EM Europe Food Retail Research

Russia – Consolidation, inflation and new growth channels: Inflation remains a
key concern in Russia, while there is no visible trade-down behaviour currently. Promo
sales remain stable yoy, indicating a rational competitive environment, while industry
consolidation has picked up some pace this year. There are a few cost challenges
like the labour shortage issue, however EBITDA margin sustainability is not a
question for this year. Russian retailers are quite active in the grocery e-commerce
space. X5 Retail is growing above market rates, keeping the lead position. Currently
grocery e-commerce remains a very small segment and many pure-play e-commerce
players are trying to acquire customers through cash burns, which may not be
sustainable in the long run. Hard discounters are a key emerging format, with X5
Retail targeting c3k stores by 2023e.

Turkey – Regulations, inflation and expansion: Over the past few months, high food
inflation, investigations into organised food retailers, and potential regulation changes
(new retail law) have been the key topics of discussion for Turkish food retailers. We
view the new retail tax, if implemented, as a risk factor for growth for the companies,
but as it would be an industry-wide rule, competitive dynamics would not change
significantly between modern players. Companies see space expansion as attractive
due to still limited modern food retail penetration and availability of suitable real estate
at good rates. Cost challenges can be seen next year due to FX-related costs
(fuels/utilities) and in case there is a higher-than-CPI level increase in the minimum
wage. E-grocery is in nascent stages of development with Migros leading the sector
(presence across all channels), while BIM is expanding its e-grocery for supermarket
format (FILE) in Istanbul, and Sok is growing its delivery services based out of stores.

Poland – inflation on the rise: Like in other EM Europe countries, food inflation is
also on the rise in Poland. Dino sees a slightly tough market environment in the short
term as there is price competition, however there is no change to its store expansion
strategy. Retail tax is having an impact on the cost side but is manageable as seen in
1H21 results of Dino. Competition remains broadly with discounters while no major
challenge is seen across the labour market. Grocery home delivery is a growing trend
but on a lower base (small market currently). Dino thinks online delivery might not be
suitable for all consumers currently as Polish people are price sensitive and have
high frequency of visits as they buy fresh more often.