Ukrainian Retail Market

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized 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

2 International Finance Corporation Private Enterprise Partnership SME Survey and Sectoral Analysis Project Address 4, Bohomoltsa Street, 01024, Kiev, Ukraine Telephone Fax Web Tebodin Ukraine LLC Address 20, Esplanadna Street, 01023, Kyiv, Ukraine Telephone Fax Web Ukrainian Marketing Group Address 66-B, Chervonoarmiyska Street, 01150, Kyiv, Ukraine Telephone Fax Web 2

3 Table of Contents 1. Introduction Executive Summary Definitions of retail formats Retail Market Overview General Description of the Ukrainian retail (food and non-food) Estimated Market Size (food / non-food) Number of Retail Outlets and Sales Areas Ukrainian Food Retail Sector History and trends in food retail Comparative analysis across CEE countries Trends in Ukrainian food retail Investments in the sector Customers Estimated Market Size (food retail) Number of Retail Outlets Main food retail formats Key Players in Ukrainian food retail Key food retailers on the Ukrainian market Factors that influenced the decision to start retail business Background of retailers Local practices Discount / loyalty systems Seasonality / changes of sales Distribution system Administrative Procedures Administrative Barriers Registration of a Business Entity Permitting procedures Ukrainian legislation on retail. Sanitary regulations and certification of food products Operational barriers Infrastructure Trade equipment and software Human resource issues Supply of goods / Assortment Customs Financing of retail Regional Overview Regional Development Description of Largest Cities (by number of inhabitants) Kyiv Kharkiv Dnipropetrovsk

4 Odesa Donetsk Zaporizhia Lviv Key Foreign and Domestic Players, New Entrants - Profiles of 25 Retailers Profiles of key retailers (alphabetical order) ATB-Market Begemot Shopping Center Billa Brig Euromart Fozzy Furshet Intermarket Kit Klass Supermarket Kolibris / Agrocontract Maxi Megamarket Obzhora Rainford Rorus SPAR Target Tavriya-V Tiko Market VAM Supermarket Velyka Kyshenia West Line YUSI New entrants Metro Cash & Carry Ukraine Ltd ANNEXES Annex 1. Ukrainian political and business environment Annex 2. Sources of information Annex 3. Retailers Contact List Annex 4. Authorities Contact List Annex 5. Contact list of equipment and services for retail companies Annex 6. Macroeconomic Situation in Ukraine Annex 7. Retail sector characteristics in countries of Central and Eastern Europe Annex 8. Barriers for development of supermarket / hypermarket business Annex 9. Guide to permitting procedures in Ukraine Annex 10. Regional development

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 market 1 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 The sections of this report address each of these objectives respectively. Deleted: profiles 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 consumers 2. 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 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 5

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: threequarters 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 6

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 m 2 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 (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 m 2 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 (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 m 2 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 (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 7

8 Discounter (3 chains) Sales area up to 1,000 m 2 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 (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 m 2 ) Universam store trading over the counter that sells mainly foodstuff with an additional section for non-food items (sales area > 500 m 2 ). Kiosk small outlet with sales area up to 10 m 2 trading through a window and selling mainly smallpiece items (sweets, chewing gum, beverages, bread and rolls). Pavilion small shop (sales area m 2 ) 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 m 2. 8

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 As shown in Figure 1, in 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 indicators (Y-o-Y terms) % GDP trend Industrial production trend Retail trade turnover trend in comparative prices 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 ). According to official data, average annual income per household totaled USD 640 in 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 Finance 6, household income should rise by more than 25% in 2003 (forecast by International Center for Policy Studies 7 predicts a 14.8% increase). This forecast is based on the positive financial and economic indicators achieved in Quarter I of 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 See Annex 6 for detailed information Source: news of 3 April 2003, published at Podrobnosti ( based on UNIAN materials ( Source: ICPS Macroeconomic Forecasts ( 9

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) 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 enterprises 8 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.). 10

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 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: Macroeconomic indices Period 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, % Retail trade turnover increase in comparative prices, Y-o-Y terms, % Retail trade turnover per capita, UAH Retail trade turnover per capita, USD 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 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 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 Retail turnover, total, UAH bn Retail turnover, total, USD bn Source: State Statistics Committee of Ukraine 11

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 turnover 9 ), as non-food retail is undergoing a revival after a deep crisis in the mid 90-ies. Figure 3. Commodity structure of Ukrainian retail turnover % 50% 52% 63% 44% 52% 50% 48% 37% 56% 0% 20% 40% 60% 80% 100% food non-food 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 turnover in 2001 by origin of goods. all goods 76% 24% 94% 6% food 61% 39% non-food 0% 20% 40% 60% 80% 100% produced in Ukraine imported Source: State Statistics Committee of Ukraine 9 Source: Polish Official Statistics Federal Statistical Office of Germany Frankfurt-based retail analysis company M+M EUROdATA ( 12

13 Number of Retail Outlets and Sales Area Deleted: 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 This makes about a 30% increase over the previous year. Table 2. Number of retail outlets and their specialization. as of the year end Number of outlets Sales area, '000 m to 1995, +/ to 1995, +/- Retail outlets, total 133, ,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 % % - 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, % * food 9,407 1,461 1,213-87% % * non-food 8,553 1, % 1, % * mixed type 5,866 1,956 1,559-73% % 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 m 2 per 1,000 inhabitants whereas the norm for available sales area that existed in the Soviet Union was 215 m 2 per 1,000 inhabitants. Total sales area of retail outlets amounted to 6,522,366 m 2 as of the end of Table 3. Retail density indicators (based on 2002 results) 11 Region Retail trade turnover in 2002 Density of retail trade outlets, units per 10,000 inhabitants Sales area, m 2 Total, UAH mn per capita, UAH Total incl. stores Total per 10,000 inhabitants Ukraine 39, ,522,366 1,346 Source: State Statistics Committee 10 See Chapter for details 11 Breakdown per oblast is presented in Annex 10 (Table A.10.1) 13

14 2.2. Ukrainian Food Retail Sector 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 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 m 2 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. 14

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 3,000 2,900 2,500 2,257 2,000 1,500 1,000 1, Hungary Estonia Poland Latvia Lithuania Russia Ukraine 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 2,500 2,000 2,280 1,880 1,500 1, Poland Hungary Russia Estonia Latvia Lithuania Ukraine* * 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. 130 Source: national statistics agencies 15

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 10,000 inhabitants Hungary Poland Estonia Russia Ukraine 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 % 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 retail formats, % 90% 80% 70% % % 40% % 40 20% % 0% Poland Czech Hungary Russia Ukraine (estimate) Hypermarkets Supermarkets Discounters Groceries Street markets C&C Others Source: GfK Polonia, 2002; ACORT; experts estimates 16

17 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 multiprofile, 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 17

18 Forecast for Ukrainian retail market development The current period in the development of the Ukrainian retail market is characterized by dynamic changes. Supermarkets 12 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 m 2 sales area located in the residential districts (neighborhood supermarkets); wholesales and retail stores (cash & carry) with more than 5,000 m 2 sales area; hypermarkets of at least 8,000 10,000 m 2 sales area; mega shopping centers (more than 20,000 m 2 sales area). 12 Hereafter, all modern retail formats are meant, if not specified 18

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 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: 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 (depending on city) Average holiday purchase: UAH (depending on city) Product categories bought: 80-90% - food Average consumer buys 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. 19

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 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 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 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 Figure 9. Food retail turnover compared to total retail turnover 13 * Estimation, made on the basis of official data on consumer expenditures USD bn * Retail turnover, total Food retail turnover 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. 20

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 USD * * Estimation, made on the basis of official data on consumer expenditures Source: State Statistics Committee of Ukraine 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) Small food and mixed 22% Kiosks / Pavilions 35% Medium food and mixed 17% Large food and mixed 6% Modern formats 0.4% Shops at filling stations 0.5% Specialized stores 8% Perfumery / Household 12% Source: ACNielsen ACNielsen presentation at the conference Retail:Effective Organization of an Outlet, Kyiv, March

22 Figure 12. Food retail outlets (urban areas only) number of outlets 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Modern formats Large food and mixed Medium food and mixed Small food and mixed ,969 10,918 12, ,929 11,277 13, ,155 10,883 14, ,896 11,735 14,703 Source: ACNielsen 15 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 Total univermags 16 Total universams Total supermarkets Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets TOTAL UKRAINE ,023 2,330 11,216 77, ,486 >1,000, , ,436 14,195 22, , , , ,650 18,514 25,915 20,0-299, ,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 outlets (more than 200 of them located in the 7 largest population centers of Ukraine) Main food retail formats It is extremely difficult to squeeze the Ukrainian retail into a common framework. As described in Chapter 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 Univermag is a large city mall or a department store selling non-food items (sales area is 3,500-22,000 m 2 ). 22

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 between retail formats in 2002 (estimate) Supermarkets 6% Hypermarkets 1% Discounters 3% Groceries 40% Street markets 50% 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. 23

24 2.2.9 Key Players in Ukrainian food retail 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 outlets Company Brands Total sales area, m 2 Number of outlets, Jan 2003 Planned expansion to Fozzy Silpo, Fozzy, Fora > 40,000 (estim.) Garantiya-Trade Furshet 20,000 (estim.) ATB-Market ATB-Market 40,000 (estim.) 80 n/a Rainford Rainford, Partner 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, Megamarket Megamarket 12,000 (estim.) 3 n/a Euromart Euromart Cash & Carry 10,000 5 n/a Kviza Trade Velyka Kyshenia 7, Ukr-Trade Klass 3,000 (estim.) 3 4 Center Spar Ukraine Spar, Center Spar 5, Rorus Rorus 6,650 4 n/a Brig Trade House Brig 7,000 8 n/a Target Target Supermarket 3, Tiko Tiko Market 2, TOTAL 198 Source: data from retailers, estimates 24

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 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. 25

26 Figure 15. Key food retailers turnover breakdown (based on I Q 2003 data) National retailers 59% Source: Tebodin estimates Local retailers 21% Regional retailers 20% 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 retailer Fozzy, Furshet, Rainford, Billa, Spar, Euromart Data Remarks Ownership Private LLC, CJSC Year when started operations Strategy selected when started Target group Share of the local retailing market / Share of supermarkets market, % (estimate) After 1997 (in retail sector) Become market leader End consumers (mainly) / ~ 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, m 2 1,000-5,000 sales area Average monthly turnover, UAH 2 4,000 13,000 per 1m Average purchase, UAH per bill 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 Cost of space + equipment, USD ,000 per 1m Rent and purchase of former production / sales premises Employees per outlet 100 On average Average gross retail margin, % Range of products (Assortment) 10,000-25, % - food products; 20-30% - nonfood Discount system 1-5% Average storage area per outlet, m ,000 Distribution Center (DC) Private labels no yes Some chains already have DC or plan to set it up Availability of parking lot yes Almost all shops have free parking lots Delivery service Source: combined data from retailers yes Delivery to home (cash or card payment) and office (bank transfer) 26

27 Table 9. Typical profile of a regional food retailer ATB, Intermarket, Brig, Target Data Remarks Ownership Private LLC Year when started operations (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, m ,000 sales area Average monthly turnover, UAH per 1m 2 5,000 Average purchase, UAH per bill Average number of purchases through outlet per day Ways of obtaining space Regular (Mon-Fri): 1,000-4,000 Weekend: 4,000 10,000 Holiday eves: up to 8,000 10,000 Rent / Purchase / Construction Cost of space + equipment, USD per 1m ,000 Rent and purchase of former sales premises Employees per outlet 100 On average Average gross retail margin, % Range of products (Assortment) 5,000-20, % - food products; 20-30% - non-food Discount system 1-5% Average storage area per outlet, m ,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 27

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 Strategy selected when started Target group Share of the local retailing market / Share of supermarkets market, % (estimate) After 1997 (in retail sector) Leadership in the local niche End consumers (mainly) 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, m ,000 sales area Average monthly turnover, UAH per 1m 2 1,000-6,000 Average purchase, UAH per bill Average number of purchases through outlet per day Ways of obtaining space Regular (Mon-Fri): 1,000-6,000 Weekend: 4,000 8,000 Holiday eves: up to 8,000 10,000 Rent / Purchase / Construction Cost of space + equipment, USD per 1m ,000 Rent and purchase of former production / sales premises Employees per outlet 100 On average Average gross retail margin, % Range of products (Assortment) 5,000-20,000 Discount system 1-7% Average storage area per outlet, m , % - food products; 20-30% - non-food 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 Source: combined data from retailers yes (only the largest companies) Delivery to home (cash or card payment) and office (bank transfer) Factors that influenced the decision to start 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. 28

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 nonfood 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 м 2 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 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 Distributors Opening Gaining positive Retail Acquisition Sales of company network 1 st retail experience in network of other their opening development outlet retail development businesses 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) 29

30 2.3. Local practices 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 working days 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. 30

31 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 retail turnover 16 % of annual retail turnover January February March April May June July August September October November December Source: data from retailers 31

32 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 for details on supply of goods / assortment 32

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 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 chains 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 & Gamble, Gillette 33

