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.