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28 November 2018 | 1:26AM MSK

Russia Retail

Macro challenges to continue into 2019, re-rating to depend on self-help measures; X5 remains our top pick

Revisiting “Russian food retail race for space. Russian food retailers’ weak operational performance and Magnit’s comments at its CMD appear to have deepened investor concerns over the pace of expansion and intensifying competition in the sector. Our updated Russian food retail model suggests there is potential for modern retail space to increase by c.30% in the long term, driven by the largest players that still have market share below the 25% threshold in most regions. We reiterate our view that X5 and Magnit should be able to maintain their returns in FY19-20 while expanding at the current pace of 1.5-1.8k stores pa, given:

(1) material consolidation potential (at least half of X5 and Magnit’s openings are replacements of weaker retailers); and (2) composite incentive programmes, which we believe will keep the race for space rational. Post 2020, we expect both companies to slow down openings more actively.

2019 outlook. We expect consumer spending to remain subdued next year, implying that high levels of promotional activity are likely to persist. A recovery in food inflation (our economists forecast food CPI to accelerate to 4.3% in 2019 from 1.5% in 2018) is the only positive macro trend we observe, although we note that retailers’ shelf inflation will likely remain below the official rate owing to price investments. Overall, we believe that self-help measures will provide more support to share price performance in 2019 than a macro boost.

X5 remains our top pick. X5 remains the only Buy-rated stock in our Russian food retail coverage, as we expect ongoing margin pressure in capitals to be largely offset by higher margins in other regions and an improvement in shrinkages in 2019, and see upside risks to market expectations on dividends. Despite Magnit’s underperformance, we stay Neutral, as we now expect a recovery in LFL growth to be delayed to 2H19 and see further margin deterioration in 2019; we also note there could be downside risks to margins from the announced SIA Group acquisition. We remain Neutral on Lenta, despite its planned share buybacks and intention to slow down openings, as we expect operational performance to remain challenged in the short term and are mindful of the structural challenges for ‘big box’ stores in the long term. We revise our estimates and price targets reflecting recent results and macro assumptions.

Yulia Gerasimova

+7(495)645-4297 | yulia.gerasimova@gs.com OOO Goldman Sachs Bank

Maxim Nekrasov

+7(495)645-4013 | maxim.nekrasov@gs.com OOO Goldman Sachs Bank

Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.

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Goldman Sachs

Table of Contents

Russia Retail

Revisiting our analysis on “Russian food retail race for space”

3

 

 

Macro still tough; expect support only from rising food inflation in 2019

10

 

 

X5: From growth to value and dividends; reiterate Buy

11

 

 

Magnit: We see a bumpy road for operational turnaround, remain Neutral

17

 

 

Lenta: Operational performance to remain challenged, Neutral

22

 

 

Valuation, price target and estimate changes

25

 

 

Financials

28

 

 

Disclosure Appendix

31

 

 

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Goldman Sachs

Russia Retail

Revisiting our analysis on “Russian food retail race for space”

In the “Race for space” report published last year, we discussed several themes which are now the subject of increased investor focus, including aggressive store expansion by the largest retailers (especially post Magnit’s Capital Markets Day), intensifying competition and the resulting impact on retailers’ operational performance and margins. In this note, we update our Russian food retail model, which still suggests sizeable growth potential for modern food retailers and the largest players in particular (X5 and Magnit still have market shares materially below the 25% threshold in most of the regions). We reiterate our view that X5 and Magnit should be able to continue expanding at the current pace (up to 2k openings pa) without sacrificing returns, given: (1) material consolidation potential (at least half of X5 and Magnit’s openings are replacements of weaker competitors rather than additions of completely new modern space); and (2) composite shortand long-term incentive programmes of market leaders, which we believe will keep the race for space rational. As highlighted in our deep-dive sector report, we continue to believe that leading players will slow down openings more actively after 2020 owing to market maturity and a growing overlap.

