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Main conference: Sessions 1 and 2
Olga Sagirova, Partner Roland Berger Strategy Consultants
Kyiv, December 2008
During our conference we would like to discuss key strategic and operating aspects in preparing retail chains for future economic growth in light of the current crisis 1 What are the development prospects of the Ukrainian retail market in light of the economic crisis? 2 What opportunities exist that will ensure future growth for Ukrainian retail chains under current market conditions? 3 What are the targets and criteria for selecting acquisition targets from the viewpoint of strategic and financial investors? 4 What are the priorities for future value chain development under the current market conditions? 5 How can Roland Berger Strategy Consultants support further value chain growth? MUC-90007-143-09-01-G 2 .
Spain.1 UKRAINIAN RETAIL MARKET The Ukrainian retail market is still growing – The economic crisis will bring it to the maturity stage Dynamic of modern retail markets Profiling formats Format Unorganized trade Rapid growth of organized trade Southern Europe2) Central Europe1) Baltic states Slovakia Turkey Greece Russia Rumania “Developed” Europe3) Germany France Spain Selected countries Poland Ukraine Bulgaria Phase Formation Growth Maturity Saturation MUC-90007-143-09-01-G 1) Poland. Hungary. France. Czech Republic 2) Italy. Portugal 3) Germany. Belgium Source: Roland Berger Strategy Consultants . Great Britain. Netherlands.
2003-2008 Inflation.3 0.2 2003 2004 2005 2006 2007 2008 Retail turnover in actual prices 2003 2004 2005 2006 2007 2008 Retail turnover in 2002 prices 4 Source: State Statistics Committee.1 9.9 2.9 2003 2004 2005 2006 2007 2008 94 91 172 163 130 128 50 48 68 64 Non-food Products 7.6 6.4 1. the Ukrainian retail market showed rapid growth in 2003-2008 Real and nominal growth of the Ukrainian retail market.1 UKRAINIAN RETAIL MARKET Even with inflation. previous year [%] Food Products 30.5 0.9 0. food and non-food products [%] Volume of the Ukrainian retail market [bn UAH] Growth vs.0 12. Roland Berger Strategy Consultants .7 0.3 26% 22% 35% 33% 40% 42% 38% 41% 32% 27% 38% 22% 237 200 7.
the Ukrainian market was one of the most attractive retail markets worldwide • Market share of foreign retailers is small – Few international players have entered the "overheated" market • Crisis developments in the industry and falling multipliers during business sales will allow new investors to enter the market • Industry consolidation and new players' entry will give a new impetus for industry development +26% p.1 UKRAINIAN RETAIL MARKET Despite declining forecasts for industry development in 2009. 2002-20091) [bn EUR]2) Investor attractiveness of the Ukrainian market • In recent years.a. Forecast Food Non-food MUC-90007-143-09-01-G 5 1) In current prices 2) growth includes EUR inflation Source: State Statistics Committee. +4% 31 25 32 -5% 30 21 35% 38% 10 8 48% 52% 2002 45% 44% 44% 46% 54% 2004 62% 65% 55% 56% 56% 2006 2007 2008 Optimist. market consolidation could spur future growth Key indicators overview of the Ukrainian retail market Volume of the Ukrainian retail market. Roland Berger Strategy Consultants . Pessimist.
Roland Berger Strategy Consultants 6 .1 UKRAINIAN RETAIL MARKET So far.5 bn Other Supermarkets 27% Chain Convenience 5% 13% 37% ∑ 24. 2007 [%] Retail sales structure 100% = EUR 24. the share of retail chains is not very significant as a percentage of the overall retail turnover structure – The crisis will contribute to the increase in chains market share Retail sales structure in Ukraine.1 bn 56% Other companies and stakeholders in retail Non-chain 70% 44% Discounters 14% 15% Hypermarkets 16% Cash&Carry 2007 Source: State Statistics Committee.8 bn Unorganized markets Organized markets 3% Sales structure of organized retail 100% = EUR 17.3 bn Sales structure of chain retail 100% = EUR 7.
