21
Estimated annual food retail turnover per capita is USD 274, or UAH 1,460, if figures for consumer spending
are used to calculate this total. At the same time, using official data on food retail turnover gives a value of
around USD 75, or UAH 400.
Figure 10. Annual food retail turnover per capita
* Estimation, made on the basis of official data on consumer expenditures
Source: State Statistics Committee of Ukraine
2.2.7 Number of Retail Outlets
Major marketing agencies (such as ACNielsen, Ukrainian Marketing Group, Gfk, Pulse) conduct retail censuses on a regular basis.
According to ACNielsen data, at the end of 2002 there were about 300 hypermarkets, supermarkets and cash & carries in Ukraine (or more than 500 modern-format stores if mini-markets are included), which combined account for less than 1% of total retail outlets.
Figure 11. Breakdown of retail outlets selling FMCG by format in 2002 (urban areas only)
Source: ACNielsen14
________________________________________________________________________ 14 ACNielsen presentation at the conference “Retail:Effective Organization of an Outlet”, Kyiv, March 24-25 2003.
Small food and mixed22%
Medium food and mixed17%
Specialized stores8%
Large food and mixed
6%
Shops at filling stations
0.5%
Modern formats0.4%
Perfumery / Household
12%
Kiosks / Pavilions35%
99
124 128
92
59 5666 74
274
0
50
100
150
200
250
300
1995 1996 1997 1998 1999 2000 2001 2002 2002 *
US
D
22
Figure 12. Food retail outlets (urban areas only)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
num
ber
of o
utle
ts
1999 135 4,969 10,918 12,833
2000 142 4,929 11,277 13,466
2001 161 4,155 10,883 14,958
2002 255 3,896 11,735 14,703
Modern formats Large food and mixed Medium food and mixed Small food and mixed
Source: ACNielsen15
� Results of a retail census carried out by MEMRB and Ukrainian Marketing Group in 2002 show that the
total number of retail outlets (including open markets) amounts to 113,486. Similarly, the number of supermarkets (both food and non-food) is 459 outlets, or only 0.4% of all retail outlets (1.3% of total number of retail outlets excluding open markets). Detailed data are presented below:
Table 5. MEMRB-UMG 2002 Retail Census Results
Population Split / Area
Tot
al u
nive
rmag
s16
Tot
al u
nive
rsam
s
Tot
al s
uper
mar
kets
Tot
al s
tore
s
Tot
al P
avili
ons
Tot
al K
iosk
s
Tot
al O
pen
Mar
kets
Tot
al r
etai
l ou
tlets
TOTAL UKRAINE 366 459 459 21,023 2,330 11,216 77,634 113,486
>1,000,000 81 129 174 3,866 886 3,436 14,195 22,767
300,000 - 999,999 52 89 98 4,145 367 2,650 18,514 25,915
20,0 - 299,999 233 241 187 13,012 1,077 5,130 44,925 64,804
In our opinion, the number of Ukrainian food supermarkets (including hyper-, mini-markets, as well as cash &
carries) almost doubled in 2002, and in the beginning of 2003 it can be estimated at the level of 700-750
outlets (more than 200 of them located in the 7 largest population centers of Ukraine).
2.2.8 Main food retail formats
It is extremely difficult to squeeze the Ukrainian retail into a common framework. As described in Chapter 1.1.2. even experts often call same formats by different names. ‘Chain’ retail, ‘large’ retail, ‘modern type’ – all these names mean the same generally accepted retail formats worldwide.
________________________________________________________________________ 15 ACNielsen presentation at the conference “Retail:Effective Organization of an Outlet”, Kyiv, March 24-25 2003. 16 Univermag is a large city mall or a department store selling non-food items (sales area is 3,500-22,000 m2).