We still see potential for modern retail space growth in Russia

Based on our updated regional capacity analysis (more details on methodology in our November 2017 note), we see potential for modern food retail selling space to increase by c.30%, or by c.10 mn sqm in absolute terms, in the long term vs. 2018 levels. According to our Russian food retail model, c.80% of this space will be added in 2018-23, with a 4% forecast CAGR for modern food retail selling space over the next five years. We believe the rise of the largest food retail chains will be at the expense of both traditional retailers (we forecast selling space to decline at a pace of 4% pa) and small regional players (we forecast growth for modern retailers outside of top-8 to remain flat over the next five years). We estimate that modern food retail selling space per ‘000 people will increase to 322 sqm by 2023 (+30% vs. the 2017 level), broadly in line with the current Polish level (c.320 sqm in 2017).

Exhibit 1: We see potential for Russian modern food retail space to

Exhibit 2: We expect the top two players to account for almost

increase by c.30%, or by c.10 mn sqm

three quarters of the new modern space by 2023

Modern food retail selling space potential, mn sqm

Selling space addition by key players in 2019-23, mn sqm

 

 

 

15.0

 

 

 

 

15% of LT

 

13.0

 

 

 

 

potential

 

 

 

10.5

 

 

 

 

 

 

 

 

11.0

 

 

80% of LT

 

10.5

 

 

 

 

 

 

 

8.3

potential

 

 

9.0

 

 

 

 

 

 

 

 

 

 

 

7.0

 

 

 

38.5

 

 

5.0

2.6

72%

57%

 

 

 

 

 

 

 

 

 

3.0

 

6.0

 

 

 

 

1.0

3.3

 

 

 

 

 

 

 

 

 

 

 

 

-1.0

X5

Magnit

Top-2

New modern

Total potential

2018E Modern space

2018-23E Roll-out

2022-27E Roll-out

 

LT potential for new

 

 

 

space in 2019-

space addition

 

 

 

modern space

 

 

 

23E

 

Source: Goldman Sachs Global Investment Research, Infoline Source: Company data, Infoline, Goldman Sachs Global Investment Research

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Goldman Sachs

Russia Retail

Exhibit 3: Our base case suggests Russia will increase its selling space per capita level by c.30% by 2023

Food retail selling space, 2014-23E

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CAGR

 

 

 

Selling space, th sqm

2014

2015

2016

2017

2018E

2019E

2020E

2021E

2022E

2023E

 

2008-13 2013-18 2018-23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grocery retail

46,325

47,283

48,833

51,012

52,982

54,955

56,391

57,479

58,300

58,853

6%

4%

2%

 

 

yoy

4.6%

2.1%

3.3%

4.5%

3.9%

3.7%

2.6%

1.9%

1.4%

0.9%

 

 

 

 

 

 

Modern retail

28,180

30,277

32,786

35,899

38,474

40,954

42,880

44,509

45,848

46,775

16%

9%

4%

 

 

yoy

13.2%

7.4%

8.3%

9.5%

7.2%

6.4%

4.7%

3.8%

3.0%

2.0%

 

 

 

 

 

 

Top-8

9,605

11,543

13,474

15,502

17,261

18,999

20,815

22,444

23,893

25,039

22%

16%

8%

 

 

yoy

17.1%

20.2%

16.7%

15.0%

11.3%

10.1%

9.6%

7.8%

6.5%

4.8%

 

 

 

 

 

 

Other modern retail

18,575

18,734

19,312

20,397

21,213

21,955

22,065

22,065

21,955

21,735

14%

5%

0%

 

 

yoy

11%

1%

3%

6%

4%

4%

1%

0%

-1%

-1%

 

 

 

 

 

 

Traditional retail

18,145

17,006

16,046

15,113

14,509

14,001

13,511

12,970

12,452

12,078

-1%

-6%

-4%

 

 

yoy

-6.5%

-6.3%

-5.6%

-5.8%

-4.0%

-3.5%

-3.5%

-4.0%

-4.0%

-3.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modern space per 000’ people

