Do you dare?

Ksenia Ryasova, President, FiNN FLAREnn Flare

We try to understand our clients, so this year we have greatly tightened our margins in order to maintain our market share and retain our customers. Since FiNN FLARE produces its own products, it is easier for us to play with the assortment we offer, to increase the delivery speed of popular models, or adjust the prices of certain models.

This spring we noticed some reduction in the average purchase size. Demand has now shifted in favor of products with lower prices. Clearly, in connection with the crisis, consumers have sharply reduced their spending; however, they continue to make purchases. This autumn our sales bounced back to their previous levels. Many of our stores even showed an increase in revenue, compared with the previous year – and the consumers have calmed down, they are not as reluctant to spend money as they were before. Now the slightly more expensive items are becoming our most popular models – those with more interesting designs. Of course, we also try to stimulate demand in various ways: holding end of seasonal sales, offering specials and work closely with our loyal customers. After all, they are the ones that bring profits to every company.

With regard to reducing costs, at the end of last year we did everything possible to improve all our business processes. We reorganized the work of key departments, reviewed the job classifications of staff, changed the working schedules of our sales staff in the stores and introduced a new motivational program. We reviewed the payment terms we offered our partners and suppliers, etc. Naturally, we worked hard on reducing our transportation costs.

Louis Olin, Member of the Board of Directors, Auchan Russia; Director of Management Supervision, Member of the Joint Council of Experts on the Economic Policy and Entrepreneurship Committee of the State Duma.

Since the beginning of 2009, we have seen an increase in the number of customers coming to our stores. Our task in this crisis is to ensure that consumers continue to come and shop in our stores, that inflation in the Auchan will always stay lower than the general inflation of the country.

There has been no reduction of traffic in Auchan stores. With regard to the size of the average purchase, this has remained virtually unchanged, but the number of items in the cart has declined of course. Due to the crisis, many retail chains have reduced the assortment of items they now carry. We have kept our assortment constant at 45,000 items. The distribution in the various product categories has not changed either.

Demand, though gradually shifting towards the cheaper and less wellknown brands, has not caused us to stop carrying any product categories. As for pricing policy, this too has not required any changes. Auchan, just like before, places only the minimum markups on goods sold in our stores. Our pricing policy is consistent with the expectations of our customers – especially in today's crisis conditions. To achieve lower prices, Auchan is doing everything possible to increase the amount of “house brands” that we offer. We have around 3000 suppliers and about 100 that provide us with “private label' products. Products under our own house brand provide a good balance between price and quality in each price segment.

While maintaining high quality products, the prices of private label brands remain 20 - 30% lower than those in other stores and markets. By the end of 2009, Auchan will release an additional 1000 new private label products. We are also focusing on cooperation with local manufacturers of food and non-food products – seeking less and less dependence on higher priced imports. This will allow Auchan to maintain its low retail prices, while at the same time supporting local producers, providing them with constant and large orders.

This spring, Auchan introduced a new crisis-fighting product – the social consumer basket. This is a collection of products which sells for 500 to 800 rubles (depending on the city in which the store is located) – an example of how shopping at Auchan is possible for people of various incomes, including those with limited budgets.

This is particularly important for the vulnerable and disadvantaged groups in our society.

Pavel Breev, Vice President, M.Video

Rental policy and leasing rates, in the shopping centers where we are located, have changed. The rates are now set in rubles. In absolute terms, the rates have decreased by 30%. The total monthly leasing rate is not the most important thing for us. The final rate is partially determined by the sales volumes in the centers where our stores are located. We expect the rate to reflect the amount of sales we make each month and the projected future turnover. This is what we negotiate with each property owner.

The optimum ratio for us is 4% of total turnover. Previously, there was almost no competition among developers. Our country is large and many shopping centers were being built. Now, because of the financial crisis, the volume of shopping centers construction has significantly decreased. Thus, a balance between markets and shopping center plazas is coming into place. The need for the opening of more stores is no longer there, and neither are there extra areas available for renting.

When opening a new shopping center, developers often face difficulties in determining a balance between profitability and filling of their shopping center with tenants. This concerns not so much the competition, but rather the volume of income the shopping center may achieve in the form of rental income - and which operators it is able to attract. Many operators have cancelled their expansion plans and are no longer seeking new premises. It is difficult to launch a new shopping center during a crisis, and to make it attractive to people whose purchasing power has declined markedly. It is the same situation, to various degrees, in all the cities, and one must struggle to attract consumers to the store.