23
However, in practice only some retailers have established stores of a clear format (supermarkets like Billa and Spar, hypermarkets like Maxi, Aeroportovsky) and the major market share still belongs to mixed retail formats (a mixture between cash & carry, hypermarket and supermarket such as Furshet and Megamarket). Therefore, at the moment identification of formats in Ukrainian retail is rather conventional. Retailers mention the psychological factor – change from street markets to supermarkets is a gradual process – as one of the main reasons for diversity and mixture of formats. Therefore, retailers prefer not to shock consumers, but to please them and develop their preferences in favor of modern shopping instead of street markets. Lack of investments can be also mentioned in this respect, as considerable amounts are required in order to adjust a former production facility or a warehouse to a supermarket or a hypermarket format. In some experts’ opinion, mixed formats are one of the key survival factors in a transitional phase. Thus, at present modern formats adjoin traditional ones in Ukrainian retail. Major existing formats of retail outlets are listed below.
Traditional retail outlets:
� gastronom / grocery � universam � kiosk � pavilion � street or open market
New formats:
� hypermarket � cash & carry � supermarket � discounter
In terms of retail turnover distribution the situation is as follows (see Figure 13): share of street markets and groceries is high – about 50 and 40% correspondingly. The remaining 10% is shared between modern formats. Figure 13. Ukrainian retail turnover distribution b etween retail formats in 2002 (estimate)
Groceries40%
Street markets50%
Discounters3%
Supermarkets6%Hypermarkets
1%
Source: experts’ estimate
Open markets are still one of the most popular forms of retail, though chain companies are working hard trying
to displace them. For example, in Kyiv (according to the information from city trade department) the share of
open markets in the city’s retail turnover reaches 30-35% in food sales (in meat sales – 90-95%) and 20-25%
in consumer goods.
24
2.2.9 Key Players in Ukrainian food retail
2.2.9.1 Key food retailers on the Ukrainian market
All companies active in the Ukrainian food retail can be classified by different criteria such as store format,
number of outlets, retail turnover volume and regional spread.
As there are practically no ‘clear’ formats in the Ukrainian market, all classifications are rather conventional. It
is evident that the majority of retailers operate in the supermarket format, while discounters do not enjoy such
popularity.
Table 6. Formats of Ukrainian food retailers
Store format Sales area, m 2 Brands
Hypermarket About 10,000 Maxi, Aeroportovsky
Cash & carry 2,000 – 8,000 Euromart, Fozzy, Intermarket, Spar Centre
Supermarket 300 – 5,000 Billa, Furshet, Silpo, VAM, Arsen, Kit, West Line, Spar, Klass, Target, Tiko
Market, Megamarket, Tavriya-V
Discounters 300 - 1,000 ATB-Market, Fora, Barvinok
Though one can judge about the importance of a retailer based on the number of set up outlets, the real status
of companies can be evaluated on the basis of a retail turnover. However, these figures are usually not
disclosed by companies. Data on number of outlets and sales area are presented in Table 7.
Table 7. Leading food retailers by number of outlet s
Number of outlets, Company Brands Total sales area, m 2
Jan 2003 Planned
expansion to
Fozzy Silpo, Fozzy, Fora > 40,000 (estim.) 32 70
Garantiya-Trade Furshet 20,000 (estim.) 15 23
ATB-Market ATB-Market 40,000 (estim.) 80 n/a
Rainford Rainford, Partner 10,500 10 n/a
Intermarket Intermarket, Arsen, Barvinok 20,000 (estim.) 13 n/a
Tavriya - V Tavriya-V, Aeroportovsky 15,000 7 appr. 10
Billa-Ukraine Billa 16,000 8 10
Megamarket Megamarket 12,000 (estim.) 3 n/a
Euromart Euromart Cash & Carry 10,000 5 n/a
Kviza Trade Velyka Kyshenia 7,700 4 5
Ukr-Trade Klass 3,000 (estim.) 3 4
Center Spar Ukraine Spar, Center Spar 5,100 3 7
Rorus Rorus 6,650 4 n/a
Brig Trade House Brig 7,000 8 n/a
Target Target Supermarket 3,400 1 3
Tiko Tiko Market 2,120 2 5
TOTAL 198
Source: data from retailers, estimates
25
The following conventional classification by regional spread can be suggested in order to determine the
impact of retailers on the Ukrainian retail market:
� national retailers (see Table 8 for detailed profile)
In Ukraine there are only a few chains that can be called ‘national retailers’, in the true sense of the word. The
key players on a country-wide scale (ie those that have set up stores in more than 3 oblasts) are Fozzy,
Rainford and Furshet. Billa and Euromart, having outlets in Kyiv, Dnipropetrovsk, Kharkiv and Zaporizhia,
follow the leaders. Recently Spar joined this group by announcing expansion to the Cherkasy and Luhansk
markets.