34 Large Distribution Companies IDS (CJSC Industrial and Distribution Systems) IDS is the largest national production-and-distribution company, an absolute leader on the Ukrainian market of bottled water. The company s direct distribution network is represented by 8 branches in the largest cities and 80 dealers in all regions of Ukraine. Through its powerful distribution network the company sells not only its own brands (Mirgorodska, Stary Mirgorod, Sorochinska, Alaska mineral waters), but the product portfolio, which also includes mineral and carbonated soft drinks from other manufacturers, beer, alcohol and alcopops, juices. Megapolis Trade House Megapolis is a Zaporizhia-based federal distribution company for alcohol beverages. The company has 14 regional branches. Alef Dnipropetrovsk-based production-and-distribution corporation, has a dealer network in 25 regions of Ukraine and a representative office in Moldova. Own brands include Klinkov cognac, and Zolotaya Amfora wines. The company also distributes imported elite alcohol drinks. Fozzy Fozzy Group trade-and-industrial corporation manufactures and distributes such brands as Nizhyn canned vegetables, Miagkov vodka, 220V alcopop, Izmail wine, Odessa champagne. Bayadera Gorlovka-based Bayadera Private Enterprise is one of the leading Ukrainian distribution companies for alcoholic beverages. It has regional branches in Kyiv and Simferopol. Ukrainsky Club Ukrainsky Club is a production-and-distribution company working on the market since The main lines of activity include production and distribution through its own distribution network of foodstuffs, soft drinks and alcoholic beverages. Its own brands are Persha Hildiya (vodka, champagne, coffee), Kozatska Rada (vodka), Maxim (wines). Ellada Ellada is a Sevastopol-based distribution company, an exclusive distributor of Pepsi, Sandora, Inkerman, Orlan trademarks in Crimea. 34

35 3. Administrative Procedures When opening a retail outlet in Ukraine, a potential investor should be ready to face certain difficulties. Mainly these are caused by the need for extensive cooperation with state authorities, but in addition to this, the process of retail trade itself is not inherently simple. The aim of this chapter is to give an overview of the main difficulties which a business-owner has to overcome in order to open and to run a successful retail business in Ukraine. In order to produce this chapter, research was conducted with the owners and managers of 77 hyper and supermarket retailers from different cities of Ukraine in early The major administrative barrier facing retailers was found to be the selection of an appropriate land plot and obtaining plot possession rights: 52% of survey respondents faced significant problems while selecting an appropriate land plot. Similarly for 76% of those surveyed, high prices of land plots were cited as a serious barrier. Intricate bureaucratic procedures of obtaining land possession rights caused difficulties for 76% of retailers. It should be noted that approximately half (51 %) of the questioned companies started their business in Key operational barriers in Ukraine are questions dealing with personnel hiring and the process of arranging regular supplies. Due to the lack of qualified and skilled employees, most owners of retail business often need to invest significant resources into increasing the qualifications of their staff. So, 50% of the respondents surveyed consider seminars and trainings to be a good way of improving skills of their employees. The main difficulties connected with the supply of goods to a retail outlet are frequent disruptions of deliveries and instability in the price and quality of the goods supplied. Instability of deliveries is a notable barrier for 31% of the respondents surveyed; unsteadiness of quality is a difficulty for 40% and frequent price increase for the goods supplied is a significant problem for 50% of the retailers surveyed Administrative Barriers Registration of a Business Entity The first step the investor should take is to register his or her firm s presence in Ukraine. For a retail business the best possible option is registering a representative office or a resident company (Joint-Stock or Limited Liability Company). 18 See Annex 8. All statistical data in this chapter are based on the research of Ukrainian Marketing Group (UMG) on administrative and operational barriers facing retailers. 35

36 Principally, the Law of Ukraine On Entrepreneurship governs the process of company registration 19. The amount of the registration fee and terms of registration are established by the government. In theory, the process of company registration is not complicated and takes about a month, but as the survey respondents admitted, this process can take significantly longer. The registration process can be divided into 3 stages: pre-registration procedures; registration procedures; post-registration procedures. Pre-registration procedures consist of gathering all necessary papers (founding documents, documents certifying the legal address of the company) and notarizing them for registration purposes. How long this takes depends on whether the investor decides to do all the work on his own or to apply to a corresponding partner for assistance. Usually preparation of the documents prior to submission takes over a month. Registration procedures involve addition of the start-up funds to the temporary banking account and finally, the submission of all required registration documents to the local State Administration. As a result, the company obtains its State Registration Certificate. According to the Law, after the full package of documents is submitted, it should take no more than 7 working days to obtain a Registration Certificate, but based on the experience of the respondents surveyed this process takes a week or two longer. After obtaining the State Registration Certificate, the investor has to complete post-registration procedures for the company. These include registration of the company with such institutions as the State Statistics Department, Pension Fund, Unemployment Insurance Fund, Accident Insurance Fund, Temporary Disability Fund, State Tax Administration and the local representation of the Ministry of Internal Affairs. Post-registration procedures also entail opening a permanent bank account. The expected duration of the stage is about 25 days. Taking into account the complexity of the registration process, most foreign companies choose to hire legal service firms or local experts to carry out all paper work connected with registration. The official registration fee in Ukraine is about USD 30. However, if a business-owner decides to speed up the process and applies for assistance, registration can cost him up to ten times this amount. Based on research data, registration procedures turned out to be a major obstacle only for 1,3 % of the respondents. But as for foreign companies, it is preferable to apply for assistance of local experts Permitting procedures An investor can choose a number of potential methods of site selection, and the complexity of obtaining permits and approvals from the state authorities will depend greatly on the company s decision of where and how to situate the planned supermarket. The most common options are considered below, these are: 1. new (green-field) construction 2. rent of the premises/building and further reconstruction 3. purchase of the premises/building and further reconstruction 19 Law of Ukraine of XII On Entrepreneurship 36

37 Research data show that 55% of the respondents chose to rent a building, 30% purchased, and only 10% of the respondents opted for green-field construction on a chosen site. If a company chooses the first option green-field construction, the process of obtaining permits and approvals can be conditionally divided into 3 stages 20 : 1). Obtaining a Land Tenure Certificate (document that certifies plot possession right). 2). Obtaining permits for designing and construction phases, start-up of the newly constructed building and finally obtaining Facility Technical Passport. 3). Obtaining Trading Activity Permit and License for Alcohol and Tobacco Trade (documents that certify the right to carry out trading activities). It should be admitted that the process of obtaining permits is essentially the same for the other two options i.e. rent or purchase of the premises/building and further repairs / reconstruction. If a plot is state or communal property, there are two ways to make it available for development rent and permanent land tenure. Rent gives the company the right to finalize a long-term rent agreement (up to 50 years, for large sites this term is usually years). But the major disadvantage is instability of rates. Permanent land tenure provides for land perpetuity, when the company is to pay only land tax as a landowner. However this is a conditional property (plot can t be sold), since the company obtained only tenure rights, but didn t buy it. Prospects: Regardless of the chosen way (rent or permanent land tenure), the company reserves the right to buy the occupied territory (plot) 21. But in practice further sale of the plot to another legal entity is impossible. Figure 17. Land plot allocation issues as obstacles for doing business in retail Obtaining permits/ approvals from authorities to use a land plot for construction High prices of land plots Availability of appropriate land plots/land allotment procedures No obstacle Minor obstacle Significant obstacle Major obstacle 20 See Annex 9 for a detailed scheme 21 Land Code of Ukraine, Decree of the President of Ukraine 32 of 19/01/99 On the sale of non-agricultural plots. 37

38 1). Obtaining a Land Tenure Certificate is a rather complicated procedure. It is a multi-step and timeconsuming process. A Land Tenure Certificate is the document that certifies the rights of a natural person or legal entity to use the land. First of all it is necessary to get initial technical data, confirming that capital construction work can be carried out on the chosen plot site. In order to get a permission to carry out development and survey works, the company should apply to the City Administration. The City Administration shall hand over this application to the appropriate authorities. They will further certify that no other construction is planned on the chosen plot site and that a trade object supermarket - can be built there. A positive response to the application is a permission-letter, issued by the City Administration. After the company obtains it, it can begin the process of initial development and survey works. According to the research for this report, only 10% of Ukrainian retailers considered this procedure as a significant barrier, similarly 39% of the respondents claimed that it was not a difficulty at all. Initial technical data is the basis for the future design of the supermarket. The main problem here is to obtain technical requirements for utilities (sewage, water supply etc.) from the appropriate authorities, and to obtain the architectural-planning assignment and conclusions of fire inspection, state road police department and sanitary authority. After the necessary documents are available, the City Council makes the final decision on land allotment. If it is positive, it is necessary to make a geodesic and geological survey of the plot and to develop the land allotment design. The Land Authority (city level) will develop a land allotment design and further include the plot in the Land Cadastre. As a result of these procedures a land reservation contract between the company and the City Council will be drawn up. The process of land allotment is considered a serious obstacle barrier by 25% of surveyed retailers. After obtaining the land reservation contract, it is possible to start development of the design of the future site. For this reason a design company (contractor) is selected, whose responsibility it is to develop and to get approval for the design of the future building. The main barriers are expertise by the state committee and obtaining final approval from the City Design Council. Authorities issuing permits may in some cases unofficially dictate which contractor for design and construction works to choose - otherwise additional problems with obtaining permissions may arise. Usually this is done for the purpose of promoting state designing and construction institutions. Since the development of the building design is the task of a design company, for the majority of retailers this process did not cause any troubles (for 63% of the respondents said it was either not a minor obstacle). Design approval procedures turned out to be no problem for 34% of respondents, while 13% said it was a significant difficulty. It should be noted, that it is impossible to obtain the Land Tenure Certificate without development and approval of the design. So, division of the process of obtaining permits and approvals into stages is conditional. After the City Design Council approves design documentation, the company needs to pay an infrastructure development fee, which should not exceed 25% of the estimated cost of the project 22. The 22 Resolution of the Cabinet of Ministers of Ukraine of 30/12/2000 No.1930 Concerning upper level of Client s funds attraction for development of engineering, transport and social infrastructure of inhabited localities. 38

39 fee amount (portion of 25% of the estimated cost) is to be negotiated and agreed upon with Economic Authority of the City State Administration. Finally, the investor applies to the City Council and requests plot use / possession rights. If the Council approves, the final step is to obtain a Land Tenure Statement from the Land Authority. The process of obtaining a Land Tenure Certificate is very time-consuming: based on practical experience it can take about a year. The graph below shows the complexity of obtaining permissions and approvals by the state authorities. Figure 18. Obtaining permits and approvals as obstacles for doing business in retail Put into operations permit Legalization of documents certifying property rights on the land/facility Land plot acllocation Construction permit Approval of the design Conducting designing works Obtaining initial data for designing Permit to carry out survey works Permit to refurbish premises Permit on premises use Permit for trade object alocation Permit Labor Protection Department to start operations Permit from Fire Department to start operations Permit from Sanitary Epidemiological Service to start operations No obstacle Minor obstacle Significant obstacle Major obstacle Difficult to answer At the same time in Ukraine different measures are taken to make the above-mentioned procedures less complicated. Thus, recently in the city of Cherkasy the mayor s office has simplified the procedure for land allotment, reconstruction of premises and obtaining permits for opening retail outlets. The city has created a special unified commission which includes representatives from such authorities as the city architecture department, land resources department, city sanitary epidemiological station, state fire prevention department, state department on ecology and natural resources, department for labor supervision, and Cherkasy City Council s department for coordination of entrepreneurship development. 39

40 2). Obtaining permits for design and construction works, start-up of the newly constructed building and obtaining the Facility Technical Passport is another important step. The Facility Technical Passport is the document that validates the owner of the facility and specifies the technical characteristics of a building. After the design documentation is approved, the company must obtain a permit and an order for construction. The State Architectural and Construction Committee issues these documents. The company-investor should obtain the permit for construction works, while its contractor (construction company) the order for construction works. As key retailers say, if all necessary documentation for construction is available, cooperation with state authorities at the stage of the process will not cause particular problems (of course, given that all construction work is carried out in accordance with Ukrainian standards). After completion of construction work, the final step is start-up and commissioning. Based on the sample, this stage turned to be quite difficult for 55% of the respondents. The procedure is as follows. The State Architectural and Construction Committee appoints a staff of experts, who carry out an examination of the newly constructed building. As a result, the State Committee Statement is issued. Finally, on the basis of this Statement, the facility (building) is to be registered with the Technical Inventory Bureau, which shall issue the Facility Technical Passport. 3). Obtaining Trading Activity Permit and License for Alcohol and Tobacco Trade is the final step. To start trading activity a Trading Activity Permit is required. It does not take much time to obtain this permit, as all the company should do this to submit a number of certain documents (i.e. registration and foundation documents, approval of goods assortment, rent agreement or property certificate) to the Trade Department of the City Executive Committee. If the Trade Activity Permit is obtained, the retailer can apply to the appropriate authority for the License for Alcohol and Tobacco Trade 23. The process of obtaining permissions to carry out trading activities is the same regardless of how the supermarket location is procured. If the investor decides to choose to rent the premises/building and further reconstruction, the process of obtaining permits for designing and (re-)construction phases would be almost the same as for green-field construction. The difference is that in this case there are significantly fewer land property issues to be considered what considerably speeds up the process. The procedure will also be simplified if the functions of the newly rented building are not changed as well as if no reconstruction takes place. However, it is extremely difficult to find such buildings, as most have already been rented. Research results show that finding an appropriate building for store location was a barrier for nearly half of the respondents -- 43%. At the same time, the issue of high and unstable rent rates created difficulties for 29% of the respondents. 23 Law of Ukraine of 19/12/95 481/95 On state regulation of production and circulation of the ethyl, cognac, fruit alcohol, alcoholic drinks and tobacco products 40

