Mail Order Business in Russia and the Role of the Catalogue

Transcription

1 Mail Order Business in Russia and the Role of the Catalogue ERA Annual Meeting October, Verona, Italy Zafer Toker, Deputy Managing Director Mir Knigi, Moscow

2 What is your association with Russia? Page 2

3 What is your association with Russians? Page 3

4 What is your association with Russian Consumers? Page 4

5 Macroeconomics Page 5

6 Comparasion with other Emerging Markets in 2006 During Mr. Putin s presidential period has the Russian economy has performed perfect. The political and economical stability encouraged a lot of foreign investors to enter into the market Country Russia Turkey Bulgaria Hungary Poland Ukraine China Area (km2) 17,075, , ,910 93, , ,700 9,596,960 Population, million Density of population Urban population ratio, % (30) Population growth, % Literacy, % FDI, $ billion GDP, $ billion GDP/capita, $ Real GDP growth, % Inflation, % Unemployment rate, % , Internet users, million Sources: The World Fact book, Countries' statistical officials, Eurostat Page 6

7 Russian economy is doing well GDP amounted to bln. RUR in 2006 GDP, bln. RUR Real GDP growth, y-o-y % Page 7

8 Foreign Direct Investments increasing from year to year Foreign Direct Investments in Russia amounted to 28.4 bln. USD in 2006 FDI, bln. USD FDI growth to base year, % (Index: 2001 = 100%) Base= Page 8

9 Active Trade balance due to the Oil/Gas Price Immense Increase of Export Value within last 4 years Export and Import, in bln. USD Export and Import growth to base year, % (Index: 2001 = 100%) Import Export Base= Import Export Source: Ministry of Economic Development and Trade Page 9

10 Population s welfare is growing Both people s incomes and expenditures are growing by similar rates Average monthly incomes per capita growth to base year, % (Index: 2001 = 100%) 324 Average monthly expenditures per capita growth to base year, % (Index: 2001 = 100%) Base= Base= Source: Ministry of Economic Development and Trade Page 10

11 Page 11 Source: Ministry of Economic Development and Trade Base= Consumers are spending more and more Retail trade turnover amounted to bln. RUR in

12 Mail Order: Risks and Chances in day-to-day Business Page 12

13 Big Challenges and Big Opportunities Density of the Population Inhabitant per 1 km² Swi ss Russi a Czech Repub. GB France Germany USA Number of Post office per inhabitants Population 142,7 million, (43 Mio HH) Area : 17 Mio.. km² The highest density in highly developed regions (average 8,4 persons per km 2 ) Great potential in low populated regions Still underdeveloped retail structure besides large cities Over 100 Mio. Russians, Total more than 100 Nationalities 76% live in the European part of the Country 55% - Residents of small towns 13 Mega cities (the largest one is Moscow, over 14 Mio.) Receptive to mail-order Over post offices across Russia The Bank system (e.g. Sberbank with more than retail branches) Page 13

14 Share & Value of the Mail Order Market in Russia Books is the main segment in the structure of sales via mail order according to its share (38%). According to NAMT s estimation, in 2005 market volume reached $1 bln. The share of sales in Distance Selling Others 6% Book книги 38% Consumer Goods 15,5% ТНП (вкл. одежду, обувь) косметика Cosmetics 15% 230 Value of mail-order market, In Mio USD +52% % % % 1000 семена Seeds 7,5% периодические Periodicals издания 7,5 % Vitamins БАДы, витамины 11% Source: National Association of Mail-order Trade Page 14

15 Threats, Risks in Operations and day-to-day Business Creation, Design, Printing and Lettershop Databases and Lists Fulfillment Payment Telemarketing,Telesales, SMS, e-commerce Legal Issues (Data Protection Law, Lottery, Sweeps etc.) Post and other Delivery Systems Human Resources / Management Page 15

16 Russian Printing Industry Page 16

17 Market structure Main Indicators Consolidation after the Big Collapse in 1998 and a steady dynamic growth since 2000 Total market volume is about 2,7 bln USD Forecasted growth until 2012 is supposed to achieve 3,64 bln USD value Average Market growth rate is minimum around 2,6% per year Today more than licensed printing companies are operating on the market The printing industry is one of the interesting markets for (financial) investors, though investments rate of growth is reducing. Yearly Return on Equity between 10-15% Technical Equipment is too old. Already depreciated share of printing plants on the market amounts more than 80% of all existing infrastructure Page 17

18 Does Market Structure reflect Business as Usual? Market Value after segments, in Mio. USD Segment Shares of the whole volume, in % Other, 5% Advertising, 18% Magazines Labels and packing Labels, 12% Packing, 19% Advertising Newspapers Books Corporate Publishing Magazines and catalogues, 19% Books, 13% Newspapers, 14% Source: Heidelberg CIS There is no strict specialization / diversification among companies on the market. Each company aims to expand and print everything The largest shares of the market belong to Magazines and catalogues (19%) and Packing segments (19%) Page 18

