Report
Andrew Keeley ...
  • Andrey Krylov
  • Fedor Kornachev
  • Kirill Rogachev
  • Mikhail Krasnoperov
  • Svetlana Sukhanova

Sberbank CIB Ivanov Consumer Confidence Tracker. April 2020 - Large Players to Benefit from Market Consolidation

We continue to track the Ivanovs' savings and spending patterns, as well as their perceptions, to get an idea of how entire sectors and individual companies are performing and might perform in the future. We also look at competition among Russia's public food retailers. Here are the main conclusions from our most recent survey:> The field work for this survey took place over March 2-12. Most of the responses were gathered in the first week of March, right before the virus began to escalate in Russia and the oil price dropped. Thus, we captured only the start of the deterioration. In the majority of cases, we recorded positive comments on the recent performance but a negative take on the outlook.> The overall consumer confidence index edged down to -16% in 1Q20 from -15% in 4Q19 (still higher than the -22% in 1Q19). All the index components saw modest changes, with the largest move seen in the personal wealth outlook for the next 12 months. There was a modest uptick in big-ticket purchases, which we attribute to a willingness to protect savings from ruble depreciation.> Economic concerns reflected a changing environment in 1Q20. Unemployment moved to the top of the list, cited by 58% of respondents (up from 55% in 4Q19 and 54% in 1Q19). When the survey was being taken, information about a lockdown had already begun circulating, but it had not yet started. The employment statistics among our respondents had not suffered, with an unemployment rate of 11.5% in 1Q20 versus 11.9% in 4Q19. The net hiring index just slightly declined to -42% (from -41% in 4Q19), while the business confidence index started deteriorating (to 5% versus 13% in the previous survey). Concerns over the FX rate also grew, cited by 28% versus 19%. > Favorable developments in 2H19 led to the savings ratio reaching a four-year high of 8.0% in 4Q19. The situation began to change in 1Q20, with the ratio easing to 6.9%. Meanwhile, the share of respondents without savings rebounded to 43% in 1Q20, in line with the average for 2018-19. This may reflect increased spending on household goods - in particular electronics - due to the ruble's depreciation.> Despite increased price sensitivity, indicators related to food trading down remained sticky. The percentage of Ivanovs trying to save on food increased just 1 pp Q-o-Q to 68% (up from 66% a year before), while in net terms the trading down index edged down by 1 pp Q-o-Q to -39%. This was accompanied by a slight increase in the popularity of shopping at stores that typically offer lower prices. Meanwhile, purchasing promotional items remained the most popular strategy for saving money on food, though the share that used it declined 2 pp Q-o-Q to 61%, while it was 64% in 1Q19. > In 1Q20, the Ivanovs spent an average of 36.6% of their income on food, down from 38.2% in 1Q19. We attribute this decline to the pickup in nominal income, disinflation and a price investments made by companies.> The average number of chains at which respondents shopped for groceries fell in both Q-o-Q and y-o-y terms to 2.2 in 1Q20 (from 2.3 in 4Q19 and 1Q19), suggesting a higher concentration of customers per chain. The number of shopping trips per week jumped to 3.2 from 3.0 both in 4Q19 and 1Q19. The average amount spent on food the previous day soared 23% y-o-y to R1,034 (we think extraordinary factors played a role), while the share of items on promo in the basket decreased. Importantly, our survey revealed that customers preferred large chains for bulk purchases last month. > The share of respondents naming Pyaterochka as their primary store rose to 25% in 1Q20 from 24% in 4Q19. Importantly Magnit's share bounced to 23% in 1Q20 from 19% in 4Q19. We are now seeing a better perception of Magnit stores, though Pyaterochka is seeing an improvement too. The uptick in perception for Magnit can be explained by a couple factors: positive feedback from its heavy promotional activity in 4Q19 and assortment changes reaching a critical scale. The first factor will be short-lived, while the second should entail more sustainable improvements. In this context, we think 2Q20 will be the most important quarter. Another observation is that Magnit appears to be recapturing customers not from Pyaterochka but rather from medium-sized retailers. The share of Ivanovs visiting Pyaterochka held stable at 58%, while for Magnit convenience the share was 50%, versus 46% throughout 2019. > In 1Q20, the conversion rate, which is the share of those who make most of their purchases at a store they live near, rose 1.2 pp for Magnit to 33.0%, thus catching up to Pyaterochka. In line with this positive sign, the Ivanovs' assessments of assortment and quality at Magnit stores notably improved, which we attribute to their noticing changes carried out in 2019. This was also accompanied by a spike in the share of Magnit visitors with a Magnit loyalty card, which doubled Q-o-Q to 75%. The assessments for Pyaterochka improved as well, but the gap between the stores has shrunk.> In addition to our quarterly Ivanov Consumer Confidence Index data, which is based primarily on surveys, we provide extra analysis in collaboration with Sberbank's Corporate Clients 360 Division and with TOT. The median income (including pensions) within the lower and middle income categories increased 9-10% y-o-y in 1Q20, while the higher income category saw an income increase of 13%. Interestingly, income growth accelerated in March, which might be attributable to wages and pensions being paid out early ahead of the first "non-working" week. The median deposits in the lower and middle income categories declined y-o-y in March, while those in the higher income category rose.
Underlyings
Aeroflot Russian Airlines

PJSC Aeroflot Russian Airlines is an international air transport company which is engaged in operations in Russia. The principal activity of Co. is the provision of passenger and cargo air transportation services both domestically and internationally and other aviation services from its base at Moscow Sheremetevo Airport. Co. and its subsidiaries also includes activities comprising airline catering, the operation of a hotel and insurance services. Associated undertakings mainly comprise hotel and duty-free retail businesses. The principal business segments are airline operations, airline catering, hotel operations and other.