especially in middle income level cities • Pre-requisites for future demand will be conditioned on the development of new trading technologies and the developments of one's own brands • Markets format's presence is relatively saturated. Roland Berger Strategy Consultants . EIU.065 268 61 73 Ukraine Poland Germany France Source: Planet Retail.1 UKRAINIAN RETAIL MARKET Declining buying power will accelerate competition between retail formats Retail food sales per capita by formats.302 Comments 485 25 168 DISCOUNTER Ukraine Poland Germany France • Low-cost format has significant growth potential • Buyer focus to a larger extent on price more than on quality • Non-food assortment and introducing ones' own brands will be key issues facing this segment • Segment has the main growth potential. but growth prospects still exist • Further growth due to consolidation and filling-in of previously uncovered niches in certain regions MUC-90007-143-09-01-G 7 710 244 25 Ukraine 90 Poland Germany SUPERMARKET France 1. 2007 [EUR] 2007 HYPERMARKET 1.
accurate work with internal efficiency and liquidity Source: Roland Berger Strategy Consultants MUC-90007-143-09-01-G 8 . etc.) Internal efficiency increase • The amount of loans offered has been cut • Loan value is going up • Share value is falling • Attraction of strategic investors is still possible • In such situation most but often means sale of part or all of their companies have business cancelled IPO • Investment funds and FIGs become more interested in retail but remain cautious • Today's most realistic method • Focused growth. direct investment funds. bonds IPO/SPO Private placement (strategic investors.2 FUNDING SOURCES FOR FURTHER GROWTH During the financial crisis companies have limited options left in attracting external funds – Search for internal growth reserves becomes vital Possible fund attraction sources to secure further growth LOANS SHAREHOLDER CAPITAL INTERNAL GROWTH Bank loans.
3 INVESTOR TARGETS AND CRITERIA Requirements of strategic and financial investors to potential partners are very similar Key requirements of strategic and financial partners • Criteria requested and assessed by strategic and financial investors are very similar • These criteria could be separated into 3 main groups: – Profitability – Professionalism – Transparency • Retail chains should consider these criteria during further business build-up and take them into account when making decisions and designing the future business model • Only upon retailers fulfilling requirements and implementing the designed action plan regarding every key criterion will investors be ready to pay a fair price for company shares Source: Roland Berger Strategy Consultants MUC-90007-143-09-01-G 9 .
no control over costs. which began as a result of external environmental conditions.4 INTERNAL DEVELOPMENT PRIORITIES The crisis. – Ill-considered investment policies Liquidity crisis CRISIS TYPES • Performance crisis Strategy crisis Crisis Crisis preconditioned preconditioned by internal by external environment environment CRISIS SOURCES Source: Roland Berger Strategy Consultants . for the following reasons: – No clear market strategies – Operational inefficiency of companies. etc. exposed many problems inside of retail chains Classification of crisis situations CRISIS CHARACTERISTICS Destroying STAGES OF CRISIS Threatening Comments • The current liquidity crisis has been provoked mostly by external environment conditions: an abrupt increase of funding costs Simultaneously. expansion periods. in the most cases the crisis revealed internal problems and unpreparedness of companies to operate in a volatile environment.
insourcing) • Optimization/ formation of main processes EMERGENCY MEASURES AND LONG-TERM MEASURES Source: Roland Berger Strategy Consultants . • Injection of loan capital • Assets implementation • Other funding forms OPERATIONAL CONCEPT • Actions to increase operational effectiveness – Supplier portfolio optimization – Goods flow optimization – Product range optimization – Shop portfolio optimization – Cost-cutting including personnel costs • Actions to enhance liquidity – Cutting investments – Closure of separate shops and warehouses – Inventory optimization – Outsourcing – Accounts payable/receivable management STRATEGIC CONCEPT • Strategic positioning – Value creation model – Strategy of shop formats – Regional strategy – Shop portfolio management – Category management – Trading unions and franchising – Increasing productivity due to IT application • Structural changes (structure is stipulated by strategy) – Organizational structure – Value chain (outsourcing.4 INTERNAL DEVELOPMENT PRIORITIES A recovery program should address the main problems – From operational liquidity issues to structural transformations in the balance sheet and business model Development of the initial concept and anti-crisis measures concept FINANCIAL CONCEPT • Recurrent check of main initial conditions for recovery measures • Structural cleansing – Structure change/balance management – Reassignment of debts – Liability management • Injection of own capital – Actions for liquidity enhancement – Increasing capital – Private Equity. etc.