196

210

227

249

266

283

296

307

316

322

16%

9%

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Goldman Sachs Global Investment Research, Infoline, Company data

Exhibit 4: We forecast the modern food retail market to see a 7% CAGR in the next five years, gaining market share from traditional traders

Russian food retail model, Rub bn (ex VAT)

 

 

 

 

 

 

 

 

 

 

 

 

 

CAGR

 

Grocery retail market RUB bn

2014

2015

2016

2017

2018E

2019E

2020E

2021E

2022E

2023E

 

2008-13

2013-18

2018-23

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GS FORECAST

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total food retail market

10,766

11,674

11,958

12,553

13,040

13,746

14,404

15,106

15,719

16,196

11%

6%

4%

Total modern retail

6,641

7,523

8,192

8,815

9,414

10,172

10,942

11,732

12,445

13,052

16%

10%

7%

Total traditional trade

4,125

4,151

3,766

3,738

3,626

3,574

3,461

3,375

3,274

3,144

7%

-2%

-3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

pp change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Modern retail penetration

62%

64%

69%

70%

72%

74%

76%

78%

79%

81%

10%

13%

8%

Proximity / Discounters stores

31%

34%

36%

38%

40%

42%

44%

46%

47%

48%

1%

14%

8%

Hypermarkets

11%

11%

11%

11%

10%

10%

10%

10%

10%

9%

3%

0%

-1%

Supermarkets

18%

18%

18%

18%

18%

18%

19%

19%

19%

19%

6%

-2%

1%

Other (minimarkets)

2%

2%

3%

3%

3%

3%

3%

3%

4%

4%

0%

1%

0%

Total traditional trade

38%

36%

31%

30%

28%

26%

24%

22%

21%

19%

-10%

-13%

-8%

Source: Goldman Sachs Global Investment Research, Infoline, Company data

Regional market share analysis suggests significant growth opportunities

Based on regional market shares, X5 and Magnit have room for growth in key regions before reaching the 25% individual market share cap. For X5, we see significant potential to expand in Moscow (primarily in the city of Moscow where its market share is 14% vs. 23% in the Moscow region), as well as North West (ex St. Petersburg), where X5 enjoys high brand recognition and operates at higher margins vs. other regions (up to 2x, per the company), while it continues to increase its store density in other regions.

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Russia Retail

For Magnit, we see significant potential for organic growth in most of the regions; we also believe expansion in the largest cities (particularly St Petersburg) might be M&A-driven owing to relatively high consolidation and modern retail penetration levels.

Exhibit 5: X5 and Magnit have room for growth in all regions (except St. Petersburg for X5) before hitting the 25% market share cap

Market share by value across federal districts, 1H18; total market shares as of 2018E

11.7%

8.8%

3.2%

2.4%

2.2%

RussiaTotalTotal*

 

 

 

 

 

X5

Magnit

Lenta

Auchan

Dixy

17.4%

11.4%

 

 

 

Central (ex

3.8%

1.9%

1.8%

Central

 

Moscow city and

 

 

 

 

X5

Magnit

Krasnoe & Beloe

Dixy

Auchan

12.4%

10.8%

5.8%

3.5%

2.8%

NorthNorthWestWest(ex

 

St Pete)

Magnit

Dixy

Lenta

InterTorg

X5

12.2%

4.6%

2.0%

1.0%

1.0%

 

Southern

 

 

Southern + NC

 

 

 

 

 

 

 

 

 

 

 

 

Magnit

 

X5

 

Lenta

 

Auchan

 

O’KEY

 

12.9%

11.4%

4.4%

2.3%

1.6%

Volga

 

Volga

 

 

 

 

Magnit

X5

Krasnoe & Beloe

Lenta

Auchan

Urals

8.5%

6.7%

6.3%

5.3%

3.1%

Ural

 

 

 

 

 

 