� regional retailers (see Table 9 for detailed profile)
Companies highly influencing the retail industry of more than 1 oblast can be called regional. Their activities
are usually concentrated in neighboring territories/oblasts and they are not of national importance. This group
unites such companies as ATB-Market (Eastern Ukraine) and Intermarket (Western Ukraine).
� local retailers (see Table 10 for detailed profile)
Members of this group have concentrated their outlets in the area of one city or oblast. For example, Kit
covers the market of Zaporizhia, Obzhora dominates in Donetsk, Tavriya-V and Rorus play a key role in the
Odesa market. Kyiv hosts many local retailers such as Velyka Kyshenia, Tiko Market, Begemot, West Line,
Megamarket and others.
Regional food retail coverage is illustrated in Figure 14.
Figure 14. Food retailers regional coverage
According to experts’ estimates, supermarkets’ share in total retail turnover can reach 15-20% in 2003. Although the supermarket sector is highly fragmented, national-level retailers dominate this segment. Regional and local retail chains share the rest equally. A tentative breakdown of supermarkets turnover is presented in Figure 15 below.
26
Figure 15. Key food retailers turnover breakdown (b ased on 2002 - I Q 2003 data)
Source: Tebodin estimates
Presented below are typical profiles of Ukrainian food retailers. They describe the key features of the companies operating on the food retail market.
Table 8. Typical profile of a national food retaile r Fozzy, Furshet, Rainford, Billa, Spar, Euromart
Data Remarks
Ownership Private LLC, CJSC
Year when started operations After 1997 (in retail sector)
Strategy selected when started Become market leader
Target group End consumers (mainly)
Share of the local retailing market / Share of supermarkets market, % (estimate)
10-12 / ~ 60 Aggregated for the group of national
retailers
Sales volume 2002, USD (estimate) 400 mn per chain
Number of outlets From 5 to > 50
Location Kyiv, Dnipropetrovsk, Kharkiv,
Zaporizhia, Lviv, Odesa, Cherkasy, Luhansk, Khmelnitsky, Simferopol
Shops are located mainly in residential areas
Area of an outlet, m2 1,000 - 5,000 sales area
Average monthly turnover, UAH per 1m2 4,000 – 13,000
Average purchase, UAH per bill 50 - 100
Average number of purchases through outlet per day
Regular (Mon-Fri): 4,000 - 8,000 Weekend: 6,000 – 10,000
Holiday eves: up to 10,000 – 12,000
Ways of obtaining space Rent / Purchase / Construction Rent and purchase of former production
/ sales premises
Cost of space + equipment, USD per 1m2 400 – 2,000
Employees per outlet 100 On average
Average gross retail margin, % 12 - 20
Range of products (Assortment) 10,000 - 25,000 70-80% - food products; 20-30% - non-
food
Discount system 1-5%
Average storage area per outlet, m2 200 – 1,000
Distribution Center (DC) no Some chains already have DC or plan
to set it up
Private labels yes
Availability of parking lot yes Almost all shops have free parking lots
Delivery service yes Delivery to home (cash or card payment) and office (bank transfer)
Source: combined data from retailers
Regional retailers20%
Local retailers21%
National retailers59%
27
Table 9. Typical profile of a regional food retaile r
ATB, Intermarket, Brig, Target
Data Remarks
Ownership Private LLC
Year when started operations 1996-1998 (in food retail)
Strategy selected when started Leadership in the regional niche
Target group End consumers (mainly)
Share of the local retailing market / Share of supermarkets market, % (estimate)
3-4 / ~ 20 Aggregated for the group of national
retailers