in-shop processes. logistics.and long-term target of the chain development? • What format should be focused on later? What market segment will be the most attractive? • What regions should be developed as high-priority ones with regard to market attractiveness and entry costs? How to achieve profitable growth? • How to ensure maximum flexibility in marketing policy for increasing the chain's turnover and gross margin growth as well as cutting stocks and releasing working capital? • How to standardize all chains supporting processes in order to speed up order processing and reduce costs (procurements. regional representative offices and HQ)? • How to optimize the chain's management system for timely and focused company value enhancement? Mission and vision Format strategy Regional strategy Marketing strategy Product range Prices Location Promotion Functional strategy Supply chain In-shop operations Organization and staff Planning and controlling Evaluation system for efficiency and motivation IT Source: Roland Berger Strategy Consultants MUC-90007-143-09-01-G 12 .4 INTERNAL DEVELOPMENT PRIORITIES Strategic concept should prepare the company for a new wave of growth Logic of strategic chain development Key questions • What is the mid.
4 INTERNAL DEVELOPMENT PRIORITIES The current situation requires focusing the entire management system on recovering from the crisis and implementing a balanced growth strategy Planning stage Corporate strategy Organizational strategy • Development of strategic roadmaps – Prioritizing Balanced Scorecards – Target KPIs for each management level – Introduction of KPI scales and target values • Development of planning processes at the CC/regional/shop level (topdown and bottom-up) – Stages – Order of interaction and decision making – Periods – Joint management bodies Balanced metrics Change Management stage • Adaptation of tools and structure of incentive funds • Determination of scales for key performance indicators and frequency of bonuses depending on sizes of stimulation funds Motivation system MANAGEMENT SYSTEM Planning and budgeting Efficiency estimation • Optimization of efficiency evaluation processes • System of divisions' performance evaluation aimed at incentives/ motivation Source: Roland Berger Strategy Consultants Management information system Efficiency monitoring. controlling and evaluation stage • Formats and order of presenting documents and reports depending on the management level • Implementation of the monitoring and controlling system within the existing IT system MUC-90007-143-09-01-G 13 .
5 ROLAND BERGER STRATEGY CONSULTANTS Roland Berger can support retailers in a wide range of consulting services Strategy • • • • Strategic alliances/ Mergers and Acquisitions Business value increase Format and regional strategies Strategic audit and due diligences Business processes reengineering • Reengineering of core business processes and organizational structure Restructuring Market analysis / Marketing and sales • • • • Target consumer analysis Brand management Sales organization Pricing • Cost-cutting • Liquidity management Innovation /New product development • Innovative management • Process of new product entry • Process of product development Business growth Company Business efficiency In-shop operations • Availability of shelf stock • Efficiency of in-shop processes • Organizational structure of shop and headcount planning • Service quality improvement Category management E-commerce • New sales channels • В2В Source: Roland Berger Strategy Consultants • Organization • Strategy/Best global experience • Implementation MUC-90007-143-09-01-G 14 .
000 employees 76% international projects Turnover growth in Asia 50% Turnover growth in CEE 24% Amsterdam I Bahrain I Barcelona I Beijing I Berlin I Brussels I Bucharest I Budapest I Casablanca I Chicago | Detroit I Düsseldorf I Frankfurt I Hamburg I Hong Kong I Istanbul I Kyiv I Lisbon I London I Madrid I Milan I Moscow I Munich I New York I Paris I Prague I Riga I Rome I São Paulo I Shanghai I Stuttgart I Tokyo I Vienna I Warsaw I Zagreb I Zurich Source: Roland Berger Strategy Consultants MUC-90007-143-09-01-G 15 .5 ROLAND BERGER STRATEGY CONSULTANTS Roland Berger Strategy Consultants is the largest strategic consultancy of European origin 36 offices in 25 countries Turnover of EUR >600 m 2.
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