41 Figure 19. Obtaining permits for rent of buildins/premises as obstacles for doing business in retail Other permits/approvals of authorities for supermarket opening Permits/approvals from authorities for reconstruction (if functionality of the building is changed) Permit reconstruction from the building owner Paper work High rent rates Availability of appropriate space No obstacle Minor obstacle Significantobstacle Major obstacle Difficult to answer The process of purchasing of the premises/building and further reconstruction consists of the following. For the investor is essential to obtain building and land property rights. So, on the basis of the sale/purchase contract, the Technical Inventory Bureau shall include personal data of the new owner in the Facility Technical Passport. After that, the new owner needs to apply to the Land Authority for the transfer of land tenure rights. This application is handed over to and must be approved by the City Council. Based on this approval, the Land Authority can issue a Land Tenure Certificate to the new owner. The graph below shows how retailers evaluate difficulties connected with purchasing a building/ premises. Figure 20. Obtaining permits for purchase of a building / premises as obstacles for doing business in retail Other permits/approvals by authorities to open a supermarket Permits/approvals by authorities for reconstruction (if functionality of the premises is changed) Legalization land ownership documents (re-registration of land tenure) Paper work High cost of premises Availability of appropriate premises No obstacle Minor obstacle Significantobstacle Major obstacle Difficult to answer 41

42 The investor should take into account the significant time and cost differentials of the three options. While the process of renting or purchasing a premises/building and reconstruction will take not less than 3 months, green-field construction will last not less than a year. According to the results of the marketing research, the best methods of cooperation with state authorities are: professionally developed documentation (74% of the respondents) personal contacts with state officials (52%) use of different incentives for officials (51%) Ukrainian legislation on retail. Sanitary regulations and certification of food products In Ukraine the food retail sector is governed by: The law Concerning the quality and safety of food products and raw materials for food industry It establishes legal principles for providing quality and health safe food products and raw materials for food industry, and regulates relations between executive authorities, producers, sellers (suppliers) and consumers during production, import, purchase, delivery, storage, transportation, consumption and utilization of food products and raw materials for the food industry. The law Concerning the provision of sanitary and epidemic welfare of the population It regulates social relations originating in the sphere of provision for sanitary and epidemic welfare, determines appropriate rights and obligations of state authorities, enterprises, institutions, organizations and citizens, and establishes the way of organization of the state sanitary and epidemic service and inspection in Ukraine. The law Concerning the protection of consumer rights It regulates relations between consumers of goods (works, services) and producers, establishes consumer rights and determines the mechanism of realization and state protection of these rights. The order of the Cabinet of Ministers of Ukraine Concerning the approval of the rules of trade in foodstuffs 24 These rules regulate the procedure of acceptance, storage, preparation for trade and trade in foodstuffs through a retail network and also determine requirements for observance of consumer rights concerning quality and safety of goods and trade service. In February 2003 the Council of Entrepreneurs under the Ukrainian Cabinet of Ministers began to develop the draft of a new law "Concerning trade chains in Ukraine". This law should provide for equal principles of competition between domestic retail chains and big foreign retail trade companies. As a basis for this draft law a similar law adopted in Poland was analyzed. 24 Law of Ukraine of XII On protection of consumer rights Law of Ukraine of /97-ВР On quality and safety of food products and raw materials for food industry Law of Ukraine of XII On provision of sanitary and epidemic welfare of the population Order of the Cabinet of Ministers of Ukraine of On approval of the rules of trade in foodstuffs 42

43 According to research for this report, 34% of the respondents consider instability of Ukrainian legislation to be a significant barrier for their business activities. For example, in Ukraine there are no legal documents that regulate the functioning of cash and carry type stores. At the same time, some supermarket chains practice retail and wholesale trade simultaneously, which is not provided for by Ukrainian legislation on retail. One of the main requirements for the supermarkets is quality and safety of the products sold. According to the law of Ukraine Concerning the quality and safety of food products and raw materials for the food industry, food products, raw materials for food industry and related materials may not be imported into Ukraine or produced, supplied for sale, sold or used otherwise before their quality and safety have been approved by appropriate documents. These documents are: a declaration of conformity issued by the producer for every consignment of food products, raw materials for food industry and related materials; or alternatively a certificate of conformity or a certificate of acceptance of a foreign certificate, issued by an accredited authority for food products intended for sale on a domestic market, or for domestically produced food products to be exported from Ukraine; as well as the following documents: a positive conclusion of the State Sanitary Epidemiological Expertise, a state registration certificate or a hygiene certificate. veterinary documents for food products of animal origin; a certificate of quality and a guarantee permit for grain, fruit and vegetables. Suppliers of food products to Ukrainian supermarkets are responsible for providing the above-mentioned documents. Another possible barrier that a company can face is cooperation with fire inspection, sanitary authorities and authorities for protection of consumer rights. According to the marketing research, these 3 authorities carry out inspections most frequently: in 2002 fire inspection and sanitary authority carried out inspections in 95% of the supermarkets surveyed; similarly authorities on protection of consumer rights in 88%. Difficulties are also connected with the fact that primarily the assortment list of a supermarket must be approved by the sanitary authorities and, based on practical experience, this can take up to several weeks. Another problem is that the law of Ukraine Concerning the Protection of Consumer Rights gives oversight power to the Committee for Protection of Consumer Rights. As a result, a retailer is not protected against unreasonable claims or requirements for the products sold. For example, a requirement of the Committee for Protection of Consumer Rights to one local retailer was to mark each banana with a label containing complete information about the product. 43

44 3.2. Operational barriers Infrastructure Product transportation, heat, water and power supply as well as communications are infrastructure issues which greatly influence the operations of a retail store. Many Ukrainian retailers have already faced difficulties connected with undeveloped infrastructure. Prompt deliveries to supermarkets depend on proper transportation of goods. In Ukraine, transportation of goods is mainly by railway and automobile, and as admitted by most retailers, neither way is always reliable. For example, the average delay in delivery required by suppliers who use railway is at least two weeks. An additional problem with railway transport is poor quality of transportation means (wagons); as a result it is difficult to keep goods undamaged. Poor quality of highways is a major obstacle for 36% of responding Ukrainian retailers. Another barrier is the poor quality of the vehicles used for road transportation (i.e. trucks, refrigerating vans etc). The owners of good-quality trucks prefer to transport internationally, as this is a more profitable business than domestic transport operations. As a result, inland transportation of goods is carried out mainly by outdated vehicles. All of this causes irregularity of supplies as well as damage of transported goods. Based on research results, non-systematic water supply causes much trouble for 37% of the respondents. 41% of retailers/respondents have faced problems connected with the instability of the power supply. High-quality telephone communication can also be a problem, especially when a retail outlet is situated on the outskirts this was a serious barrier for 23% of retailers surveyed Trade equipment and software There are many firms on the Ukrainian market offering high-quality equipment for supermarkets. Equipment suppliers say that the layout of the supermarket is a key factor influencing the choice of equipment, since it takes into account such specific features as store format, target group of consumers, ratio of assortment groups etc. A properly developed layout will help both to save money when equipment is purchased and to increase future profits. The best way for a retailer to proceed is to select and locate trade equipment items according to the appropriate design of the refrigerating, heating, ventilation and conditioning systems. According to preliminary calculations made by several equipment suppliers, the average cost of a minimum required set of refrigerators and shelves for a supermarket with an area of about 1 thousand square meters, is USD 200, ,000. Another important issue is the purchase of second-hand equipment for trade. While the main advantage of this is a considerably lower price, all key Ukrainian retailers admitted that purchase of second-hand refrigerating and freezing equipment is a significant mistake on the part of an investor. At the same time, investors can greatly benefit from the purchase of second-hand supermarket shelves. 44

45 Figure 21. Tentative breakdown of equipment costs lighting 10% flooring 6% ceilings 4% shelves, hand carts, auxiliary equipment 40% cash terminals 12% freezing equipment 12% Source: European Trade Institute (EHI) 25 cooling equipment 16% Human resource issues Presently Ukrainian supermarkets, especially big chains, lack qualified personnel. This applies to employees occupying various positions, both managerial and non-managerial supermarket staff. For 38% and 13% of the respondents, lack of qualified personnel was correspondingly a significant and a major barrier. Of respondents, 27% faced significant difficulties while selecting managerial staff, similarly 30% - while selecting trade personnel. Figure 22. Personnel Issues as obstacles for doing business in retail 23 5 Low level of staff culture Low level of staff qualifications Difficult to find managerial staff (including specialists with higher education in the field of trade and economy) Difficult to find sales/attendant staff Fluctuation of manpower No obstacle Minor obstacle Significant obstacle Major obstacle Difficult to answer 25 Novy Marketing Magazine, No. 5 (11),

46 Another problem involves the use of automated computer systems. The main advice of Ukrainian storeowners is to employ PC literate people and further teach them. In general, high employee turnover was an obstacle for 43% of respondents. Statistic data proves that the quantity of personnel per 1 m 2 in Ukrainian supermarkets is 3 times higher than in Europe. According to the information provided by several Ukrainian retailers, the average number of employees needed for a 1,000 m 2 supermarket with 8 cash terminals is about 100. At the same time the number of employees of one of the biggest Ukrainian hypermarkets (7000 m 2, 36 cash terminals) is 240. Of course, if a supermarket has its own production workshops (i.e. meat and cookery departments, minibakeries) as well as warehouses, the number of employees will increase. Delivery schedule and working hours of the supermarket are also key factors. According to official statistics provided by the Ukrainian State Statistics Committee, the average salary in wholesale and retail in December 2002 was UAH 376 (USD 70). However, retailers say that the average salary of supermarket employees is about UAH (USD ). Of survey respondents, 42% said that high salary fund charges hamper significantly the salary increase of the employees Supply of goods / Assortment Assortment policy of any supermarket is ruled by such main factors as: Format of the supermarket Income level of target consumer groups Usually assortment is determined by taking into account the needs of different consumer categories with high, average, and low income levels. At the same time, every supermarket makes decisions on the extension or shrinkage of certain groups of goods on the basis of sales analysis. Usually the assortment offered by Ukrainian retailers ranges from 8,000 to 25,000 items. Having analyzed sales volume, most Ukrainian retailers came to the conclusion that 80% of their profit is earned by 20% of assortment (approximately 4,500 5,000 items). Companies therefore practice regular stock screening in order to withdraw unprofitable items from their assortment. The optimal volume of deliveries and number of assortment items is defined during trade activity of the supermarket. Based on practical experience, a retailer will need at least USD 100,000 for the primary purchase of goods. This amount must be enough for trial consignments of the main assortment groups. Purchasing decision for supermarkets chains is made and contracts are signed by managers from the central office, but local store managers usually organize the supply of perishable goods. In each store there are category managers that control their merchandise groups. 46

47 Practice shows that many Western supermarket chains join efforts in order to establish common distribution centers. These centers provide for centralized purchasing and distribution of goods among supermarkets. Ukrainian retail sector is not developed enough yet, so this way of arranging supplies remains a prospective one. To provide for proper deliveries for a classic-style supermarket about suppliers are necessary. Cooperation with them is the task of purchase/category managers who make sure that certain products are available in the store. The following difficulties connected with cooperation with suppliers proved to be serious obstacles for Ukrainian retailers: Bad quality of goods packing (38%); Unavailability of all required documents for the goods (37%); Incorrect work of category managers while choosing suppliers (33%); Limited possibilities for returning unsold goods to the supplier (32%). Food products with long-term shelf lives are usually delivered to the stores once a week. In those supermarkets, where customers flow is very high, deliveries can be done twice a week. Some stores practice just in time delivery and do not have any storage area. However, due to delivery problems, which can occur at any stage, it is preferable to have at least 1-2 days inventory stock. Among the main problems of supply of goods, managers of Ukrainian supermarkets cite instability of deliveries and non-fulfillment of contractual obligations by suppliers. This especially concerns imported products. This is why if shelf life of problematic imported goods is long enough, it is often better to keep larger stocks. Most Ukrainian supermarkets are faced with difficulties connected with the instability of supplies of fruits and vegetables. In Ukraine there is no organized market infrastructure for trade of fresh fruits and vegetables. The estimated amount of investment needed for its set up is USD mn. The problems caused by irregularity and disruption of deliveries are demonstrated by research results: disruption of deliveries is a barrier for 43% of the respondents. A similar situation exists with non-fulfillment of contractual obligations: for 38% this was a notable obstacle Customs Obtaining imported goods is quite risky for all supermarkets, as complex custom procedures and the process of re-certification of imported goods (obtaining Ukrainian certificates) often result in delays or even disruption of deliveries. High import duty rates cause significant troubles for 30% of Ukrainian retailers/respondents. The Table 11 below gives information on import duty rates for major foodstuffs. 47

48 Table 11. Import duty rates for major foodstuffs 26 Code Articles Import duty rate privileged full Fish frozen 5 %* 5 % Fish fillet 10 % 10 % Yogurts EUR 0.5 / 1 kg EUR 1 / 1 kg Animal butter EUR 1.5 / 1 kg EUR 3 / 1 kg Cheese EUR 0.8 / 1 kg EUR 1.6 / 1 kg Vegetables fresh and chilled EUR / 1 kg EUR / 1 kg 08 03, Bananas and citrus fruits 20 %, but not less 20 %, but not less than EUR than EUR 0.1 / / 1 kg kg Coffee (except for further processing) EUR 0.1 / 1 kg EUR 0.1 / 1 kg Tea (except for further processing) EUR 0.2 / 1 kg EUR 0.4 / 1 kg Sausages and other meat products 30 %, but not less 30 %, but not less than EUR than EUR 1.2 / / 1 kg kg Fish products 20 %, but not less 20 %, but not less than EUR than EUR 0.2 / / 1 kg kg Caviar EUR 10 / 1 kg EUR 10 / 1 kg Sugar confectionery EUR 1 / 1 kg EUR 2 / 1 kg Chocolate containing products (except for pastes) EUR 0.5 / 1 kg EUR 0.5 / 1 kg Muesli EUR 0.5 / 1 kg EUR 1 / 1 kg Farinaceous confectionery 30 %, but not less 60 %, but not less than EUR than EUR 0.5 / 1 1 / 1 kg kg Fruits and vegetables canned and EUR 1 / 1 kg of frozen gross weight EUR 2 / 1 kg of gross weight Fruit juices 30 %, but not less than EUR 0.5 / 1 l 30 %, but not less than EUR 0.5 / 1 l Soup concentrates EUR 0.5 / 1 kg EUR 1 / 1 kg Mineral water EUR 0.6 / 1 l EUR 1.2 / 1 l Beer (of malt) EUR 0.5 / 1 l EUR 0.5 / 1 l Wines (except for Champaign) EUR 2 / 1 l EUR 2 / 1 l * - % to the goods customs value Since supermarkets purchase only officially imported goods, their costs are increased in comparison with illegally imported ones. Correspondingly, prices for imported goods offered by retail stores are less competitive than those offered by local street markets. 26 Law On Customs Tariff of Ukraine of 5/04/2001 No III 48