Sales volume 2002, USD (estimate) 200 mn per chain
Current investments, USD > 5 mn estimate
Number of outlets From 10 to > 80
Location Dnipropetrovsk, Kharkiv, Zaporizhia,
Lviv, Cherkasy Shops are located mainly in residential
areas
Area of an outlet, m2 500 - 5,000 sales area
Average monthly turnover, UAH per 1m2
5,000
Average purchase, UAH per bill 20 - 60
Average number of purchases through outlet per day
Regular (Mon-Fri): 1,000 - 4,000 Weekend: 4,000 – 10,000
Holiday eves: up to 8,000 – 10,000
Ways of obtaining space Rent / Purchase / Construction Rent and purchase of former sales
premises
Cost of space + equipment, USD per 1m2
400 – 1,000
Employees per outlet 100 On average
Average gross retail margin, % 12 - 17
Range of products (Assortment) 5,000 - 20,000 70-80% - food products;
20-30% - non-food
Discount system 1-5%
Average storage area per outlet, m2 200 – 1,000
Distribution Center (DC) no However, the largest networks already
have DC
Private labels yes Only the largest companies have
Availability of parking lot yes Almost all shops have free parking lots
Delivery service yes (only the largest companies) Delivery to home (cash or card payment) and office (bank transfer)
Source: combined data from retailers
28
Table 10. Typical profile of a local food retailer Begemot, Kit, Klass, Kolibris, Maxi, Megamarket, Obzhora, Rorus, Tavriya-V, Tiko Market, VAM, Velyka
Kyshenia, West Line, YUSI Data Remarks
Ownership Private LLC, Private Enterprise
Year when started operations After 1997 (in retail sector)
Strategy selected when started Leadership in the local niche
Target group End consumers (mainly)
Share of the local retailing market / Share of supermarkets market, % (estimate)
3-4 / ~ 20 Aggregated for the group of local retailers
Sales volume 2002, USD (estimate) 60 mn per chain
Current investments, USD > 1 mn
Number of outlets From 1 to 10
Location Kyiv, Dnipropetrovsk, Kharkiv,
Zaporizhia, Lviv, Donetsk, Odesa, Luhansk, Lutsk
Shops are located mainly in residential areas
Area of an outlet, m2 500 - 5,000 sales area
Average monthly turnover, UAH per 1m2
1,000 - 6,000
Average purchase, UAH per bill 15 - 100
Average number of purchases through outlet per day
Regular (Mon-Fri): 1,000 - 6,000 Weekend: 4,000 – 8,000
Holiday eves: up to 8,000 – 10,000
Ways of obtaining space Rent / Purchase / Construction Rent and purchase of former production
/ sales premises
Cost of space + equipment, USD per 1m2
400 – 1,000
Employees per outlet 100 On average
Average gross retail margin, % 12 - 20
Range of products (Assortment) 5,000 - 20,000 70-80% - food products;
20-30% - non-food
Discount system 1-7%
Average storage area per outlet, m2 200 – 1,000
Distribution Center (DC) no The largest chains plan to set it up
Private labels yes Only the largest companies have
Availability of parking lot yes Almost all shops have free parking lots
Delivery service yes (only the largest companies) Delivery to home (cash or card
payment) and office (bank transfer)
Source: combined data from retailers
2.2.9.2 Factors that influenced the decision to sta rt retail business
Among the factors that determined companies’ development in retail, the following issues were mentioned as
key by retailers: ⇒ attractive market sector,
⇒ existing niche in the local market,
⇒ growing demand by end consumers for high-quality retail services,
⇒ positive experience in the wholesale trade and developed infrastructure for retail start up,
⇒ high profitability of retail business,
⇒ convincing results of conducted market research,
⇒ cooperation with leading international retailers.