Magnit

X5

Krasnoe & Beloe

Monetka

Lenta

Siberia

3.9%

3.1%

2.7%

1.9%

1.5%

Siberia + FE

 

 

 

 

 

 

Maria Ra

Lenta

Magnit

Komandor

Holiday Classic

 

17.8%

 

 

 

 

Moscow (city+

 

5.0%

4.2%

3.0%

1.8%

Moscow

 

 

 

 

 

region)

X5

Dixy

Auchan

Magnit

Metro

 

 

25.8%

16.2%

13.0%

9.3%

6.8%

StStPetersburgtersburg

 

 

 

 

 

 

 

 

 

 

X5

Lenta

O’KEY

InterTorg

Dixy

* as of 2018E, GIR estimate

Source: Infoline, Goldman Sachs Global Investment Research.

Exhibit 6: Although overall modern retail penetration in Russia still lags that in DM, the key regions are as saturated as certain DM countries

Modern retail penetration (value terms), %, 1H18

97%

82%

80%

 

 

Russia

 

74%

70%

67%

 

64%

 

 

49%

St

North-

Moscow +

Central (ex Volga

Ural

Siberia and South

Petersburg

Western

region

Moscow)

 

Far East

 

(ex St Pete)

 

 

 

 

Exhibit 7: We expect Magnit to focus on expansion in Moscow and Siberia (new regions), while X5 on Volga, South and Ural (regions with established presence)

Market shares in total food retail (revenues)

 

2018E

 

 

2023E

 

X5

Magnit

X5

 

Magnit

Central (ex Moscow)

20%

 

12%

21%

 

16%

Volga

13%

 

12%

19%

 

15%

North West (ex St Pete)

14%

 

12%

19%

 

15%

South

7%

 

14%

13%

 

15%

Ural

10%

 

9%

15%

 

13%

Siberian

2%

 

5%

10%

 

12%

North Caucasus

2%

 

5%

3%

 

6%

Moscow

15%

 

4%

19%

 

9%

St Petersburg

25%

 

5%

25%

 

9%

Total

12%

 

9%

16%

12%

Source: Infoline, Goldman Sachs Global Investment Research

Source: Goldman Sachs Global Investment Research, Infoline

28 November 2018

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Russia Retail

In 2019-20, the current pace of expansion can be maintained without sacrificing

returns...

The combination of a weak consumer environment in Russia (with food retail sales in real terms barely growing this year and intense promotional activity) and intensifying competition (among the largest retail chains as well as with emerging disruptors such as specialised retailers) have raised investor concerns about the rationality of rapid space expansion by market leaders. These concerns appear to have deepened post Magnit’s CMD where the company presented its expansion plans for the next five years, implying 9.4k new convenience store openings (i.e. 1.8-1.9k new stores per annum during the next five years on an organic basis). In light of a maturing market we are cautious on such a pace of organic expansion over a five-year period. However, over the next two years, we believe it is possible for both X5 and Magnit to undertake organic openings up to 2k stores without sacrificing returns given material consolidation potential and their composite incentives programmes.

Consolidation potential. We expect market consolidation to be an important growth driver for the market leaders along with growing modern retail penetration. Around 50% of all new stores of X5 and Magnit have been opened in locations that were previously occupied by less-efficient modern retailers, i.e. these new stores are replacements and not additions of new space. We note that in most of the regions in European Russia (where, in contrast to Ural and Siberia, X5 and Magnit don’t need to invest much into brand recognition and supply chain/logistics, and are able to benefit from economies of scale), the market shares of the two leaders are still low, and we see solid consolidation potential here. We also expect to see a growing share of inorganic openings (now accounting for c.10%-15% of X5’s annual expansion, per the company, and negligible for Magnit), primarily given low valuations of small regional players (in most cases, large retailers buy lease rights rather than the business) and limited integration risks. In our view, this should help to mitigate most of the pressure from low consumer spending growth, as a higher share of the consumer wallet would be allocated to the market leaders.