49 Financing of retail To open a supermarket, significant investments are needed. The most common sources of external capital for starting a retail business are: venture capital funds international financial institutions Ukrainian and foreign commercial banks The task of a venture capital fund is to provide companies operating in the fastest growing sectors with capital and the necessary management tools to further evolve them from entrepreneurial ventures into professionally managed companies. Investments are made when a venture fund is convinced that significant return on capital commensurate with the inherent risks will be realized. Usually venture funds aim to realize capital gains on its investments in four to six years. The leading venture funds functioning in Ukraine are Western NIS Enterprise Fund (WNISEF) (capitalization USD150 mn) and Sigma Bleyzer (more than USD 100 mn). Other venture funds, such as Euroventures Ukraine and Commercial Capital operate with lower amounts about USD mn each. Examples of successful investments in the Ukrainian retail sector made by venture funds are those of WNISEF and Commercial Capital (Euromart Cash & Carry chain) and of Euroventures (Furshet supermarket chain). Loans given by international financial institutions such as the World Bank Group and the European Bank for Reconstruction and Development (EBRD) are another source of financing of the retail sector. For example, the EBRD, starting in 2003, intends to implement a project aimed at expanding the retail operations of Billa supermarkets in Ukraine, Bulgaria and Romania by providing long-term debt financing. The estimated total project cost for the three countries is EUR 202 million, of this amount EBRD is providing long-term loans worth EUR 45 million. Proceeds will be used to finance construction and operation of the supermarkets in the three countries over the next 3-4 years. It is expected that the project will support the development of a modern food retail industry in the region by expanding a high quality and high standard chain of supermarkets. This project would increase efficiency and competition in the market as well as lead to positive developments in the supply chain, including the development of know-how skills. Ukrainian and foreign commercial banks can also provide retailers with necessary financial resources. On the average, annual bank interest is 25-27% for loans in UAH and 15-16% for loans in USD. But there are cases when interest rates are lower. For example, the annual interest of a Polish bank financing a loan to the Ukrainian company Intermarket (Lviv) was 5%. According to the research, frequent changes of bank interest rates are a significant barrier for 20% of the respondents responding Ukrainian retailers. 49

50 4. Regional Overview The overview presents brief and the most essential information on each oblast / large city of Ukraine. The data shown give, in our opinion, sufficient background for evaluation of regional specifics, and provide ground for comparison and decision-making. Problems with obtaining specific data for each city occurr because most statistics are kept on a regional (and not on a city) level. For this reason, at the beginning of this chapter regional developments are described by oblast (tables and figures are presented in Annex 10). They are followed by information on the major cities. Useful site: - State Statistics Committee of Ukraine 4.1. Regional Development Population income and expenditures Official statistics on household income and expenditures are presented in Figure A.10.1 (see Annex 10). It is a curious fact that expenditures exceed income in several oblasts of Ukraine. This can be explained by the large share of shadow economy in these regions. Most considerable discrepancy is marked in Kyiv city, Odesa, Kharkiv, Lviv, Chernivtsi, Volyn oblasts and the Crimea. In terms of absolute value, Kyiv is the leader again both in income and expenditures. It enjoys more than a 3- fold advantage over other regions. Urbanization Though 67% of all Ukrainian citizens live in urban areas, the level of urbanization of each oblast varies from 37 to 90%, depending on the oblast (see Figure A.10.2, Annex 10). The highest level of urbanization is observed in the oblasts where the largest cities are located. Such industrial oblasts as Donetsk, Luhansk and Dnipropetrovsk are most urbanized. They are followed by Kyiv oblast. The share of rural population in these oblasts ranges from 10 to 17%. The lowest percentage of urban population is registered in such oblasts as Zakarpattia, Chernivtsi, Ivano- Frankivsk, Ternopil, Vinnytsia and Rivne, where there are no large cities. In these oblasts rural population prevails, and its share makes up from 53% in Rivne oblast to 63% in Zakarpattia. Foreign Direct Investment (FDI) 27 Distribution of FDI across Ukraine s regions is uneven (see Figure A.10.3, Annex 10). It is related to the difference in the economic development of oblasts. Thus, Kyiv city, Republic of Crimea and 7 major large industrial oblasts have attracted 76% of total FDI as of 1 January 2002, or USD 4.4 bn. The Ukrainian capital Kyiv maintains its leading position in terms of attraction of foreign investments. It takes first place among all oblasts of Ukraine with USD 1.5 bn (35% of total FDI). 27 All data presented in this section (except for retail) describes the situation in oblasts as of 1 January 2002 (though macroeconomic overview presents data as of 1 January 2003). However, in contrast to macroeconomic data, regional investment statistics are collected on an annual basis only and results are announced in the spring of the next year. Unfortunately, results of 2002 are still not available. 50

51 As of 1 January 2002 the amount of USD 91 per capita had been invested into the Ukrainian economy (USD 111 per capita as of 1 January 2003). Kyiv is also leading in this respect with USD 583 per capita (see Figure A.10.4, Annex 10). The Ukrainian capital is followed by Kyiv oblast where USD 192 was attracted per capita. Third place is taken by Zaporizhia oblast (USD 129 per capita), followed by Odesa and Poltava (USD 96 and 90 respectively). Retail sector Analysis of the regional retail (food and non-food) indicators in 2002 (see Table A.10.1, Annex 10) allows drawing the following conclusions: Kyiv city, Dnipropetrovsk, Donetsk, Kharkiv and Lviv oblasts are the leaders in terms of retail turnover: The highest turnover per capita was registered in Kyiv city, followed by Kharkiv, Dnipropetrovsk and Lviv oblasts. Similarly, the highest density of retail outlets is marked in Chernihiv and Lviv oblasts (29 and 26 outlets per 10,000 inhabitants), while in Kyiv the density is the lowest in Ukraine (14 outlets); The best availability of sales areas appeared to be in Sevastopil city and Chernihiv oblast (1,941 and 1,737 m 2 per 10,000 inhabitants). In Kyiv this indicator is a bit lower - 1,701 m 2 per 10,000 inhabitants. Figure 23. Ukrainian 2002 retail turnover (food and non-food) breakdown by region Kyiv City 15% Other Oblasts 29% Donetsk Oblast 9% Dnipropetrovsk Oblast 9% Kharkiv Oblast 7% Source: State Statistics Committee of Ukraine Lviv Oblast 6% Zakarpattia Oblast 3% Kyiv Oblast 3% Luhansk Oblast 3% Poltava Oblast Crimea 3% 4% Zaporizhia Oblast Odesa Oblast 4% 5% Estimated food retail turnover in 2002 in Ukraine totals USD 13 bn, or UAH 70.7 bn (estimates are based on the share of food purchases in expenditures of population). Similarly, annual food retail turnover per capita is estimated at USD 274, or UAH 1,460. Though estimated food retail turnover per oblast is the highest in Donetsk (USD 1.13 bn) and Dnipropetrovsk (USD 1.11 bn), absolute value per capita reaches the highest level in Odesa region (USD 338). In addition, in such oblasts as Dnipropetrovsk, Kharkiv, Zaporizhia, Crimea, Lviv, Donetsk, Poltava and Mykolaiv food retail turnover per capita is around the average value. Kyiv city has a special status in this regard: food retail turnover per capita is estimated at almost USD 1,125 (or UAH 6,000). At the same time, in Kyiv oblast food retail turnover per capita amounts to USD 207. Breakdown by oblast is presented in Figure

52 Figure 24. Food retail turnover estimate (per capita) in 2002 by region Far less than average Volyn 198 1,060.7 Rivne 151 1,173.3 Zhytomyr 168 1,389.5 Kyiv 1,125 2,611.3 Chernihiv 179 1,245.3 Sumy 179 1,299.7 Around average Far higher than average Average food retail turnover estimate per capita in 2002 USD 274 (UAH 60) Zakarpattia 182 1,258.3 Lviv 254 2,626.5 Ivano- Frankivsk Ternopil 148 1, ,409.8 Chernivtsi Khmelnitsky 177 1,430.8 Vinnytsia 169 1,772.7 Kyiv Oblast 207 1,827.9 Cherkasy 186 1,402.9 Kirovohrad 144 1,133.1 Poltava 232 1,630.1 Dnipropetrovsk 310 3,567.6 Kharkiv 302 2,914.2 Donetsk 233 4,841.1 Luhansk 161 2,546.2 Odesa Mykolaiv Zaporizhia X Food retail turnover estimate per capita in 2002, USD Y Population, 000 inhabitants 338 2, ,264.7 Kherson 184 1, ,929.2 Crimea 256 2,

53 4.2. Description of Largest Cities (by number of inhabitants) Kyiv As Ukraine s capital, Kyiv offers the best investment opportunities in retail due to higher income of population, well-developed infrastructure, and relatively low density of modern retail formats. Key statistics 28 : Area of the city 836 km 2 Number of districts (rayons) 10 Population 2,611.3 thousand inhabitants Average monthly salary, 2002 USD 124 (UAH 662) Average monthly income, per capita, 2001 USD 128 (UAH 683) Retail development: 29 Total number of retail outlets is 3,548, including 2,415 stores 30 Average Size of stores in Kyiv m 2 Average Size of Retail Outlet, in towns of Kyiv oblast m 2 Retail Market Turnover in 2002: - USD 1,101.8 mn (growth 14.2% vs. 2001), - experts estimate USD mn per month, or USD 1,800-2,400 mn per year (annual growth rate by more than 21%) Table 12. Number of Kyiv retail outlets Area Total univermags Total universams Total supermarkets (food and non-food) Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets Kyiv City , ,675 4,660 8,528 Source: MEMRB-UMG Retail Census Supermarkets 31 There were more than 55 food supermarkets in the city as of March Their number almost doubled in Supermarket sales vary from 8 to 15% of Kyiv s retail turnover in 2002 (retailers estimates). The pessimistic forecast for the next five years an increase in supermarkets share up to 20-25%. According to food producers estimate, the share of supermarkets in Kyiv s food retail sector grew rapidly: from 5-7% in 2001 to 19% in Their forecast for 2003 is up to 31%. Retail gross margin in Kyiv supermarkets - 15 to 20% on average. Space is available for rent at the price up to USD 100 per 1 m 2, and for purchase starting at USD 400 per 1 m 2 (depending on location, total area and state of premises). 28 Source: State Statistics Committee of Ukraine 29 Source: State Statistics Committee of Ukraine 30 According to MEMRB-UMG Retail Census (Table 12) these numbers are 3,868 (Total retail outlets minus open markets) and 2,193 (Total universams+univermags+supermarkets+stores+pavilions). More on differences in definitions of Ukrainian retail formats see Chapters 1.2 and Hereafter, all modern retail formats are meant 53

54 Major players Among more than 50 food supermarkets operating in the Kyiv market only few are independent. During the first Kyiv supermarket chains were created and developed. Thus, Fozzy Group operating Silpo supermarkets and Garantiya-Trade with its Furshet stores increased the number of their outlets in the Ukrainian capital to 17 and 12 respectively. Presently both of them plan another wave of expansion that will result in more than 20 stores in each chain. The leaders are followed by Kviza Trade (Velyka Kyshenia chain), Megamarket, Billa, Spar and others. Table 13. Kyiv supermarket chains 32 Brands of retail stores Number of stores in the city Total sales area, m 2 Retailer status Main activities of companies Furshet 14 supermarkets About 20,000 National Wholesale and retail Silpo 17 supermarkets About 15,000 National Production, wholesale and retail Velyka Kyshenia 4 supermarkets 7,700 Local Wholesale and retail Megamarket 3 supermarkets About 12,000 (estimate) Local Wholesale and retail Billa 3 supermarkets > 6,000 National Retail Spar 1 supermarket and 1 cash & carry 4,200 National Wholesale and retail Euromart 2 cash & carry About 5,000 National Wholesale and retail Begemot 4 supermarkets > 4,500 Local Retail West Line 3 supermarkets 2,000 Local Distribution and retail Tiko 2 supermarkets 2,120 Local Wholesale and retail Maxi 1 hypermarket 10,000 Local Wholesale and retail According to estimates of Kyiv retailers, the capital retail market capacity is about supermarkets with an average sales area of 1,000 m 2. Consumers Average daily number of purchases in one supermarket 5,000-6,000 Average bill (supermarkets only) UAH 95 (USD 18) Frequency of going to supermarkets 11 times per month Way of getting to supermarket 37% - on foot; 37% - by own car, 24.8% - by public transport Local characteristics City development plan envisions reconstruction of old and opening of new trade outlets Based on the information of the Kyiv City State Administration, Kyiv government does not, for the time being, sell land to foreigners, but only to companies with foreign investments. In particular, Kyiv sold several land plots to McDonald s Corporation Ukraine for the construction of fast-food restaurants, as well as 2 land plots to Billa- Ukraine for construction of supermarkets. 32 See Chapter 5 for more details on key players in the retail market. 54

