Market Report, "Russia Food & Drink Report Q1 2014", published

The decision by Russian monetary authorities to rein in consumer credit growth will translate into weaker-than-anticipated private expenditure beyond 2013. We have already cautioned that consumer lending growth of 39.8% - the average for the 12-month period ending in May 2013 - was unsustainable. The decline will weigh on household spending into 2014, with the concomitant effects on food and drink spending.

Headline Industry Data:

* 2014 per capita food consumption (local currency) = +9.7%; forecast compound annual growth rate (CAGR), 2013 to 2017 = +9.1%. * * 2014 beer volume sales = -1.0%; forecast CAGR to 2017 = 0.4%. * * 2014 fruit juice volume sales = +4.6%; forecast CAGR to 2017 = +5.0%. * * 2014 mass grocery retail sales (local currency) = +28.3%; forecast CAGR to 2017 = +30.0%.

Full Report Details at
- http://www.fastmr.com/prod/759133_russia_food_drink_report_q1_2014.aspx?afid=301

Key Company Trends

X5 Continues To Disappoint: Russian grocery retailer and London-listed X5 reported sub-par results for Q313 in October 2013. The food retailer has had a troubled few years, losing its status as the largest supermarket group in Russia to Magnit. In the three months to the end of September 2013, like-for-like sales excluding new store openings fell by 1.7%, primarily driven by a 6.2% fall in consumer traffic.

Revenue growth also disappointed despite growing by 6.6% to RUB124bn (US$3.9bn). X5 has had difficulties since a change in its growth strategy. Focusing heavily on acquisition growth up until around mid-2011, X5's last purchase was discount group Kopeyka for RUB35bn (US$1.1bn). X5 has since focused on organic growth, and though revenues and profits have risen as a result of this strategy, the company has been far outpaced by Magnit.

Foreign Chocolate To Get Stronger: Establishing a foothold in Russia's chocolate industry has been a challenge for multinationals such as Nestle, Mars and Mondelez International. They have come up against number of Soviet-era brands owned by companies such as United Confectioners but, although these remain popular, particularly with the older generation, younger Russians are in general a lot more accepting of foreign brands, which are seen to carry greater status.

Lenta Aiming To Raise GBP1bn In London Listing: 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 O'Key having raised funds. The latest in line appears to be former Walmart target Lenta, which is private equitybacked 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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