Exhibit 8: Overall, we expect the top-three listed players to account for c.80% of new modern space additions in 2018-23, and over 100% afterwards…

Selling space addition, mn sqm

Listed-3 space increase Modern retail increase Share in new modern space

139%

16.0

76%

14.0

56%

13.6

 

 

 

100%

 

 

 

 

 

 

12.0

 

 

 

 

 

0%

10.0

7.6

 

8.3

 

 

-100%

8.0

 

 

 

 

 

6.3

 

 

 

 

 

 

 

-200%

6.0

 

 

 

 

 

 

 

 

 

-300%

4.0

 

 

 

 

 

 

 

 

2.2

 

 

2.0

 

 

 

1.6

-400%

 

 

 

 

 

 

 

 

 

 

0.0

2013-18E

2018-23E

2023-27E

-500%

 

 

Exhibit 9: ...leading to significant market consolidation, in our view, primarily by the largest players

Market shares, 2018E/2023E (total food retail market)

2023E

 

 

24% 31%

Top 3

 

2018E

 

Top 4-7

 

8%

Other

 

 

 

69%

 

61%

 

 

 

 

7%

 

Source: Infoline, Company data, Goldman Sachs Global Investment Research

Source: Company data, Goldman Sachs Global Investment Research

28 November 2018

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Russia Retail

Management incentive programmes. Both X5 and Magnit use composite STI’s and LTI’s that include share price, growth, margin, return and market share elements. We believe the need to reconcile growth/share and either margins or returns on capital will incentivise management to strike a balance in delivering relatively ambitious roll-out targets and maintaining competitive margins/returns.

nMagnit. The company’s LTI programme (effective over 2019-23) is linked to EBITDA and market capitalisation growth, while achieving a certain market position is not among the KPIs. Moreover, management’s short-term incentive programme (up to 50% of annual compensation) includes an EBITDA margin trigger, implying that no bonus will be paid if the margin declines below a certain level (similar to X5’s management STI). Thus, we believe Magnit might be less inclined to pursue all the 9.4k planned proximity store openings (at least organically), given the implications such an expansion would have for EBITDA margin/returns.

nX5. X5’s long-term incentive programme (effective over 2018-20) has maintenance of market leadership among the KPIs. Based on management comments, we note that X5 calculates its market share excluding any potential M&A undertaken by competitors. We believe that this, in combination with other KPIs (such as keeping EBITDA margin close to current levels and ROIC sustainability included in STI, as well as sector-leading valuation multiple included in LTI), may lead to a rational approach in terms of expansion, sales density growth and margins/returns sustainability.

Exhibit 10: X5 and Magnit’s STI and LTI programmes

 

 

 

Magnit

X5

 

 

 

Key triggers

- Share price growth

- Leading LTM EV/EBITDA multiple

 

 

 

- EBITDA growth

- #1 Mkt share in food retail

 

 

 

 

 

 

 

Size

up to Rub 16.5bn

5% of average 2018-20 EBITDA (~Rub 6bn on GS estimates)

 

 

LTI

Duration

5 years

3 years

 

 

 

 

 

 

# of participants

50 executives

200 executives

 

 

 

Payment

Share-based (shares and options)

Fully cash-based

 

 

 

 

 

 

 

 

 

 

- Individual KPIs

- Individual KPIs

 

 

 

Key triggers

- EBITDA margin above certain levels

- EBITDA margin / ROIC sustainability

 

 

STI

 

- LFL / Revenue growth

- Net Debt / EBITDA below 2x

 

 

 

 

 

 

 

 

Size

Up to 50% of annual compensation

Up to 50% of annual compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Company data, Goldman Sachs Global Investment Research

28 November 2018

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Goldman Sachs

... but we expect retailers to slow down openings after 2020

Russia Retail

As highlighted in our deep-dive report last year, we see the leading players slowing down organic expansion more actively after 2020:

nMarket maturity: This is measured by modern retail penetration which we expect to approach DM levels of c.80% in 2021-22. As a result: (a) we see a lower number of quality locations; and (b) believe that more active/larger-scale M&A would be needed to maintain the same pace of expansion, while we would expect organic openings to slow down.