55 On 26 February 2003, Kyiv authorities announced that Metro Cash & Carry had bought a 6-hectares land plot for its store. City budget expects to receive UAH 18 mn (about USD 3.4 mn) from this deal. Metro has already made an advance payment in the amount of 15% of the total cost. Local players have no fear of international retailers entering the market. They feel that the market is still capable of supporting them all. For example, forecasted customer outflow from Kyiv s supermarkets with Metro opening is up to 5%. Though pricing policies of chains differ, the consumer will pay almost the same amount (for the same product set) in any supermarket. The difference is usually less than UAH 1 (USD 20 cents). This is explained by the fact that Kyiv chains try to keep purchase prices (prices at which supermarkets buy from suppliers) similar for all outlets in the city. Kyiv consumers are characterized by higher incomes when compared to customers in the regions, and demand for quality services and a stable assortment of products. The former is the major reason why retailers do not influence customers with discounts and other motivational means. High season in food retail: traditional national and religious holidays, City Day, some professional holidays. Useful sites: - Official Web-Site of Kyiv City Authorities - Kyiv Regional State Administration - Kyiv Regional Statistics Bureau - Kyiv Department for Foreign Economic Relations and Investments - Delovaya Stolitsa (Business Capital) Weekly 55

56 Kharkiv Though there are a few strong local retail chains that are rapidly developing, Kharkiv can offer good opportunities for investments in the retail sector as the market is far from satiety. However, such characteristics as close location to the Russian border, relatively low income of population and low level of retail prices are to be considered. Key statistics 33 : Area of the city km 2 Number of districts (rayons) 9 Population 1,470 thousand inhabitants Average monthly income in Kharkiv oblast, per capita, 2001 USD 32 (UAH 169) Retail development: 34 Total number of retail outlets in Kharkiv oblast is 5,520 (including 3,839 stores) Average size of stores in Kharkiv and towns of Kharkiv oblast 112 m 2. Retail trade turnover reached about USD 400 mn in 2001 (estimate). Table 14. Number of Kharkiv retail outlets Area Total univermags Total universams Total supermarkets (food and non-food) Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets Kharkiv City ,500 3,566 Source: MEMRB-UMG Retail Census Supermarkets 35 There are about 30 food supermarkets in the city. % Supermarkets / Other Retail Outlets %. Retail gross margin in supermarkets is quite low and ranges from 15 to 20% depending on retail chain. Space is available for purchase at appr. USD 300 per 1 m 2, and for rent USD 6-20 per 1 m 2 (depending on location). Major players Both local, regional and national companies have established their presence in Kharkiv s food retail market. The local leaders are Klass and ROST. Target has developed its chain also in Sumy and Poltava, and Brig in Zaporizhia. Billa and Euromart also located their outlets in Kharkiv, but their business is less successful than that of Kharkiv-based retailers. 33 Source: State Statistics Committee of Ukraine 34 Source: State Statistics Committee of Ukraine 35 Experts estimate. 56

57 Table 15. Leading Kharkiv supermarkets 36 Brands of retail Number of stores in the Main activities of Total sales area, m 2 Retailer status stores city companies Target 1 supermarket 3,400 (supermarket) + Wholesale and retail, Regional and 5 shops 1,832 (shops) distribution Klass 3 supermarkets > 3,000 Local Wholesale and retail ROST 1 supermarket n/a Local Retail YUSI 2 supermarkets (third will Local (in Production, wholesale > 3,000 open in summer 2003) supermarkets) and retail Brig 1 hypermarket and 7 supermarkets > 7,000 Regional Wholesale and retail Billa 2 supermarkets > 4,000 National Retail Euromart 1 cash & carry Appr. 2,000 National Wholesale and retail Each Kharkiv-based chain is planning its development in 2003, and it can be assumed that several new supermarkets and even hypermarkets will soon appear in the city. According to recent information from local authorities, 4 new supermarkets (ROST, Klass and 2 Target shopping centers) will open in Kharkiv in Their construction has already started. Consumers Average daily number of purchases in one supermarket 4,500-5,000 Average bill (supermarkets only) UAH 79 (USD 15) Frequency of going to supermarkets 9 times per month Way of getting to supermarket 34% - on foot; 31% - by own car, 32% - by public transport Local characteristics The food retail market is not saturated. Local retailers (such as Target, Klass, ROST) are developing and receive support from local authorities. Local consumers are very price sensitive. Kharkiv has always been considered an industrial center with well-developed machinery and aircraft engineering as well as a scientific-and-educational center, but salaries in these sectors are relatively low and are not paid regularly. Retail outlets, which are smaller than supermarkets, are also developing their chains. In this segment of food retail, such companies as Argo Trading House and Kharkiv-Moscow can be mentioned. Both of these companies have production facilities and retail outlets. Argo has 25 food shops in the city and sells mainly its own brands (alcohol, tea, mineral water and lemonade, meat products, cereals, macaroni), while Kharkiv-Moscow owns a chain of 50 kiosks and bakery shops and sells its own bread and bakery products. High season in food retail: traditional national and religious holidays, City Day, professional holidays (Frontier Guard Day, Paratrooper Day) Customers flow was distributed unevenly on the New Year eve. Some supermarkets (like ROST and Klass) had to let in only client cardholders. Useful sites: - Kharkiv City Council and Executive Committee - Kharkiv City Information Center - Kharkiv Regional State Administration 36 See Chapter 5 for more details on key players in the retail market. 57

58 Dnipropetrovsk As the retail market city s has already been formed, Dnipropetrovsk will hardly offer investment opportunities in the new chain development, while investments in the business of existing retailers could be possible. Key statistics 37 : Area of the city km 2 Number of districts (rayons) 8 Population 1,065 thousand inhabitants (third place in Ukraine) Average monthly income in Dnipropetrovsk oblast, per capita, 2001 USD 49 (UAH 262) Retail development 38 : Total number of retail outlets in Dnipropetrovsk oblast is 5,834 (including 4,356 stores) Average Size of store in Dnipropetrovsk and towns of Dnipropetrovsk oblast 129 m 2 Retail trade turnover in January June 2002 reached about USD 160 mn (23% increase compared to similar period of 2001). Retail trade turnover reached about USD 400 mn in 2001(estimate) Table 16. Number of Dnipropetrovsk retail outlets Area Total univermags Total universams Total supermarkets (food and non-food) Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets Dnipropetrovsk City ,804 Source: MEMRB-UMG Retail Census Supermarkets 39 There are about 70 food supermarkets in the city 40 % Supermarkets / Other Retail Outlets % (estimate) Retail gross margin in supermarkets is about 20% on average Space is available for purchase at appr. USD per 1 m 2, and for rent USD 6-20 per 1 m 2 Major players (depending on location) As of the beginning of 2003 there were about 70 supermarkets, and the plans of companies were to increase this number to 100 within the next couple of years. Dnipropetrovsk s food market (supermarket segment only) is shared by major retailers: Rainford (5 supermarkets, 1 discounter, 3 cash and carry), ATB-Market (about 40 discounters), Fozzy-Ost (7 Silpo supermarkets). Other retailers operating in Dnipropetrovsk include Billa (2 supermarkets), Pik (food supermarket and household goods stores), Euromart (1 cash & carry store) - their market share in the supermarket segment is relatively low. 37 Source: State Statistics Committee of Ukraine. 38 Source: State Statistics Committee of Ukraine. 39 Experts estimate. 40 This number includes about 30 food supermarkets and 40 small discounters. See Table 17 and Chapter

59 Table 17. Leading Dnipropetrovsk supermarkets 41 Brands of retail stores Rainford Number of stores in the city 5 supermarkets, 1 discounter, 3 cash & carry Total sales area, m 2 2,500 (supermarket) + 1,000 (discounter) + 7,000 (cash & carry) Retailer status National Main activities of companies Wholesale and retail, distribution ATB-Market 40 discounters > 20,000 (estimate) Regional Production and retail Silpo 7 supermarkets > 6,000 National Production, wholesale and retail Pik 1 supermarket 1,500 Local Wholesale and retail Billa 2 supermarkets > 4,000 National Retail Euromart 1 cash & carry Appr. 2,000 National Wholesale and retail Recently the largest supermarket Terra (sales area 7,550 m 2 ) was opened in Dnipropetrovsk by one of the companies of Olvia Corporation (which unites production, construction and trading companies). Construction lasted 8 months and cost of 1 m 2 was estimated at USD (planned payback period 5 years). The supermarket is designed for simultaneous shopping of up to 25,000 customers. Consumers Average daily number of purchases in one supermarket 5,000-6,000 Average bill (supermarkets only) UAH 51 (USD 10) Frequency of going to supermarkets times per month Way of getting to supermarket 54% - on foot; 24% - by own car, 21% - by public transport Local characteristics The city food retail market is relatively saturated and due to the presence of large chains the level of competition in retail is high at the moment. Availability of sales area in 2001 (both food and non-food) was 469 m 2 per 1,000 inhabitants (over 200% of the one-time Soviet norm). The retail sector has undergone a balanced development during the last decade. Following the period when small-scale retail outlets had gained high popularity, the period of retail consolidation started. Investments in the trade sector made up 33.6% of total investments in city industry and infrastructure. It should be noted also that the first Ukrainian supermarket was opened in Dnipropetrovsk in 1995 by Rainford Group. During the last 2-3 years open markets have lost their importance as the main source of food supplies. Quality of food and level of service became the key criteria for changes in the population s preferences. Development of own retail chains of food producers: Dnipropetrovsk Confectionery 6 shops, Dnipropetrovsk Oil Extraction Plant (Oleyna brand), Beriozka Meat Factory and Yubileyny Meat Plant, bakeries. Rainford Group is presently expanding a chain of small-scale retail outlets of sales area about 30m 2 (under Korzinka brand) where it sells foodstuffs produced by companies it controlls. High season in food retail: traditional national and religious holidays, City Day, professional holidays (Metallurgist Day) Special attention can be paid to the development of retail in the other towns of Dnipropetrovsk oblast (Kryvy Rig, Nikopol, Dniprodzerzhinsk, Zhovti Vody) Useful sites: - Dnipropetrovsk City Executive Committee - Dnipropetrovsk City Portal 41 See Chapter 5 for more details on key players in the retail market. 59

60 Odesa Investments into a new retail business in Odesa may be somewhat unreasonable as the level of retail development and supermarket consolidation in the city is one of the highest in Ukraine. There are a few strong local retail chains and investments in their development is however a possibility. Key statistics 42 : Area of the city km 2 Number of districts (rayons) 8 Population 1,029 thousand inhabitants Average monthly income in Odesa oblast, per capita, 2001 USD 30 (UAH 159) Retail development 43 : Total number of retail outlets in Odesa oblast is 5,192 (including 3,887 stores) Average size of stores in Odesa and towns of Odesa oblast 94 m 2 Retail trade turnover exceeded USD 100 mn in 2001 (18% growth to previous year). Table 18. Number of Odesa retail outlets Area Total univermags Total universams Total supermarkets (food and non-food Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets Odesa City ,240 5,469 Source: MEMRB-UMG Retail Census Supermarkets 44 There are about 30 food supermarkets in the city 45 Share of supermarkets in food retail turnover about 10-15% Retail gross margin in supermarkets is 15-20% on average (with a downtrend) Food retail sales space is available for rent at appr. USD per 1 m 2. ; non-food USD per 1 Major players m 2 ; warehouse space is leased at the price of USD 3-5 per 1 m 2. Space is available for purchase at USD per 1 m 2 The level of supermarket consolidation in Odesa is one of the highest in Ukraine. There are about 30 large stores and many smaller outlets (but still competive by turnover). According to local experts, leadership in retail belongs to Tavriya V, Rorus and Fortuna Trade House (one of the largest distribution companies in South Ukraine trading through Ideal cash & carry). All of these companies have more than 8 years experience in the trade business. Large food producer and distributor, Almi Concern, is also a retail operator with its own Kopeyka chain (4 stores). Fozzy Group has considerable expansion plans in Odesa: a total of 8 outlets are going to be opened under Silpo brand. Currently, Fozzy hypermarket and 2 Silpo operate there. 42 Source: State Statistics Committee of Ukraine. 43 Source: State Statistics Committee of Ukraine. 44 Experts estimate. 45 This number includes 16 minimarkets (Robin-Bobin and Obzhora chains). See Table