Etalon Group (GDR)

Etalon Group is a real estate development and construction company. Co.'s principal activity is residential development in Saint-Petersburg metropolitan area and Moscow metropolitan area, the Russian Federation. Co. has three reportable segments: Residential Development, which includes construction of residential real estate including flats, built-in premises and parking places; Constructions Services, which includes construction services for third parties and for internal purpose; and Other Operations, which include selling of construction materials, construction of stand-alone premises for commercial use and various services related to sale and servicing of premises.

Lenta International PJSC

Lenta is a hypermarket group based in Russia. Co. operates 87 hypermarkets in 50 cities across Russia and 16 supermarkets in the Moscow region with a total of approximately 571,328 sq.m. of selling space. Co. also operates four distribution centers for hypermarkets and one for supermarkets. operates three hypermarket formats: Standard, typically with approximately 7,000 sq. m. of selling space (smaller than many Western European hypermarkets) and 24,000 stock keeping unit (SKUs); Compact, typically with approximately 5,000 sq. m. of selling space and 20,300 SKUs; and Supercompact, typically with approximately 3,000 sq. m. of selling space and 15,000 SKUs.

LSR Group

Group LSR PJSC is involved real estate development in Saint Petersburg, Munich, Yekaterinburg and Moscow, prefabricated panel construction in Saint Petersburg, Moscow and Yekaterinburg, commercial real estate development in Saint Petersburg and Moscow and Yekaterinburg, the production of building materials at plants located in Russia and Ukraine, the extraction and processing of aggregates in Leningrad region, and the provision of construction services. These products and services are sold mainly in Russia. As of Dec 31 2015, Co. had five reportable segments: LSR.Building Materials; LSR. Construction; LSR.Project management; LSR.Cranes; and LSR.Real Estate.

LSR Group (GDR)

Magnit PJSC

Magnit is a holding company. Through its subsidiaries, Co. operates in the retail and distribution of consumer goods under the Magnit name. Co.'s retail operations are operated through convenience stores, cosmetic stores, hypermarkets and other. Most of its stores are located in the Southern, Central and Volga regions. Co. also operates stores in the North-Western, North-Caucasian, Urals and Siberian regions. As of Dec. 31 2014, Co.'s stores chain consisted of 9,711 stores: 8,344 convenience stores, 190 hypermarkets, 97 Magnit Family stores and 1,080 drogerie stores in 2,108 cities and towns throughout the Russian Federation.

Magnit PJSC Sponsored GDR RegS

Mail.ru Group Ltd. Sponsored GDR

Mail.Ru Group is an Internet company based in the Russian Federation. Co. operates the email service [email protected] and two IM networks in Russia - Mail.Ru Agent and ICQ. Co. operates two Russian-language online social networking sites: Moi [email protected] and Odnoklassniki.ru, and owns a strategic minority equity stake in the social network Vkontakte. Co. is also engaged in developing projects in E-commerce and operating more than 40 thematic vertical sites, targeting various user categories. Co. is also Russia's predominant online games company. Co. maintains a portfolio of online games which includes 34 MMO games and over 30 games for social networking sites.

Mobile TeleSystems PJSC

Mobile Telesystems is a provider of mobile cellular communications services in the Russian Federation, Ukraine, Uzbekistan and Turkmenistan to consumers and corporate customers, employing technology based primarily on Global System for Mobile Communications (GSM). Co. had a mobile subscriber base of around 102.5 million (77.3 million in Russia, 20.4 million in Ukraine, 2.1 million in Turkmenistan, 1.6 million in Uzbekistan and 1.1 million in Armenia). In addition to standard voice services, Co. provides improved services, including voice mail, short message service, general packet radio service, and various SMS- and GPRS-based information and entertainment services.

Mobile TeleSystems PJSC Sponsored ADR

O Key Group

O'key Group is a Russian retailer. Co.'s principal business activity is operation of retail chain in Russia under brand name O'KEY. Co. provides customers with fresh produce (fresh foods and delicatessen products) and non-food goods (cosmetics, clothing, shoes, household cleaning products, domestic appliances, toys, sports and fitness products, etc.). Co.'s stores follow two formats: hypermarkets and supermarkets. Co. manages approximately 71 stores (42 hypermarkets and 29 supermarkets) across North Western, Southern, Central, Urals and Siberian regions.

VimpelCom Ltd. ADS

X5 Retail Group N.V. Sponsored GDR RegS

X5 Retail Group is a holding company. The main activity of Co. is the development and operation of grocery retail stores. Co. operates a retail chain of soft-discount, supermarket and hypermarket stores under the brand names "Pyaterochka", "Perekrestok" and "Karusel" in major population centres in Russia, including but not limited to Moscow, St. Petersburg, Nizhniy Novgorod, Rostov-on-Don, Kazan, Samara, Lipetsk, Chelyabinsk, Perm, Ekaterinburg and Kiev, Ukraine.

Yandex NV Class A

Yandex is an internet and technology company that operates an internet search engine in Russia. Co. builds intelligent products and services powered by machine learning. Co.'s products and services are based on complex, unique technologies that are not easily replicated. Co. generates substantially all of its revenues from online advertising. Co. also generates revenues from its e-commerce offerings, classifieds and e-hailing service. Co.'s businesses are organized in the following operating segments: Search and Portal; E-commerce; Taxi; Classifieds and Experimental businesses.

Provider
Sberbank
Sberbank

​Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.

Analysts
Andrew Keeley

Andrey Krylov

Fedor Kornachev

Kirill Rogachev

Mikhail Krasnoperov

Svetlana Sukhanova

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