19 Highly fragmented Market dominated by private firms Total number of licensed printing companies 6.700, including 60 large federal companies, local municipal companies and the rest private owned firms Companies are concentrated in Moscow and St. Petersburg (80% of magazines-production and 35% of newspapers-production) The dominant printing technology offset The weight of printed production per capita in 2005 amounted to 34 kg Institutional structure of printing industry The structure of printing production according to technology Non-state companies s; 84,6% State companies The majority form of ownership - private property (84,6%) letterpress printing; 3,6 flexographic printing; 6,7 digital; 3,2 offset; 84,4 s; 15,4% stencil screen printing; 2,2 Page 19

20 Typology of the Market Structure Old Russian printing plants are national enterprises constitute 1% of the enterprises total number produce 50% industry output produce not very profitable literature Printing plants created by large Russian companies have a large productive capacity provide a wide range of high quality services specialize in large orders Small but fast developing printing plants family enterprises or enterprises created by the professionals from printing industry Who will win at the end, who will make it? Russian market is early adaptive: what is at the end USP of the service provider? What kind of added value are you going to offer to be different than the local partner? What are the rule of the game? Are you under- or overestimating your chances/capabilities? Are you interested in marriage or one-night-stand? Page 20

21 High competition for the half of the Market Volume More than half of all magazines, leaflets and books are printed abroad (same service is 15-20% more expensive in Russia) According to experts estimations, this import amounts to 0,6-1 bln USD The rate of market growth is about 20% a year, and foreign companies get the main share of it The key problem a lack of enameled stock, imported into Russia from 30 factories of the world Belarusian prices are lower than our dumping prices by 15%! Belorussia Lithuania, Latvia The main competitors on the markets of glossies & leaflets. China German Italy RUSSIA South Korea Slovakia is actively capturing the segment of printing art literature Slovakia, Czechia Turkey Turkey is increasing its share on the market of corporate publishing - High costs - Low costs - High quality - Low quality Page 21

22 Needed Investments for the basic Infrastructure is still not done Investment requirement into the Russian printing industry is 450 million USD while real annual investments (both in federal and private sectors) do not exceed never the 110 million USD border The key restrictive factors of investments: expensive equipment complexes; problems with getting necessary loans & financing; revoke of privileges for investments into the basic manufacture; privatization of federal companies is long lasting and in many cases on hold Dynamics of Private Sector Investment Dynamics of Federal Sector Investment , , ,6 38,6 63,2 70,3 73, ,8 11,7 24,8 21,3 26, Page 22

23 Russian printing industry Chance and Risk Profile STRENGTHS New printing plants in Russia provide higher quality than the majority of foreign enterprises WEAKNESSES Numerous limitations of the market (see the next page) The advertising market rate of growth is high&dynamic Professional associations of polygraphists create favorable conditions for this branch development (e.g. Moscow printing Union) OPPORTUNITIES Magazines and catalogues segment are developing in Russia and companies will obviously aim to decrease risks and logistic costs The print runs & volumes are increasing Growth of the magazines and newspapers market The 2 digit growth in direct-marketing industry All-Russian newspapers transition to the color-printing Enterprises standardization by ISO-standard Using of the foreign capital THREATS Absence of the printing plants maker / builders and undeveloped production of the materials A lack of high-qualified staff Problems and the disproportion in paper industry (a lack of the enamel-paper and excess of the news-print) Entrance into WTO will open market for foreign companies Page 23

24 Limits of the Printing Market High barriers to entry (large-scale investment expenditure are needed) Long pay-back period (3-5 years) Features of the tax and custom legislation in Russia Foreign paper and equipment are liable to customs duty up to 15% and VAT (18%). For editions printed abroad there are no customs duties and VAT is only 10%. Thus printing abroad is 23% cheaper than in Russian. Insufficient range of provided services (finishing and direct-marketing services are not developed) Old and not efficient equipment / infrastructure Lack of well qualified and experienced professionals Page 24

25 Market Tendencies - Outlook Growth rate of the digital printing share is 10% a year. This dynamic trend will continue. The forecast for 2012 still 4% growth The majority of enterprises plan to install digital printing systems for high speed production of color limited order During the nearest five years federal enterprises will keep the gravure equipment for producing large volume orders. However, the most likely tendency in the printing industry will be gradual replacement of gravure in favor of rolled and sheet offset The main reasons of this are: in Russia gravure is perceived as outmoded, ecologically unsafe, very work intensive with low quality; and the maintenance of the equipment is costly and expensive At the same time there is rather high demand on this type of printing because of packaging needs and magazines and catalogues of large edition, which sometimes are printed on thin paper The capacity of the Russian gravure market is about 36 ths tones in a year. At the average price 6$/1 kg., the monetary market value has exceeded 220 million dollars Page 25