Castorama Russia Investor visit July 2007
Introduction: Castorama Russia 4 stores: Moscow (1), St. Petersburg (2), Samara (1) Next opening: Rostov-on- Don September 2007 People: Stores: 1150 Headquarters: 115 11.07.2007 2
Introduction: Oleg Pisklov 37 years old Has an extensive experience in the British, Turkish and Russian FMCG & retail sectors 3 years in Castorama: joined Castorama Russia as Commercial Director / Deputy Managing Director in 2004 Managing Director of Castorama Russia since March 1, 2007 4 years in Tesco: prior to joining Kingfisher Plc had worked for Tesco plc in the UK as Category Director and Turkey as Commercial Director 11.07.2007 3
Introduction: Natalia Morozova 33 years old Has an extensive experience in marketing/ brand management in Russian FMCG sector 3 years in Castorama joined Castorama Russia as Marketing Manager in 2005 10 years in brand management has held various senior marketing positions in several leading FMCG companies: Dirol Cadbury LLC, Wimm-Bill-Dann, Bestfoods/CPC Ltd., Oleina S.A. etc. 11.07.2007 4
AGENDA 1. Why Russia? 2. The Russian home improvement market 3. Castorama Russia overview 4. Store visit 11.07.2007 5
1. Why Russia? One of the largest consumer markets in Europe The fastest growing economy in Europe Large home owning population Fast developing home building and renovation market High demand for DIY and DIFM products and services Highly fragmented local competitors 11.07.2007 6
1. Why Russia? Macro-economic overview No 5 European economy 2 500 000 Fastest real GDP growth +6.8% in 2006 2 000 000 Population 142.8 m people 1 500 000 2006 statistics 1 000 000 retail sales $ 300 bn (+22% YOY) 500 000 ave income per capita +25% YOY 0 New housing + 50.2 m sq.m Home ownership 70% own apartments 7% 6% 50% have dachas (country house) 5% 72% live in cities/towns 4% Russia ranks No 2 in the retail 3% development index and is quoted as 2% having the 3rd LOWEST country risk 1% within the top 10. 0% 2006 Real GDP Growth Rates in Europe per EIU Russia Slovakia Czech Republic Bulgaria Romania Turkey Poland Hungary Sweden Greece Finland Spain Netherlands Austria UK France Germany Italy 11.07.2007 7 3 000 000 2006 GDP Measured at PPP (US$m) per EIU Germany UK France Italy Russia Spain Turkey Poland Netherlands Sweden Austria Greece Romania Czech Republic Hungary Finland Slovakia Bulgaria
1. Why Russia? Macro-economic overview Recently average population incomes have improved considerably There still exists a great difference in incomes level in various parts of Russia 11.07.2007 Source: Interfax, A COMPREHENSIVE INSIGHT IN RUSSIA'S RETAIL MARKET IN 2006, Jan 2007 8
2. Home improvement market Russian market 10* billion 12% annual growth rate The Russian market is difficult to asses due to the high proportion of sales through open-air markets. Retail formats are developing (hypermarkets, convenience chains, non-food big boxes). Open markets today are 75% of DIY market, but are losing their position. Down to 20% share over the next 5 years *this figure doesn t include dacha market 11.07.2007 9
Example of open market: Kashirskiy Dvor 11.07.2007 10
2. Home improvement market Differs by region Moscow St. Pet Regions All key international players are already here Very competitive market, international and local players No strong local players Big interest in DIY big box format 11.07.2007 11
2. Home improvement market Customer Behaviour Customers do not trust retailers to keep prices low. Share of DIYers (vs. DIFM) varies from 45% to 75% depending on income level Consumers, who spend >20 000 RUR ( 387), make about 70% of total spending. Thus market is driven by projects not individual purchases Customer values are changing, attitude to home renovation is changing, purchases are becoming more aspirational. Customers paying more attention to home improvement ideas Customers do need service, advice, education All new apartments are Shell & Сore 11.07.2007 Source: Comcon Spb, Image Tracking Study, May-June 2006 12
2. Home improvement market Moscow competitors overview Open market Under construction 11.07.2007 13
3. Castorama Russia Moscow St. Petersburg Rostov-on-Don Samara 11.07.2007 14
3. Castorama Russia Format & positioning: providing the elements for completing projects Advice Price Range Castorama has all the quality products at affordable prices for home, business and dacha (building, renovation, decoration and home improvement) and advice and services to enable you to complete the projects PRAISE Services Aspiration Inspiration 11.07.2007 15