29
A few retailers also mentioned that the Ukrainian legal framework of the early 90’s considerably contributed to the emerging of many new trading businesses: legislation pushed companies towards trading activity, as it was quite difficult to start up production.
Some companies started their retail business with a single outlet (which could have been small and even non- food oriented) without having a retail chain in mind. However, having gained good experience with one shop, those companies developed large successful chains.
The trading company Intermarket started its activities in 1992 trading with clothes and foot-wear, having only
7 employees in a shop with a total area of 110 м2 in Halytska St., Lviv. Market analysis and understanding of
consumer needs in the mid-90’s became the key factors for a profile change to trade in food and
accompanying goods. In 1996 the new name ‘Intermarket’ was introduced; since that time the company has
been opening new shops each year. And now it works in three formats – cash & carry, supermarket,
discounter – and has 13 outlets and comprehensive development plans. Source: company site www.intermarket.lviv.ua
2.2.9.3 Background of retailers
The majority of retailers started their activities with the wholesale trade and / or import of foodstuffs in the beginning of the 90’s. Having gained a certain amount of experience with the development of their own distribution network, many companies faced the necessity of opening their own retail outlet (as some traders admit, ‘just to see’). Since this niche was open, the retail business brought about a positive experience which further lead to a company’s reorientation. Some companies selected a diversification strategy and after development of retail chains they made the decision to acquire other businesses. Therefore, many companies in Ukraine involved in retail have a diversified business portfolio and retail is only one part of their activities. The scheme below describes the development of most trading companies:
Wholesale
company
opening
Distributors
network
development
Opening
1st retail
outlet
Gaining positive
experience in
retail
Retail
network
development
Acquisition
of other
businesses
Sales of
their
products
through
own
network
As access to sufficient financial resources was not simple, companies had to raise their own capital for
development in the retail industry. So, some companies presently active in the retail market earned their
starting capital in other economic sectors (like oil and gas).
Business concentration brought into existence diversified trading and industrial groups that have their own
distribution and retail networks, as well as their own production facilities.
Food brands belonging to the leading trading and industrial groups are:
- Fozzy Group: Miagkov and 220V (vodka and low alcohol), Odessa (champagne), Izmail (wine),
Nizhyn (canned vegetables), Olivier (mayonnaise);
- Rainford Group: Rainford (chocolate), Bon Boisson (mineral water and soft drinks), Karat (vodka),
Miasnaya Gildiya (meat), Bravo and Schodnia (dairy), Vivat (bread)
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2.3. Local practices
2.3.1 Discount / loyalty systems
Ukrainian retailers use such major types of discounts as:
a. Special offers (special price for some goods for a few days)
b. Price reduction during certain hours or days (usually 9-11 AM or 9-11 PM, and during weekends or on
Sundays)
c. Special prices to discount or client card holders (as part of a loyalty system)
a. Special offers allow promoting a certain product or brand (sometimes, completely new or with a new
design) making it more accessible for customers and forming a consumption habit. In some shops
special offers cover one product from each group, which draws poorer customers into becoming loyal
visitors.
b. Announcement of discounts for the entire product range during certain time periods helps to spread
customer flow more equally. Such a need arises when a store is well-located (and long check-out
lines occur) or when a store wants to draw additional customer groups (in some cash & carry outlets
wholesale prices are effective on Sundays).
c. The way of getting a discount card differs by retail chain: you can either make a single purchase for a
certain amount or just buy a card (price varies from UAH 15 to 100). Some chains provide city
authorities with discount cards. Most retailers provide special discounts to their personnel, which
allows double benefits: sales increase and motivation of personnel rises.
