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Russia Food & Drink Report Q4 2012 - New Market Research Report

New Food market report from Business Monitor International: "Russia Food & Drink Report Q4 2012"


Boston, MA -- (SBWIRE) -- 12/31/2012 -- Our forecasts suggest household expenditure will cool through H212 and into 2013 following a prolonged period of very strong private consumption growth. This already appears to playing out in second-quarter retail data, with retail sales growth averaging 6.7% year-on-year (y-o-y), down from 7.6% in Q112, and new motor vehicle sales registrations experiencing an even more aggressive slowdown (see chart). Part of the reason for this slowdown is the very high base set in H210 and 2011, when real private consumption growth averaged a strong 6.7%, a rate which will be hard to match over coming quarters.

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Retail Sales (LHS) & Motor Vehicle Registrations, % chg y-o-y

But it is not just the high base that will impact private consumption growth. Households will also feel pressure from recent utility tariff hikes, which saw electricity and gas prices rise by 6% and 15% respectively in July. Combined with a recent drought that, according to Russia's agricultural ministry, destroyed 6% of domestic wheat production, consumer purchasing power will almost certainly decline over the next few months. More bad news for households is that the three-year run-up in house prices may be nearing an end, with Moscow's house price index falling sharply in month-on-month terms in June and July this year, and experiencing the first negative y-o-y growth rate in July since the start of the recovery in early 2010. If this trend continues it is likely to dampen the wealth effect, since Russia has very large home ownership rates following large-scale privatisations in the late 1990s.

Headline Industry Data

- 2012 per capita food consumption (local currency) = +8.7%; forecast compound annual growth rate (CAGR) to 2016 = +10.2%
- 2012 beer volume sales = +2.8%; forecast CAGR to 2016 = +2.9%
- 2012 mass grocery retail sales (local currency) = +24.4%; forecast CAGR to 2016 = +28%

Key Company Trends

O'Key To Invest US$500mn: In September 2012, it was reported that O'Key, which is believed to be Russia's sixth largest food retailer by market share with annual sales of about US$3.1bn, had announced plans to invest US$500mn over a four-year time span to grow its business in Moscow in particular, where it is believed the retailer plans to launch 100 stores. We believe that convenience is going to be a major factor in defining shopping habits, especially in Moscow. O'Key is expected to focus on opening smaller stores over this particular investment horizon to 2016. According to a company presentation by Russia's largest retailer by annual sales (X5) from June 2012, O'Key accounts for just 1.2% of the overall food retail market in Russia, and 6% when taking into account the 10 largest retailers only.

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