61 Chains of mini-markets like Robin-Bobin (sales area of a store is around 100 m 2 ) and Obzhora have recently gained popularity. Robin-Bobins have a good assortment and are considered to be shops for wealthy consumers. Table 19. Leading Odesa supermarkets 46 Brands of retail stores Number of stores in the city Total sales area, m 2 Retailer status Main activities of companies Tavriya V 4 supermarkets and 1 hypermarket 13,300 Local Retail Rorus 4 supermarkets 6,650 Local Wholesale and retail Ideal (Fortuna) 1 cash & carry About 10,000 (estimate) Local Distribution, wholesale, retail Silpo / Fozzy 2 supermarkets + 1 hypermarket About 8,000 (estimate) National Distribution, wholesale, retail Kopeyka 4 supermarkets About 3,000 (estimate) Local Production, distribution, retail Natalka-Market 3 supermarkets > 2,000 Local Retail Robin-Bobin 8 mini-markets About 1,000 (estimate) Local Retail Hetman 1 supermarket 562 Local Retail Planeta 1 supermarket 928 Local Retail Obzhora 8 mini-markets About 2,000 (estimate) Local Retail In the opinion of some local retailers, 2-3 supermarkets would be enough to saturate the market. Consumers Average daily number of purchases in one supermarket 3,000 4,000 Average bill (supermarkets only) UAH 64 (USD 12) Frequency of going to supermarkets times per month Way of getting to supermarket 42% - on foot; 27% - by own car, 30% - by public transport Local characteristics Though Odesa is a maritime city located at the intersection of shipping routes and functioning as the largest transport-cargo terminal in South Ukraine, it is to a certain extent closed for external businesses wishing to enter its market. For example, Billa-Ukraine has failed to open its supermarket in Odesa. Starting from 1998, city authorities have maintained a support strategy for the development of retail, public catering, hotel and entertainment infrastructure. Due to this support, the sector has undergone rapid growth and continues its further development. Level of competition in retail is quite high. At the moment the aggravation of competition between retail chains and small retail outlets is observed (chains of small-scale shops / kiosks are quite powerful in terms of turnover and influence on suppliers). As consumer preferences are shifting and people are no longer averse to going to modern stores, street markets are also facing competition from supermarkets (though influence of open markets is historically very high in Odesa). There is a deficit of affordable land plots in Odesa. High season in food retail: traditional national and religious holidays, City Day. Special attention can be paid to the development of retail in other towns of oblast (Illichivsk, Izmail, Bilgorod-Dnistrovsky). Illichivsk, located km from Odesa s border, is considered one of the most promising territories. The town has 60,000 inhabitants with an average income of more than UAH 600 (about USD 110) per capita. Useful sites: - Odesa City Council - Odesa City Portal 46 See Chapter 5 for more details on key players in the retail market. 61

62 Donetsk As the city is to a high extent closed for external businesses wishing to enter its market, retail development in Donetsk is slow versus other regions. Definitely, there is a niche for new retailers (income of population is high, and modern retail services are at a low level). However, investments are possible only with support of local authorities. Key statistics 47 : Area of the city 369 km 2 Number of districts (rayons) 9 Population 1,016 thousand inhabitants Average monthly income in Donetsk oblast, per capita, 2001 USD 41 (UAH 219) Average salary in Donetsk was USD 87 (UAH 463) in 2002; for 2003 it is predicted at the level of USD 96 (UAH 510) forecast of city authorities Retail development 48 : Total number of retail outlets in Donetsk oblast is 8,056 (including 5,899 stores) Average size of stores in Donetsk and towns of Donetsk oblast 121 m 2 Retail trade turnover in 2002 reached about USD 350 mn (23% increase compared to 2001) Planned growth of retail turnover for 2003 is 7.7% Table 20. Number of Donetsk retail outlets Area Total univermags Total universams Total supermarkets (food and non-food Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets Donetsk City ,200 3,400 Source: MEMRB-UMG Retail Census Supermarkets 49 There are 10 food supermarkets in the city % Supermarkets / Other Retail Outlets % Retail gross margin in supermarkets is high (not less than 20% on average) Space is available for purchase at USD per m 2, and construction with equipment costs about USD 500 per m 2 Major players As of the beginning of 2003 there are about 10 supermarkets. 5 of them belong to the only well-established retail chain Obzhora. Manufacturing company Sarepta owns 2 supermarkets in Donetsk and Makeevka (Donetsk oblast) and is constructing a second one in Donetsk. There are also a few independent supermarkets in the centre of Donetsk: Za Milykh Dam (To Dear Ladies) 2, and Maxim 1. Most of the stores are located in the city centre, and companies have begun to pay attention to residential areas only recently. Thus, Obzhora opened its 5 th store in Tekstilschik residential district. Old-type gastronom (grocery store) chains are represented by Agrofirm Shakhtar of Zasiadka Mine and retail chain of Illicha Metalwork. 47 Source: State Statistics Committee of Ukraine. 48 Source: State Statistics Committee of Ukraine. 49 Experts estimate. 62

63 Table 21. Leading Donetsk supermarkets 50 Brands of retail stores Number of stores in the city Total sales area, m 2 Retailer status Main activities of companies Obzhora 5 supermarkets About 4,000 Local Retail Sarepta 2 supermarkets n/a Local Production and retail Za Milykh Dam 2 supermarkets n/a Local n/a Maxim 1 supermarket n/a Local n/a City authorities have recently announced the retail development plan for According to Donetsk s mayor estimates 51, 85 new retail outlets will be set up, including construction of 3 supermarkets (with sales area of more than 3,000 m 2 each) by a local investor. As it was declared, such supermarkets have already been established in Kyiv, Kharkiv, Dnipropetrovsk and even in Luhansk. However, Donetsk lags behind in this respect. Most likely, the local investor is Donetskprodtorg wholesale company, which has recently built its own distribution center and is expected to enter a supermarket market in spring - summer 2003 under Amstor brand (information not confirmed). Consumers Average daily number of purchases in one supermarket 2,000 Average bill (supermarkets only) UAH 84 (USD 16) Frequency of going to supermarkets 16 times per month Way of getting to supermarket 42% - on foot; 44% - by own car, 11% - by public transport Local characteristics The city is to a high extent closed for external businesses wishing to enter its market. Retail development has only started and Donetsk lags far behind other Ukrainian cities in this respect. Food retail coverage is poor (only 10 supermarkets for a city with more than 1 mn inhabitants). Free niches exist, especially in residential districts. There is only one well-established retailer in the supermarket sector: chain of Obzhora supermarkets with 5 stores, 4 of them located in the city center and 1 (opened in December 2002) in a residential area. There are no large stores in the city. Construction of the first hypermarket is a short-term plan of local retailers. City authorities approved the program City without outskirts aimed at the development of uptown areas. One of the goals of this program is to urge retailers to promote their business in the outlying districts of the city. High season in food retail: traditional national and religious holidays, City Day, professional holidays (Miner Day, Militia Day). Purchases of beverages and snacks increase also on the days when soccer games take place (there are two Donetsk-based soccer teams playing in Premier League). Obzhora supermarkets ran out of beverages and confectionery stocks after 2002 Militia Day (20 December). Most of the merchandise prepared for New Year high season was sold out. So the company s buyers had to obtain additional supplies urgently. Special attention can be paid to the development of retail in other towns of oblast (Yenakievo, Makeevka, Gorlovka, Kramatorsk, Sloviansk, Mariupol), where retail has just started to develop. The first supermarkets recently appeared in Makeevka (Sarepta chain), Mariupol (Litva), Yenakievo (Lavanda). Useful sites: - Donetsk Regional State Administration - Donetsk City Mayor - Donetsk Information Portal (English) - Donetsk Regional Statistics Bureau - Virtual Donetsk 50 See Chapter 5 for more details on key players in the retail market. 51 Announced at the press-conference of Donetsk City Mayor on 23/12/2002 (information published in Gorod Newspaper, No. 47 of 27/12/2002, and 63

64 Zaporizhia Zaporizhia can be considered as one of the most promising territories for investments into retail development in the Eastern part of Ukraine. The city has a favorable location near Dnipropetrovsk and uses its well-developed infrastructure. Zaporizhia is a large industrial center, and the retail sector suffers from lack of attention and financing. Key statistics 52 : Area of the city 334 km 2 Number of districts (rayons) 7 Population 815 thousand inhabitants Average monthly income in Zaporizhia oblast, per capita, 2001 USD 37 (UAH 197) Retail development: 53 Total number of retail outlets in Zaporizhia oblast is 3,603 (including 2,526 stores) Total number of retail outlets in the city (according to the local retail authorities) about 2,500. Average size of stores in Zaporizhia and towns of Zaporizhia oblast 116 m 2 Retail turnover (Zaporizhia oblast) in 2001 USD 325 mn Supermarkets 54 There are more than 10 food supermarkets in the city % Supermarkets / Other Retail Outlets 3-5 % Retail gross margin in supermarkets is about 20% on average Space is available for purchase at appr. USD per 1 m 2, and for rent USD 6-20 per 1 m 2 (depending on location) Major players As of the beginning of 2003 there were more than 10 supermarkets in Zaporizhia. Kit-1 Trading Company is the leader in the regional niche, operating 6 Kit supermarkets. They are located both in the centre and in residential areas. Though sales areas of Kit supermarkets located in the city center are small, turnover per 1 m 2 is high compared to other outlets of the chain. Thus, in the stores in the central street, average monthly turnover per 1 m 2 reaches USD , while on other sites USD Source: State Statistics Committee of Ukraine 53 Source: State Statistics Committee of Ukraine 54 Source: Experts estimate. 64

65 Other retailers that entered Zaporizhia s market are Dnipropetrovsk-based ATB-Market (2 outlets), Billa (1 supermarket), Fozzy-Ost (1 Silpo supermarket), Euromart (1 cash & carry store). Table 22. Leading Zaporizhia supermarkets 55 Brands of retail stores Number of stores in the city Total sales area, m 2 Retailer status Main activities of companies Kit 6 supermarkets > 4,000 Local Retail ATB-Market 2 discounters 1,000 (estimate) Regional Production and retail Silpo 1 supermarket 1,000 (estimate) National Production, wholesale and retail Billa 1 supermarket 2,000 National Retail Euromart 1 cash & carry Appr. 2,000 National Wholesale and retail As there are not many supermarkets, small shops form quite a strong retail group. Consumers Average daily number of purchases in one supermarket 4,000 Average bill (supermarkets only) UAH 34 (USD 6) Frequency of going to supermarkets 16 times per month Way of getting to supermarket 75% - on foot; 13% - by own car, 11% - by public transport Local characteristics Zaporizhia is one of the most attractive territories for retail development in Eastern Ukraine. It has a favorable location near Dnipropetrovsk (93 km) and uses its developed infrastructure. The city is spread unevenly over the banks of the Dnipro river. Left and right banks have different landscapes. Up to 70% of housing is located near industrial enterprises. City center is concentrated around Lenina Avenue and adjoining streets. This feature has to be considered when selecting the location for a retail outlet. As the city is an industrial center, the majority of the investments are directed into industry development, while retail sector feels lack of financing. High season in food retail: national and religious holidays, City Day, professional holidays (Metallurgist Day). Useful sites: - Zaporizhia City Executive Committee and City Council - Zaporizhia Chamber of Commerce and Industry 55 See Chapter 5 for more details on key players in the retail market. 65

66 Lviv Being the only large city in the Western part of Ukraine, Lviv will offer good investment opportunities in retail sector due to its favorable location (close to Polish border), loyal consumers attitude to modern retail formats and absence of large-scale retail outlets in the city. Key statistics 56 : Area of the city km 2 Number of districts (rayons) 6 Population 733 thousand inhabitants Average monthly income in Lviv, 2002 USD 74 (UAH 392) Retail development 57 : Total number of retail outlets in Lviv oblast is 6,895 (including 5,324 stores) Average size of stores in Lviv and towns of Lviv oblast 83 m 2 Retail trade turnover in 2002 was planned at the level of USD mn (3.8% increase compared to 2001). Food share in total turnover was to reach 40.5%. More than 40,000 people were employed in the city s retail industry, 400 new places were to be provided in Table 23. Number of Lviv retail outlets Area Total univermags Total universams Total supermarkets (food and non-food) Total stores Total Pavilions Total Kiosks Total Open Markets Total retail outlets Lviv City ,446 2,727 Source: MEMRB-UMG Retail Census Supermarkets 58 There are about 20 food supermarkets in the city Share of new retail formats in total retail turnover of the city is estimated at about 10% in 2002 Retail gross margin in supermarkets ranges from 15 to 20% Space is available for rent at appr. USD per 1 m 2 Warehouse space is leased at the price of USD 1-6 per m 2 and is available for purchase at USD per m 2 Major players The supermarket sector has just began to develop. The first modern supermarket VAM was opened in March The second one, Arsen, opened its doors in June However, the background of these outlets is different. Arsen belongs to Intermarket chain, which has operated in the Lviv market for 10 years, and has 13 stores. In contrast to Arsen, VAM is the first outlet of Pam yat LLC that has just entered the retail market. There are also 3 supermarkets under Leader brand. They operate on franchising conditions and are managed by Ukrainska Torgivelna Systems LLC (the chain has 4 stores in Western regions and belongs to Polish owners). Lutsk-based Agrocontract operates a cash & carry store on the main street of Lviv (Gorodotska) next to Intermarket s cash & carry. Two companies operating in the supermarket segment (Intermarket and Pam yat) have their representatives in the City Council and, therefore, face no problems with land plot allocation and chain development. Just recently these retailers obtained permits for land use for their supermarkets on the same street Chornovola Avenue. It should be mentioned that Leader supermarket already operates on the same street. 56 Source: State Statistics Committee of Ukraine 57 Source: State Statistics Committee of Ukraine 58 Source: Experts estimate. 66