3. Castorama Russia Keeping Prices Low General price index 170% OBI MSK_KHIMKI 160% LM MSK_STROGINO 150% KD MSK_1 140% STROYMASTER SPB_KIMA 130% METRIKA SPB_PULKOVO 120% MAKSIDOM SPB_MOSKOVSKIY 110% OBI_SPB 100% PTICHIY SAM 90% STROYDOM SAM 80% w15 w17 w19 w21 w23 w25 w27 w29 w31 w33 w35 w37 w39 w41 w43 w45 w47 w49 w51 w2 w4 w6 w8 w10 w12 w14 w16 w18 w20 BYSRTOSKLAD SAM To ensure Castorama has the best price offer we run weekly price check monitoring (4 cities, 3 major competitors in each) Castorama prices are always lower than the competitor s Price check basket has been recently increased up to 1000 skus (25% of sales) 11.07.2007 Source: Weekly price check monitoring 16
3. Castorama Russia Customer profile Men and women 25-60 years old Married Well educated Have a car Have no or 1 child under 16 Household size 3 members Low and middle income ( 100-260 per capita) Have a dacha DIYers 11.07.2007 Source: Comcon Spb, Image Tracking Study, May-June 2006 17
3. Castorama Russia Targeted types of customer Active DIY: are currently into renovation or have recently completed it. The whole scope of works was done/is being done by themselves higher percentage of males, visit DIY store 8-9 times a year spent on DIY goods on average 2000 RUR (70 USD) Active LSEDI: are currently into renovation or have recently completed it. Some share of works were done / are being done by professionals bigger share of young (25-34) buyers visit DIY store 7-8 times a year spent on DIY goods on average 3000 RUR (110 USD) Passive DIY: are not conducting renovation. Intend to do all works by themselves in case if start it visit DIY store 6-7 times a year spent on DIY goods on average 1000 RUR (35 USD) Passive LSEDI: are not conducting renovation. Intend to hire professionals to conduct some share of works higher percentage of females visit DIY store 5-6 times a year spent on DIY goods on average 1000 RUR (35 USD) We mostly aim at Active DIY and Active LSEDI since they report the heaviest expenses per one visit. More than 65% of Castorama visitors are active (currently into renovation or have recently completed it). 11.07.2007 Source: Magram market research Customer Satisfaction Study, Feb 2006 Oct 2006 18
3. Castorama Russia Image check: Samara successful start Samara Purchase, % 50 45 40 35 30 25 20 15 10 5 0 Castorama-Samara position: Awareness: #2 in Samara (74%) Purchases: #2 (35%) Satisfaction: #1 Evaluation: #1 Bystrosklad Skala Eliz arovo Rakitovskiy Dom ovoy S troydom Kirovsk iy S hapito Megas troy-2 SK Dom inat Megas troy-1 Tri Gnoma Muraveynik Ptichiy Castorama DzhinnS troy 0 10 20 30 40 50 60 70 80 90 100 Total awareness, % 11.07.2007 Source: DIY Shopping Monitor 2006, GFK, nov-dec 2006 19
3. Castorama Russia Customer satisfaction Castorama in all cities shows good satisfaction rating of all key parameters (price, range, special offers, quality, stock), but still has low satisfaction level of the staff knowledge and availability in Absolut and Samara Low prices per the majority of goods I am satisfied with this shop (market) Broad range of goods The shop/market is kept clean and in perfect 4,5 High-quality goods order Easy to park a car 3,5 Sufficient amount of goods (on shelves) Shop assistants come up and offer help 2,5 Low prices per special offers/sales No queues at registry, no crowds of people Shop-assistants can give many details on the product Shop-assistants are always around High-quality goods offered during sales and per discounted prices Easy navigation Polite and friendly staff Castorama-Moscow Castorama-Absolut Castorama-Pulkovo Castorama-Samara 11.07.2007 Source: Customer Satisfaction Study, Magram Market Research, May 2007 20
3. Castorama Russia Customer communication For customers renovation with Castorama is simple, interesting, exciting! 11.07.2007 21
3. Castorama Russia Targets market leadership STRATEGIC OBJECTIVE 1. Develop economic model ACTIVITY LFL Sales Margin Improvements Cost Efficiencies 2. Develop business organisation Regional structures Head office infrastructure Communication 3. Develop infrastructure 4. Develop our people 5. Develop the supply base Logistics Systems Development Training and Development Paying Good Market Rates Retention Agreements negotiations (buying terms) Range rationalisation Vendor Management 6. Open stores Find good locations at a sensible price 11.07.2007 22
Conclusion A very attractive home improvement market Huge opportunity for growth and economic returns Castorama has got off to a very good start Clear plans for profitable expansion 11.07.2007 23
Moscow store visit Location: South-East of Moscow Size: selling space 8 875 square metres Product mix: building, timber, decor, lighting, showrooms, flooring, ceramics, tools, hardware, garden Staff: 228 LET S VISIT THE STORE! 11.07.2007 24