The discount rates granted to cardholders range from 1 to 7% depending on the chain and special conditions
(amount accumulated on the card account, cost of last month’s purchases, etc.).
Recently, joint programs with commercial banks have become very popular. For example, you can get a
discount in a certain supermarkets or become a discount cardholder, if you have a card issued by a certain
bank (if you have a plastic card from Pravex Bank you automatically get 1% discount card at Velyka Kyshenia
chain).
Discount or client cards can be ordered in Ukraine (they are produced by specialized local companies). The
average period for the production of plastic cards is 10-12 working days.
2.3.2. Seasonality / changes of sales
The seasonality of sales is expressed through fluctuations in the number of purchases and average check
amounts during certain time periods (on a daily, weekly, monthly and annual basis).
Retail customer flow (at a neighborhood supermarket) during the day is divided as follows:
- housewives and pensioners are usual morning visitors;
- those who are employed are evening (after 6 PM) visitors.
The highest number of visitors occurs on Friday nights and Saturdays, while during working days and
Sundays the number is level.
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Monthly peaks are related to the salary pay days (in some companies the whole salary is paid at the beginning
of the month, while in others it is paid in two parts – advance in the middle of the month and the rest of salary
at the beginning of the month).
Wholesalers’ flow to the stores that provide services for professional customers - HoReCa and small retail
outlets - is high during working hours (10 AM to 5PM) of working week days (Monday through Friday). The
wholesalers’ flow is usually evenly distributed throughout the month.
Almost all retailers marked annual peaks of sales around the following traditional and religious holidays:
- New Year (and orthodox Christmas – 7 January)
- Women’s Day (8 March)
- Easter (usually falls in March or April)
- May Holidays (1-2 and 9 May)
- Independence Day (especially for the stores located in the city centers – people are outside and
spend more on food and drinks)
- Valentine’s Day (14 February) – this holiday had recently gained popularity
The New Year period (mid December – 1 January) is marked by an increase of up to 60-70% in average
sales. Other holidays provide for a 15-20% increase over normal work periods.
Special days for each region include City Day, professional holidays affecting many people in a particular
industrial region (like Miner’s Day in Donetsk, Metallurgist Day in Dnipropetrovsk and Zaporizhia) and public
events (such as soccer games, concerts, etc.). It is mainly outlets located in the city center, a pedestrian zone
or next to the area where an event takes place that experience sales increases on these days.
The majority of retailers experience a sales decrease in summer (about 10-15%), although some of them deny
this fact.
The tentative annual sales distribution (based on retailers’ estimate) is presented in Figure 16 below.
Figure 16. Approximate distribution of annual retai l turnover
Source: data from retailers
0
2
4
6
8
10
12
14
16
Janu
ary
Febr
uary
Mar
chAp
rilM
ayJu
ne July
Augu
st
Sept
embe
r
Octo
ber
Nove
mbe
r
Dece
mbe
r
% o
f ann
ual r
etai
l tur
nove
r
32
2.3.3. Distribution system 17
The Ukrainian distribution system is based on the application of two main schemes:
I. Direct supply
Producer
Retailer
This scheme is one of the most commonly used in Russia, and presently it is gaining increasingly more
influence in the Ukrainian market.
The direct supply scheme is used mainly only by the largest producers due to its high costs (own logistics /
transportation units) and risks. Producers usually apply such a system through their regional branches or by
means of direct deliveries.
The direct scheme allows the producer to receive an additional profit and to facilitate the production planning
process due to close contacts with retailers (which allow for receipt of the latest information and a quick
response to consumers’ needs and competitors’ actions). This scheme also contributes to increasing a retail
chain’s influence on the market as a whole.
In the largest Ukrainian cities, which account for the lion's share of sales, the majority of producers practice a
‘mixed’ scheme: a producer works directly only with VIP-clients (large retail chains), and small-scale retail is
left to distributors.