67 Table 24. Leading Lviv supermarkets 59 Brands of retail stores Arsen / Barvinok / Intermarket Number of stores in the city 1 supermarket, 10 discounters, 2 cash & carry Total sales area, m 2 6,200 (supermarket) + 6,000 (discounter) + 7,700 (cash & carry) Retailer status Local Main activities of companies Wholesale and retail, distribution VAM Supermarket 1 supermarket about 5,000 Local Retail Leader 3 supermarkets > 2,000 Regional Retail Agrocontract 1 cash & carry About 2,500 Regional Wholesale and retail Eurogurt 1 cash & carry n/a Local Wholesale and retail It is expected that Intermarket and Pam yat will continue their expansion in retail in the coming years, and will contribute to the growth of the supermarket sector. Consumers Average daily number of purchases in one supermarket 5,000-5,500 Average bill (supermarkets only) UAH 76 (USD 14) Frequency of going to supermarkets 10 times per month Way of getting to supermarket 51% - on foot; 26% - by own car, 23% - by public transport Local characteristics Lviv attracts relatively large investments (USD mn as of 1 January 2002), about 7% of them have been directed to trade industry development. The city enjoys a favorable location in Western Ukraine close to the Polish border. Proximity to Poland has considerable influence on trade sector growth and development in the region, as well as on consumers behavior that is rather advanced compared to other Ukrainian regions. However, some slowdown in crossborder trade can occur due to the introduction of a visa regime for Ukrainian citizens from 1 July Though the supermarket sector is in the early stage of its development, this market is being formed under the strong influence of the experienced market leader Intermarket Trading Company. At the moment Intermarket enjoys a monopoly position in the regional market and dictates rules in relations with suppliers as well as sets up standards for wholesale and retail in Lviv. There are no hypermarkets or large shopping centers in Lviv. One of the early birds in this category is VAM Supermarket that leased out the second floor of the building (about 3,000 m 2 of sales area) to non-food outlets including electronics and baby supermarkets, clothes boutiques, etc. City authorities support development of modern retail format and have intentions to transform some street markets into shopping centers. However, this results in conflicts between city top authorities and management of open markets. Consumers demand from local retailers the same level of service and product range as you can find in Poland where retail has been rapidly developing in the past decade. High season in food retail: traditional national and religious holidays, local religious holidays, name days (like Andrew, Roman, Anna, Kateryna, etc.) Lviv retailers announce special offers on name days for those called by this name. For example, in VAM Supermarket on Andrew day (13 December) if you prove you are Andrew by showing your passport, you can receive a special card and present. Useful sites: - Lviv City Council - Lviv Regional State Administration - Lviv Regional Statistics Bureau - Business in Lviv region (Dilova Lvivschyna) 59 See Chapter 5 for more details on key players in the retail market. 67

68 5. Key Foreign and Domestic Players, New Entrants - Profiles of 25 Retailers This chapter describes the major players in the Ukrainian retailing market. The core information was obtained in the course of interviews with managers of retail chains and stores. It is supported by secondary publicly available data about the companies Profiles of key retailers (alphabetical order) 68

69 ATB Market Having set up a large chain of discount-like shops (according to experts estimate, about 80) in Eastern Ukraine, ATB-Market can be considered one of the leading regional retailers. Its shops are located in Dnipropetrovsk city and oblast, as well as in Zaporizhia, Cherkasy and Kremenchuk (Poltava oblast). Originally, ATB-Markets traded over the counter, and self-service was introduced in Characteristics Data Brand (-s) of the retail chain ATB Market Contact information 40, Kirova St., Dnipropetrovsk, Ukraine; Tel.: 38056/ (457) Country of origin Ownership Ukraine Year company started operations in Ukraine 1998 Target group Private (LLC) End consumers Slogan Save money with us! ; The best place for your purchase! Number of outlets, Shop format, Location 80 Discounters in Dnipropetrovsk and region, Zaporizhia, Kremenchuk Sales area of an outlet 200 1,000 m 2 Range of products (Assortment) Distribution Center Private labels Availability of parking lot 1,000 2,000. Priority to fresh food Yes Cereals, sugar, napkins (all ATB), some meat products (Yubileyny, Beriozka) Not at all shops. Free parking lots Deleted: ATB abbr. from AgroTechBusiness Deleted: Originally trade in the universam / gastronom format, from 2000 discounter format Deleted: Consumers are not satisfied with quality of products Begemot Shopping Center The chain of Begemot shopping centers (based on Begemot supermarkets) has been started recently. It is set up by the alliance of three companies: Ukrainian Interfood LLC, Real Estate Solutions, and Russian Elite Business. The first supermarket was opened in December 2002, second in February 2003, and three more in March 2003 (all in residential areas of Kyiv). The company has plans to construct a hypermarket in the Ukrainian capital. Characteristics Data Brand (-s) of the retail chain Begemot Shopping Center Contact information 18, Mykhailivska St., Kyiv, Ukraine; Tel.: 38044/ (25, 26, 27) Country of origin Ukraine Ownership Private (LLC) Year company started operations in Ukraine 2002 Target group Consumer with an average income Slogan More pleasure to you ; Better time is coming soon Number of outlets, Shop format, Location 4 Supermarket in Kyiv. All shops are located in residential areas Sales area of an outlet 1,000-1,500 m 2 (Total area > 4,500 m 2 ) Range of products (Assortment) 8,000 estimate Discount system No Distribution Center No Private labels No Availability of parking lot Up to 100 parking places Delivery service No Deleted: Interfood LLC Deleted: Chain promoter Real Estate Solutions Deleted: All procurement activities are carried out via central office 69

70 Billa Billa Ukraine is the only 100% foreign company operating in the Ukrainian retailing market. It has started business in Kyiv and the largest cities in Eastern Ukraine and operates 8 supermarkets. Development in the Ukrainian market was not easy for Billa and its management because of many local peculiarities. However, the company implemented its strategy (green-field construction only) and set up a chain of supermarkets. Further development of Billa in Ukraine is viable with a long-term EBRD loan (EUR 45 mn for supermarket chain development in Ukraine, Romania and Bulgaria; total project cost exceeds EUR 200 mn for the three countries). Characteristics Data Brand (-s) of the retail chain BILLA Contact information 3, Grishka St., Kyiv Ukraine; Tel.: (42) Country of origin Ownership Year company started operations in Ukraine 1998 Target group Shop format Austria / Germany Subsidiary company of Eurobilla End consumers with an average income Supermarket. First in European style Slogan The best for me Number of outlets, Location 8: Kyiv (3), Dnipropetrovsk (2), Kharkiv (2), Zaporizhia (1) All shops are located in residential areas Sales area of an outlet 2,000-2,200 m 2 Range of products (Assortment) Discount system Distribution Center Private labels Availability of parking lot Delivery service More than 10, % - local production No. Only special offers for some items No On salads produced in their own cookery (Chef Menu) Free parking lots No Deleted: Ownership Deleted: Subsidiary company of Eurobilla Brig Characteristics Brand (-s) of the retail chain When the company started, it immediately became a local pioneer and leader in self-service retail in Kharkiv. However, over 9 years of operation through hypermarket and supermarket-like stores, the corporate strategy has changed, and now Brig is shifting towards a discounter format. Data Brig Trade House Contact information 15, Vosstaniya Sq., Kharkiv Ukraine Tel.: / (682) Country of origin Ownership Ukraine Year company started operations in Ukraine 1996 Target group Private (LLC) All consumer groups Shop format Hypermarket (1), discounter (7) Number of outlets, Location Sales area of an outlet Range of products (Assortment) 12,000 Discount system Distribution Center Private labels Availability of parking lot 8: Kharkiv, Zaporizhia Hypermarket 2,500 m 2 ; Others about 900 m 2 (Total area about 7,000 m 2 ) 2-5%. Depending on amount of purchases No Ravioli produced in own cookery places per outlet. Free parking lots 70

71 Euromart Established in 1997, the company now operates 5 outlets. Euromart's current locations are Kyiv, Dnipropretrovsk, Kharkiv and Zaporizhia. Since 1999 the company has received investments from US Western NIS Enterprise Fund (WNISEF) and Commercial Capital Fund (Greece). This allowed developing the chain of cash & carries to its present status. Further chain expansion has been promised since 2000 (plans included the doubling of the number of stores in major population centers of Ukraine), but these plans have not been carried out. Characteristics Data Brand (-s) of the retail chain Euromart Cash & Carry Contact information Country of origin 3, Oranzhereynaya St., Kyiv Ukraine Tel.: 38044/ (37, 47); (29, 30) USA Year company started operations in Ukraine 1997 Target group Shop format Slogan Number of outlets, Location Sales area of an outlet 2,000-2,500 m 2 Range of products (Assortment) Discount system Distribution Center Private labels Availability of parking lot Delivery service End consumers with average income, professional consumers Cash & carry format but oriented to final consumers (wholesale and retail store) Buy all together save time and save money! 5: Kyiv (2), Dnipropetrovsk (1), Kharkiv (1), Zaporizhia (1) All shops are located in industrial / residential areas 12,000 (80% - food products; 20% - non-food) Family cards (costs UAH 20); Cards for wholesale customers Allow to buy at wholesale prices No On ravioli produced in their own cookery; household goods, disposable tableware Free parking lots ( places per outlet) To home and office Deleted: (70% of turnover) Deleted: Deleted: (30%)Target market cities where outlets are located Deleted: Originally planned as western type cash & carry, it turned into warehouse-like supermarket Fozzy Presently, Fozzy Group, with three retailer brands in its portfolio, is one of the most rapidly developing retailers. The company operates stores of three formats: cash & carry (formerly positioned as hypermarket), supermarket and discounter. Fozzy has already established its presence in Ukraine in Kyiv, Odesa, Dnipropetrovsk and Zaporizhia. When entering new regional markets the company tries to purchase all premises at once, and then opens outlets one by one. The group has control over some production companies (Nizhyn Cannery, Odesa Distillery, Odesa Champaign Plant, Zvenigorodka flour mill and others) and being the owner of popular brands (Nizhyn gherkins, Miagkov vodka, Odesa Champaign, Izmail wine, Olivier mayonnaise). Characteristics Brand (-s) of the retail chain Data Silpo, Fozzy Cash & Carry, Fora Contact information 24, Chernovola St., Kyiv Ukraine. Tel.: 38044/ (475) Country of origin Ownership Year company started operations in Ukraine Ukraine Private (CJSC) 1997 (in retail) Deleted: Ownership Deleted: Private (CJSC) 71

72 Characteristics Target group Shop format, Number of outlets Location Sales area of an outlet Range of products (Assortment) Discount system Private labels Availability of parking lot Data Silpo, Fora: End consumers Fozzy Cash & Carry : Professional customers 2 - Cash & Carry, 32 - Supermarket, 40 (planned) discounters Kyiv, Dnipropetrovsk, Zaporizhia, Odesa, Moscow Cash & carry > 8,000 m 2 ; Supermarket ,000 m 2 ; Discounters about 400 m 2 Cash&Carry > 15,000, Silpo Supermarket - 7,000 8,000, Fora Discounter - 1,000 1,200 70% - local products 3% to discount cardholders Company has some special social and discount programs Baba Galia (groceries) Depending on store Formatted: Bullets and Numbering Furshet Garantiya Trade which owns Furshet chain started its retailing business with a few small mini-markets La Furshet in Kyiv. Later, the company s management recognized the prospects of large retail formats, and the first Furshet store was opened in December 1998 in Podil district of Kyiv. This was the first store of such a scale and it quickly gained popularity with consumers; many of them are still its frequent and loyal customers. At the moment the Furshet chain includes 18 stores, with short-term expansion plan to 23. For the chain s development the company plans to invest mainly in shopping centers with large sales areas for supermarkets (3,000-4,000 m 2 ) and other stores. Availability of convenient parking will be a mandatory pre-requisite. Furshet has also won the competition for the supermarket area in two Kyiv shopping centers that are scheduled to open in spring Thus, in Mandarin Plaza and Ukraina the company presents its new format - delicatessen supermarkets under Furshet Gurman brand. The first Furshet Gurman in Mandarin Plaza has just opened (late April 2003) with sales area of 2,000 m 2. Characteristics Brand (-s) of the retail chain Data Furshet / Furshet Gurman Contact information 57, Yaroslavska St., Kyiv Ukraine. Tel.: 38044/ ) Country of origin Ownership Ukraine Private (LLC) Year company started operations in Ukraine 1993 Target group Slogan End consumers; Professional customers (HoReCa, other retailers) A shop of your family! Shop format, Number of outlets 18 supermarkets (in summer 2003 will be 23) Location Kyiv, Simferopol, Cherkasy, Khmelnitsky, Chernihiv Most of the shops are located in residential areas Sales area of an outlet 800 4,000 m 2 Range of products (Assortment) About 20,000 Discount system Will be introduced in 2003 Distribution Center Private labels Availability of parking lot Delivery service No Canned vegetables, ravioli Depending on outlet Orders by telephone and on-line Deleted: In participation with Euroventures Fund Deleted: (3%) Deleted: Is currently being organized 72

73 Intermarket The established leader of Western Ukraine s retail market, the trading company Intermarket started its operations in 1992 trading with clothes and foot-wear in a shop an area of 110 м 2 in Halytska St., Lviv, with only 7 employees. Market analysis and understanding of consumers needs in the mid 90-ies became the key factors for profile change to trade in food and accompanying goods. Later on (in 1996) the new name Intermarket was introduced. Since then the company has been opening new shops each year. And now it operates in three formats cash & carry, supermarket, discounter and has 13 outlets and ambitious development plans. According to the company s estimates, its share in Lviv oblast s food retail turnover amounts to 22%. The first supermarket Arsen opened its doors to consumers in June Currently the store s sales area is 6,200 м 2 and expansion is planned to the total of 16,200 м 2 to turn a supermarket into a large shopping center. Characteristics Data Brand (-s) of the retail chain Intermarket / Arsen / Barvinok Contact information 359, Gorodotska St., Lviv Ukraine; Tel.: / Country of origin Ownership Year company started operations in Ukraine Target group Ukraine Private (LLC) 1992; 1996 Intermarket Brand End consumers with average income Professional consumers (HoReCa, other retailers) Deleted: Family of Director (Mr. R. Shlapak) Formatted: Bullets and Numbering Shop format Cash&Carry 2, Supermarket 1, Discounters 10 Slogan Number of outlets, Location Area of an outlet Range of products (Assortment) Discount system Availability of parking lot Buy at low price and fast! ; Buy regularly and pay less! 13: Lviv (11), Lviv Region (2); Supermarkets in residential area Discounters 600 m 2, Cash&carry 1,700 m 2 and 6,000 m 2, supermarket 6,200 m 2 Supermarket 20,000; Cash&Carry 10,000-15,000; Discounter 3,000-7,000. (90% - Ukrainian products) Available for enterprises-wholesalers in Cash&Carry Yes Deleted: For the whole chain For special offers Deleted: Kit Kit-1 Trading Company owns a chain of 6 tidy and compact stores in Zaporizhia. This local retailer enjoys high loyalty of consumers due to the favorable location of its outlets, rich assortment, attractive discount policy and provision of utmost convenience to consumers. As Kit supermarkets are located both in city center and residential districts, such indicators as customer flow, turnover and average bill vary widely. Characteristics Brand (-s) of the retail chain Data Kit Supermarket Contact information 147, Lenina Ave, Zaporizhia Ukraine; Tel.: / Country of origin Ownership Ukraine Private Year company started operations in Ukraine 1999 Target group Slogan Shop format, Number of outlets, Location End consumers Affordable! Tasty! Convenient! 6 supermarkets in Zaporizhia (city center and residential areas) Sales area of an outlet Stores 250-2,000 m 2 (Total 4,060 m 2 ) Range of products (Assortment) Up to 8,000 73