nGrowing overlap between the largest retailers: On our calculations, close to 70% of X5 and Magnit’s new stores in 9M18 were opened in the same catchment area; assuming this trend continues, we may reach over 80% overlap between these two market leaders by the end of 2020.

nManagement incentives. As we highlighted above, X5’s management is incentivised by the LTI programme to maintain market leadership without sacrificing margins (effective over 2018-20). Per the company, 2020 will be the year in which its market share will be measured, and, according to management comments at the CMD, the next LTI programme may not have market leadership as one of the KPIs given the growing focus on returns generation. We therefore believe there may be a more visible slowdown in openings at X5 starting from 2021, which in turn may lead to rationalisation of expansion by key competitors with reduced risk of losing market share/good locations to X5.

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Russia Retail

Why is there such a high overlap between the leading players despite low market consolidation?

One of the frequent questions we receive from investors is: “Why is there such a high level of overlap between the leading players (on our estimates, c.65% of X5’s stores are in the same catchment area (within 500m) as those of Magnit), given still low market consolidation (top-5 have 28% market share as of 2018, on our estimates)?”. In our view, this is largely explained by the dispersion of population density in Russia and the dominance of proximity formats.

1.A few regions account for the majority of retail sales. Potential for growth is mainly concentrated within a few federal districts with the highest population and purchasing power, such as Central, Volga, North West and South (which comprise over 70% of the retail market). Thus, a retailer cannot become a large player without expanding into these key regions, leading to a high overlap between the leaders.

2.High concentration of population in large cities. Despite Russia’s low population density, the country is highly urbanised (74%); moreover, concentration of people living in large cities is significantly above that of Poland, and even higher than that of the UK (Exhibit 12). Also, we note that population density in residential areas inside Russian cities is quite high, as many people live in high-rise residential buildings (only 26% of the population live in individual houses, mostly in rural areas), implying retailers have to compete in same locations within cities.

3.Proximity formats operate in areas with high store density. Taking into account limited selling space per proximity store (usually <400 sqm) and the number of cashiers per store (usually up to five), to prevent large queues and optimise logistics, proximity stores generally operate in residential areas with high store density.

Taking these factors into account, we believe that a growing overlap is inevitable, and, considering the 25% market share cap in each region, we do not rule out the possibility of market leaders X5 and Magnit reaching 100% overlap within the next three-four years. At the same time, we believe a more consolidated market structure (with two-three leaders, which we expect to be the case in Russia over the medium to long term) allows for more rational competition vs. numerous players of similar size.

Exhibit 11: The top four regions account for over 70% of retail sales in Russia

Share of regions in retail sales, 2017

Exhibit 12: Russian population is highly concentrated in large cities and retailers have to compete in same residential areas within cities

Distribution of population by city size, 2017

40%

 

 

 

 

 

 

 

 

 

35%

34%

72% of retail

 

 

 

 

 

45%

 

 

sales

 

 

 

 

 

30%

 

 

 

 

 

 

 

 

40%

 

 

 

 

 

 

 

 

 

25%

 

 

 

 

 

 

 

 

35%

 

 

 

 

 

 

 

 

30%

 

 

 

 

 

 

 

 

 

20%

 

18%

 

 

 

 

 

 

25%

 

 

 

 

 

 

 

 

 

15%

 

 

10%

 

10%

 

 

 

20%

10%

 

 

10%

9%

 

 

15%

 

 

 

 

 

5%

 

5%

 

 

 

 

 

 

4%

10%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0%

 

 

 

 

 

 

 

 

5%

Central

Volga

North

South

Siberia

Ural

North

Far East

0%

 

 

 

 

West

 

 

 

Caucasus

 

 

Russia

England & Wales

Poland

Over 1mn

500k-1mn

250-500k

100-250k

Towns <100k

Rural areas

Source: Rosstat

Source: Rosstat, Statistics Poland, Office for National Statistics

28 November 2018

9

vk.com/id446425943

Goldman Sachs

Russia Retail

Macro still tough; expect support only from rising food inflation in 2019

Exhibit 13: Consumer spending remains subdued as retail sales

Exhibit 14: ...largely driven by food retail sales

have decelerated since June in real terms...