Svetlana Vitkovskaya, Public Relations Director, X5 Retail Group

From January to September of this year, the consolidated revenue of X5 Retail Group rose in ruble terms by 38% (up to 196.6 billion) in USD terms – by 2% ($6 billion). Since February of this year we have seen a pronounced decrease in consumer activity and an increase in demand for cheaper products. Unemployment and reduced spending by consumers have had a negative impact on the size of the average purchase. The average purchase size in the Karusel hypermarkets was 599.3 rubles, in Perekrestok supermarkets - 355.4 rubles, and at the Pyaterochka discount stores – 249.7 rubles. We do not see any signs that point to an improvement of the situation, and we expect that consumer spending will remain low. Nevertheless, we are preparing for the “high” season that will inevitable come this December – and are developing unique promotions and marketing campaigns.

Inflation in X5 stores is significantly below the national average. In 2008, the prices in our stores rose by 12.9%, while the national average was 16.5%. Earlier this year, the product prices in our stores went up by 14% - while in Russia the average was 16%.

Approximately 5% of our network's turnover consists of products with negative margins. This includes fruits and vegetables, sour milk products, and processed foods. For example, in Pyaterochka - butter (33 Korovi brand - 200 g) is sold at negative 17% markup, children's cheese (Agusha - 100 g) at almost -7%, macaroni (Ruskaya Melnitsa - 400 g) – at minus 9%, beer (Stariy Melnik – 0.5 liter, light) - more than -5%, and chocolate (Alpen Gold) at minus 5%. These are our loss leaders, which provide a steady stream of customers into our stores. Expensive products are sold in smaller quantities and subsidize the low prices of mass consumer goods. In addition, thanks to increased efficiency over the last 3 years, we have been able to reduce our average markups by 5% annually.

Last year X5 reduced its operating costs. In the 2nd quarter of 2008, these accounted for 21.1% of total sales, in the second quarter of 2009 their share fell to 19.6%. The savings we translated into lower prices. As a result, from January to September of this year, the number of customers in our stores grew by 5%. Optimization also took place with the implementation of new logistics solutions. Our goal to stock and distribute 80% of the goods we sell – today this figure is only 59%. At the end of October the warehousing areas at X5 will have increased by 65,600 sqm. We opened our first non-food distribution center in the Moscow Region, with an area of 25,600 sqm, two new grocery distribution centers, one in the Perm Region and one in St. Petersburg, and we increased the areas of our distribution centers in Moscow, Voronezh, Samara, Rostov-on-the-Don and Kazan. As of September 30, 2009 our group now manages 23 distribution centers in 11 Russian cities, with the total warehousing area of 293,300 sqm.

Optimization took place even in terms of rental rates. Compared with the precrisis period, rental rates are one-third lower today. Old contracts are reviewed, and if we cannot find a compromise, we close unprofitable stores. For example, in the first half of 2009 we were able to increase our retail areas by 62,000 sqm, having spent only $100 million in investments – last year we spent 5.5 times more money, while our retail areas increased only 50,000 sqm.

Oksana Tokarevа, Head of Corporate and External Relations, METRO Cash & Carry, Russia

Today we can proudly say that our company is on a solid and stable development path. In comparison to the previous year, the average purchase size today has increased by 21.4%. The crisis provided us with a good opportunity to increase our market share. We always strive to take all the right steps in our daily work in order to cope with the economic situation. We establish more efficient and more direct communication with our customers, while developing a focused approach on key groups of customers – restaurants, small retail outlets, service companies, etc. Generally speaking, our clients seek cost effective solutions for their businesses, to cope with this crisis. Most recently we launched a new program called the "Retail Trade School", in which we offer complete readymade solutions for improving the business of small retail stores.

In addition, we continue to increase the amount of locally produced goods that we sell. Up to 90% of the products sold on our shelves are provided by local suppliers. All these things make it possible for us to offer our customers professional and quality brands at very attractive wholesale prices. Thus, we help them develop their own businesses in current economic conditions. In a period when the economic situation is worsening, we are striving to reduce transportation and warehousing logistics costs, optimizing the processes in our trade centers, improving the level of service from our suppliers. Like any company in times of crisis we want to minimize our costs. Fundamental goal for Metro Cash & Carry is to improve customer satisfaction, which in terms of the supply chain means improving the availability of commodity items on the shelves of our trade centers. Logistical issues we are trying to solve by reducing expenses, and in this way reducing the price of our goods, which ultimately should lead to the increased competitiveness of our products.

Bernd Guralczyk, General Director, Media Markt / Saturn”

In the pre-crisis period, the market was attractive for us and for other international companies, because it had excellent growth rates - according to the RATEK Association, about 10% annually. Despite the current economic situation, we still find the Russian market very attractive. Now we are starting to see positive dynamics in our Media Markt stores in Russia. And we believe that this trend will continue until the end of this year.

Of course, we have witnessed that the purchasing behavior of the public is changing, but at the same time, we see the existence of the previously developed demand for durable goods (TV sets, washing machines, refrigerators). There are several categories of goods, sales of which are actively growing today. For example, in the computer technology market the trend is continuing for more compact devices – netbooks are becoming ever more popular.