74 Characteristics Discount system Distribution Center Private labels Availability of parking lot Delivery service Data 5-7% discount for Kit card holders. 3% discount for pensioners (Privatbank cards) No No Free parking lots (next to shop area) Orders by telephone Deleted: Cumulative system to be introduced soon Deleted: Will be available by end of Klass Supermarket The owner of the chain, Ukr-Trade LLC, positions its stores as Shops for wholesale and family purchases. The company has 3 shops in Kharkiv under the Klass Supermarket brand. They are considered to enjoy a great consumer flow. Company development plans include investments in a hypermarket with 10,000 m 2 sales area. Young and dynamic management can contribute to the successful development of the company. Characteristics Data Brand (-s) of the retail chain Klass Supermarket Contact information 259, Moskovsky Ave., Kharkiv, Ukraine; Tel.: / (6261) Country of origin Ownership Ukraine Year company started operations in Ukraine 1997 Target group Private (LLC), End consumers with average income, Professional customers Slogan Get maximum pleasure from shopping Shop format, Number of outlets, Location 3 wholesale and retail stores in Kharkiv All shops are located in residential areas (not high-density) Sales area of an outlet > 1,000 m 2 Range of products (Assortment) Discount system Distribution Center Private labels Availability of parking lot More 15,000. (80% - food; 20% - non-food products) To be introduced soon No No Free parking lots (up to100 places per outlet) Deleted: (15% of turnover) Deleted: Procurement procedures centralized Kolibris / Agrocontract Characteristics Lutsk-based Agrocontract trading company owns the chain of wholesale stores (warehouse-like) and supermarkets ( Kolibris brand). The company has 9 years experience in distribution and retailing. Its wholesale affiliates operate all over Ukraine (in Kyiv, Vinnystia, Rivne). In the short-term, the company plans the development of the supermarket chain of 4 stores in the Western region of Ukraine. Data Brand (-s) of the retail chain Agrocontract / Kolibris Contact information 5, Makarova Lane, Lutsk, Ukraine Tel.: / (01;33;35) Country of origin Ukraine Ownership Year company started operations in Ukraine 1994 Target group Private (JSC) End consumer with average income Shop format, Number of outlets Wholesale and retail store (C&C) - 6, supermarket - 2 Location Sales area of an outlet 1,000 m 2 Range of products (Assortment) 5,000 Lutsk, Kovel, Kyiv, Vinnytsia, Rivne, Lviv 74

75 Maxi Maxi Hypermarket opened on 29 December 2000 in Kyiv oblast (on the road to Boryspil International Airport). This first Ukrainian hypermarket declares to have sales area of 10,000 m 2 and product range of 45,000 items. As Maxi management recently announced, opening of the second hypermarket of 5,000 m 2 sales area is scheduled for September The new store will trade in white goods and other consumer merchandise. Estimated investment is USD 6 mn. In parallel with retailing, Maxi actively develops wholesale trade in consumer goods, offering their wide assortment to other local retailers (many of them admitted to be regular clients of Maxi). Characteristics Data Brand (-s) of the retail chain Maxi Contact information 2a, Brovarska St., Prolisky village, Kyiv region, Ukraine Tel.: 38044/ (10) Country of origin Ukraine Ownership Year company started operations in Ukraine 2000 Target group Slogan Shop format, Number of outlets, Location Private (LLC) Sales area of an outlet 10,000 m 2 Range of products (Assortment) Discount system Distribution Center Private labels Availability of parking lot Consumers with own cars; Retailers (consumer goods) HoReCa Save your money and time! 1 Hypermarket in Kyiv region, on the way to Boryspil airport 45,000. Including wide range of non-food consumer goods Client and discount cards for wholesale clients No No 400 places. Free parking lot Deleted: Owned by General Director and Director Deleted: Hypermarket opened on 29/12/2000 Deleted: (up to 80%) Megamarket Characteristics With 3 large outlets conveniently located in the traffic routes of Kyiv, the company enjoys quite a strong position in the retailing market of the Ukrainian capital. Two of the 3 stores are the anchors of large shopping centers, offering consumers white and household goods, cinema and food courts. Data Brand (-s) of the retail chain Megamarket megamarket.com.ua Contact information 50, Gorkogo St., Kyiv, Ukraine; Tel.: 38044/ (87) Country of origin Ownership Ukraine Year company started operations in Ukraine 1999 Target group Slogan Shop format, Number of outlets, Location Sales area of an outlet Range of products (Assortment) Discount system Distribution Center Private labels Availability of parking lot Private (LLC) All consumer groups A shop where you will find everything! 3 wholesale and retail stores in Kyiv. (in areas with convenient access for cars and pedestrians) 4,000 m 2 (estimate) 15,000 estimate 8% discount for wholesalers; 3 discounts at night time on-line, on Sundays/Mondays (each store separately) No Ravioli produced in their own cookery Free parking lots (about 100 places per outlet) Delivery service On-line shop megamarket.com.ua 75

76 Obzhora Obzhora supermarket chain is the leading Donetsk retailer. It has 5 stores, 4 of them located in the city center, and one in the residential area. At the moment, Obzhora makes good use of its unique position in the local retail market. The company plans further development of the chain in Donetsk. Characteristics Data Brand (-s) of the retail chain Obzhora Contact information 4, Teatralny Ave, Donetsk, Ukraine; Tel.: 38062/ (30) Country of origin Ukraine Ownership Private Year company started operations in Ukraine 1997 Target group End consumers with average and higher than average income HoReCa Shop format Supermarket Slogan A key to tasty life Number of outlets, Location Donetsk: 5 (4 - in city center, 1- in residential area) + café + restaurant Area of an outlet 140-2,500 m 2 (Total 3,950 m 2 ) Range of products (Assortment) 20,000 estimate Discount system 5-7% to card (UAH 50) holders % in café and restaurant Distribution Center Yes Private labels No Availability of parking lot Shops in the city center have limited parking space Delivery service Orders by telephone Deleted: Owned by a few Ukrainian citizens Rainford The Dnipropetrovsk-based Trade and Industrial Group owns a chain of stores that represent all major formats. Besides wholesale and retail business, Rainford also has a number of production subsidiaries that manufacture bakery, meat and dairy products, chocolate, mineral water and vodka, as well as TV sets and shoes. This diversified holding sells its own goods through its own retail chain. A new retail line of Rainford is establishing a chain of about 100 Korzinka outlets (in English Basket ) small pavilions of about 30 m 2 area densely located in the residential districts. The idea is to increase sales of their own food brands. This will contribute to the development of both production and trade subdivisions. Characteristics Brand (-s) of the retail chain Data Rainford Contact information 12, Chkalova St., Dnipropetrovsk, Ukraine. Tel.: / (19,76) Country of origin Ownership Ukraine Private Year company started operations 1992 Target group Slogan Shop format, Number of outlets Location Sales area of outlets Discount system Distribution Center, Private labels All consumer groups Discounter : You are welcome to the unique shop in the city! Korzinka Pavilion : Always just fresh food! 3 Cash & Carry; 5 Supermarkets, 2 Discounters; 20 Pavilions Korzinka Dnipropetrovsk and region, in residential areas Cash & carry 7,000 m 2 ; Supermarkets 2,500 m 2 ; Discounters 1,000 m 2 ; Korzinka 600 m 2 No No Availability of parking lot Free parking lots (20 places per supermarket; per c & c) 76

77 Rorus This Odesa-based company started its operations in 1995 in wholesale and distribution. Having gained experience in supplying local retailers with a wide range of domestic and imported products and established close relations with manufacturers and suppliers, Rorus Trade Group decided to invest in the development of a retail chain. As of January 2003, the company is the second largest Odesa retailer, operating 4 stores in the city. In parallel, the wholesale subdivision is being downsized. Characteristics Brand (-s) of the retail chain Contact information Country of origin Ownership Data Year company started operations in Ukraine 1995 Target group Shop format Slogan Number of outlets, Location Rorus 11, Fontanskaya Doroga, 4 th floor, Odesa Ukraine Tel.: / (22) Ukraine Private (LLC) End consumers; Professional customers Wholesale and retail store A shop for the whole family! 4: Odesa. All shops are located in residential areas Sales area of an outlet 550-3,800 m 2 (Total area about 6700 m 2 ) Range of products (Assortment) 18,000 Discount system Distribution Center Private labels Availability of parking lot Up to 7% To discount cardholders No No Yes Deleted: Trend to reduce assortment SPAR CJSC Center SPAR Ukraine represents the first example of a franchising business in Ukrainian retail. SPAR is the largest multinational chain of supermarkets in the world. It runs 16,700 shops in more than 30 countries. Consolidated turnover of SPAR totaled EUR 26 bn in Having established a cash & carry outlet in Kyiv, SPAR opened its first Ukrainian supermarket (also in Kyiv) on 17 May 2002 (sales area of the supermarket is 1,200m 2 ). Then the development of the chain in the Ukrainian regions followed. Thus, in January 2003 Cherkasy saw the opening of the new SPAR supermarket in the Cherkasy Trading center. Total sales area of the center is over 6,000 m 2, sales area of SPAR supermarket is 900 m 2. The opening of SPAR supermarket in Brovary (Kyiv oblast) took place in March 2003, its sales area is 1,300 m 2. 3 stores in Luhansk will open soon. Two of them will be at the petrol stations under SPAR Express brand. Characteristics Data Brand (-s) of the retail chain Center Spar, Spar Contact information 5, Dimitrova St., building 10a, 9 floor, Kyiv Ukraine Tel.: 38044/ (71 77) Country of origin Ukraine. The National branch of Spar International Group Ownership Year company started operations in Ukraine 2001 Target group Shop format Private (CJSC). Franchising End consumers (mainly) Cash&Carry, Supermarket, Petrol station outlet 77

78 Characteristics Number of outlets, Location Data 7: Kyiv (2), Cherkasy (1), Brovary (1), Luhansk (3: 1 Supermarket and 2 SPAR Express Shops at the petrol stations) Area of an outlet Range of products (Assortment) 8,000 Discount system Distribution Center Private labels Availability of parking lot Cash&carry - 3,000 m 2 ; Supermarkets m 2 ; (Total area 3,900 m 2 ); Petrol station outlet about 90 m 2 5% to cardholders (card costs UAH 100 and is valid for 1 year) Cash & carry in Kyiv fulfils some of its functions Yes Depends on an outlet Deleted: Centralized purchasing (in Kyiv); in Cherkasy, Luhansk from regional offices Deleted: 150 items are imported Target Established in 1996 in Kharkiv, Target Trading Group is the leader in sales in Kharkiv oblast and city. The company owns shops, warehouses and trucks in four cities Kharkiv, Poltava, Sumy and Kupiansk (Kharkiv oblast). More than 500,000 consumers visit Target shops during a month. According to the company s information, the first Target supermarket opened in Kharkiv in August 2001 and receives about 200,000 customers monthly. Short-term plans of Target include investments into two large-scale stores (a supermarket of 2,000m 2 and a hypermarket of 15,000m 2 ). Characteristics Brand (-s) of the retail chain Contact information Country of origin Ownership Data Target 120, Akademika Pavlova St., Kharkiv, Ukraine Tel.: / (24, 25) Ukraine Private, Year company started operations in Ukraine 1996 Target group Number of retail outlets, Shop format, Location Location End consumers; Professional customers 1 supermarket and 10 retail and wholesale shops Kharkiv, Sumy, Poltava and Kupiansk (Kharkiv Oblast) Sales area of an outlet Supermarket 3,400 m 2 ; shops 300 1,000 m 2. Total about 8,000 m 2 Range of products (Assortment) 19,000 Discount system Distribution Center Private labels Availability of parking lot Wholesale prices for end consumers-cardholders Yes Own facilities for packaging of cereals Free parking lots ( places) Tavriya-V This Odesa-based company started its retail business in 1992 with stalls and kiosks, and gradually developed into one of the most powerful retail chains in South Ukraine. As of January 2003, the company has 5 stores in Odesa and 2 in Illichivsk. Their total sales area exceeds 15,000m 2 with 65 cash terminals. Daily customer flow in the retail chain is more than 30,000. The product range includes more than 12,000. Aeroportovsky shopping center is a hypermarket with the total area of 10,000 m 2. It is equipped with the state-of-the-art trade equipment items. 78