Many large juice, beverage, dairy and meat manufacturers use the direct scheme. With dairy and meat
products it works especially well due to the short shelf life of products.
II. Supply through intermediate agents a) Supply through distribution company
Producer
Distributor
Retailer
In contrast to the American and European practice, where retail chains fulfill distributors’ functions through
their own distribution centers, in Ukraine the distributor’s task within this scheme is to supply goods directly to
retail outlets. Operational control is carried out by trade representatives who supervise merchandise lay-out,
inventory stocks and plan the delivery schedule.
This scheme is used mainly by small-scale producers or firms just entering the market. They work through
distribution companies which give them favorable conditions. After gaining some experience, transition to the
direct scheme is possible.
One of the modifications of this scheme is an exclusive distributor model. In this case, a distribution company
can receive rights for product distribution in a specific region(s) or the whole country. However, such a
distributor should have a good track record and a large regional network in order to gain producers’
confidence and receive considerable discounts.
________________________________________________________________________ 17 See Chapter 3.2.4 for details on supply of goods / assortment
33
b) supply through distribution company and wholesaler
Producer
Distributor Wholesaler
Retailer
The scheme with the participation of a wholesale company came into existence mainly due to producer’s low
amount of control over the distribution process. However, the recent trend is to eliminate wholesalers from the
distribution chain. This is a major reason why recently many of them have either gone out of business due to
bankruptcy or changed their profile (some of them began distribution or production activities).
The main trends observed in the Ukrainian distribution system are as follows:
� Distribution channels have been minimized, while the usage of the direct supply scheme has intensified
over the last years. At the same time, it is almost impossible to estimate the share of different supply
channels as their usage varies by market sector.
For example, in the opinion of juice market operators, in this market segment sales through distributors
account for less than 10% of total sales volume in the large cities and 30-50% in the regions. The
remainder is left to direct distribution.
� Distribution companies have been forced to narrow their product portfolio, as promotion of specific
trademarks (not competing with each other) has become the main task of a distributor.
� The number of distributors linked to one particular producer has reduced (in large cities – usually to 2-
4). This is connected to territorial division between the distribution companies.
� With market development, the distributors’ margin has decreased to 10-15% in 2002-2003 from more
than 20% in 1999 (in most competitive markets this profit margin is only 2-3%).
� Local distribution companies have begun diversifying their business activities, as there is a fear that
retail chain development (and setting up of retail chains’ own distribution centers) will lead to a crisis
situation for distributers in 2-3 years.
� Joint mutually beneficial businesses have been established by producers and distributors. In this case,
producers receive additional guarantees of successful merchandise promotion and distributors gain
additional resources for their activities and provisions for long-term cooperation.
Key Ukrainian merchandise suppliers to retail chain s
Producers
� Dairy products: Galakton, Bilosvit, Lactalis-Ukraine, Molochny Dom, Wimm-Bill-Dann, Lustdorf
� Meat products: Kyiv Meat Processing Plant, Rusanovka Meat Plant, Yatran (Kirovohrad Poultry Plant),
Lisichansk Meat Plant, Kovelski Kovbasy (Kovel Meat Plant), Kolos (Chernivtsi Meat Plant)
� Fresh poultry meat: Mironivsky Khliboproduct, AgroMARS
� Confectionery: Roshen, AVK, Kraft Foods, Nestle, Kharkiv Biscuit Factory
� Beverages: Coca-Cola, Obolon, Sun Interbrew, Pepsi, BBH, Sarmat, IDS, Megapolis, Fozzy
� Canned fruit and vegetables (including juices): Chumak, Veres, Sandora, MST-Region, Odesa Baby Food
Cannery, Vitmark, Vinnifruit
� Fish products: Pleyady, Prodimpex, Interrybtorg
� Household goods / Perfumery: Procter & Gamb