Russia Food & Drink Report Q3 2013 - New Market Study Published

We reiterate our bullish outlook on the Russian retail sector, as rising incomes combined with expansion into the east of the country will benefit companies operating in the sector. We also expect an increasing focus on convenience for shoppers in Russia's bigger cities. We highlight our favourable view on Londonlisted O'Key, whose upscale business model fits well with our view on developments in the market, as a potential alternative to discounter Magnit.

Headline Industry Data (local currency):

* 2013 per capita food consumption = +10.7%; forecast compound annual growth rate (CAGR) to 2017 = +10.2%.
* 2013 beer volume sales = -1.5%; forecast CAGR to 2017 = +0.4%.
* 2013 fruit juice volume sales = +4.5%; forecast CAGR to 2017 = +5%.
* 2013 mass grocery retail sales = +26.8%; forecast CAGR to 2017 = +30%.

Full Report Details at
- http://www.fastmr.com/prod/640306_russia_food_drink_report_q3_2013.aspx?afid=301

Key Company Trends

AB InBev Closes Another Brewery As Beer Woes Persist: Russia's beer sector has been an almighty headache for the major companies involved since 2009. The crux of the problem, which resulted in beer volume sales tumbling by about 16.5% between 2009-2012, has been taxes. They have increased by more than 200% since 2010, and more recently the industry has also been hit hard by tighter restrictions on marketing and when and where beer can be sold. We do not expect things to improve anytime soon, and the decision by AB InBev to shut down another one of its factories reflects the reality that Russia's beer industry is simply not the opportunity it once was. AB InBev has attributed the decision to the tax and regulatory climate and will now operate seven breweries, having once had nine.

Lenta Aiming To Raise GBP1bn In London Listing: Russian food retailing is booming and has been for a while. The leading retailer by store count and annual sales, Magnit, opened about 1,500 new stores in 2012, which underlines the speed with which the industry is developing. One trend we have seen for a number of years now is Russian retailers tapping into London's liquid capital markets for financing, with Magnit, X5 and most recently in 2010 O'Key having raised funds. The latest in line appears to be former Walmart target Lenta, which is private equity-backed and believed to be looking to raise about GBP1bn through a listing of global depositary receipts in London. Given how quickly Russian retail - and, in turn, competition - is growing across multiple formats, there is increasing importance in raising expansionary financing in view of the potential rewards on offer. It is believed that any possible listing by Lenta would take place in 2014.

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