Food retail market growth, %

Retail market growth, %

 

 

 

 

 

% yoy (nom terms)

 

% yoy (real terms)

 

 

 

10.0%

 

 

 

% yoy (real terms)

 

 

% yoy (nom terms)

 

 

 

8.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5.0%

 

 

 

 

 

 

 

 

 

3.5%

3.0%

 

 

 

 

 

 

 

 

 

1.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.5%

 

 

 

 

 

 

 

 

 

 

0.0%

 

 

 

 

 

 

 

 

 

-2.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-5.0%

 

 

 

 

 

 

 

 

 

 

-7.0%

 

 

 

 

 

 

 

 

 

-10.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-12.0%

 

 

Jul-16

Sep-16 Nov-16 Jan-17 Mar-17 May-17

Jul-17

Sep-17 Nov-17 Jan-18 Mar-18

 

Jul-18

 

-15.0%

 

 

Jul-16

Sep-16 Nov-16 Jan-17 Mar-17

 

Jul-17

Sep-17 Nov-17 Jan-18 Mar-18

 

Jul-18

 

Jan-16

Mar-16

May-16

May-18

Sep-18

Jan-16

Mar-16

May-16

May-17

May-18

Sep-18

Source: Rosstat

Source: Rosstat

Exhibit 15: Real wages/incomes have decelerated from the 1Q18 peak, and we do not expect a significant improvement next year

Real wages and disposable income growth, yoy

15.0%

Real disposable income, % yoy

Real wages, % yoy

 

10.0%

 

 

5.0%

 

4.4%

 

 

0.0%

 

1.4%

 

 

-5.0%

 

 

-10.0%

 

 

-15.0%

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Exhibit 16: Consumer confidence has dropped materially since June

Consumer confidence index

110

Consumer confidence index

 

105

 

100

95

92

90

85

80

75

70

Jan-16

Mar-16

May-16

Jul-16

Sep-16

Nov-16

Jan-17

Mar-17

May-17

Jul-17

Sep-17

Nov-17

Jan-18

Mar-18

May-18

Jul-18

Sep-18

Source: Rosstat

 

Source: CBR

 

 

 

Exhibit 17: Our economists expect consumption to weaken further

 

Exhibit 18: We expect further acceleration in food inflation to be

into 1Q19 given the upcoming 2pp VAT hike in January

 

the only factor supporting retail sales into 2019

Private consumption, %

 

Food CPI, yoy

5.0%

 

 

 

 

 

 

 

 

 

 

Food

Food ex F&V

4.0%

 

 

 

 

 

 

 

 

 

 

7.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

3.0%

 

 

 

 

 

 

 

 

 

 

6.0%

 

 

 

 

 

 

 

 

 

 

 

5.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

 

4.0%

 

1.0%

 

 

 

 

 

 

 

 

 

 

3.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

0.0%

 

 

 

 

 

 

 

 

 

 

2.0%

 

 

 

 

 

 

 

 

 

 

 

1.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

-1.0%

 

 

 

 

 

 

 

 

 

 

0.0%

 

 

 

 

 

 

 

 

 

 

 

 

 

-2.0%

 

 

 

 

 

 

 

 

 

 

-1.0%

 

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4QE

1Q

2Q

3Q

4Q

 

 

2017

 

 

2018

 

 

2019E

 

 

Source: Goldman Sachs Global Investment Research, Rosstat

Source: Rosstat, Goldman Sachs Global Investment Research

28 November 2018

10