- Andrey Krylov
- Fedor Kornachev
- Kirill Rogachev
- Mikhail Krasnoperov
- Svetlana Sukhanova
Sberbank CIB Ivanov Consumer Confidence Tracker. January 2020 - Rebound in Consumer Confidence Picks Up Steam
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 overall consumer confidence index continued improving in 4Q19, coming in at -15%, up from -16% in 3Q19 and -24% in 4Q18. Meanwhile, individual index components changed only slightly. We attribute the improving sentiment to a stronger ruble, lower interest rates and stable income growth amid disinflation and also an absence of negative news.> The unemployment rate among our respondents rose 10 bps Q-o-Q to 11.9% and was up from 10.9% in 4Q18. Underemployment, which is defined as the share of those employed part-time but willing to work full-time, increased 1.1 pp Q-o-Q to 9.2% in 4Q19, below the 9.5% in 4Q18. The net hiring index edged down to -41% in 4Q19 from -39 % in both 3Q19 and 4Q18. Despite the deterioration, respondents were more optimistic about their employers' prospects for the future. In net terms, the business outlook index came in at 13%, up from 6% in 3Q19 and 5% in 4Q18, which represents the highest level since the 2014 economic downturn. The outlook for large and small businesses improved (the former up 8 pp Q-o-Q to 25% in 4Q19, the latter up 5 pp to 4%), but for medium-sized businesses it remained at 17%. > With wage growth remaining decent, nominal income growth picked up from 3.2% in 1Q19 to 7.7% in 3Q19 (and we assume a similar pace in 4Q19). This, together with decelerating inflation, drove real income growth, which led to a decrease in price sensitivity and a rising importance of quality, though consumption has yet to improve. The savings ratio soared to 8.0% in 4Q19 from 7.5% in 3Q19 and 7.1% in 4Q18, the highest figure since 2H15, while the share of respondents without savings hit an all-time low of 36% in 4Q19, down from 41% in both 3Q19 and 4Q18.> In 4Q19, Ivanovs spent an average of 36.0% of their income on food, down from 39.2% in 4Q18. We attribute this perceived decline to the pickup in nominal income, disinflation, a higher share of promo items and higher amount of income directed toward saving. We expect the official statistics to reveal similar food spending trends, though the dynamic should be more moderate. Sixty percent are ready to spend more on food if income growth outpaces inflation. This is important because income growth is now in fact outpacing inflation. > On the back of decreased price sensitivity and improved consumer sentiment in 2H19, trading down started to lose momentum in 4Q19, albeit very slowly. The share of those seeking to save on staples decreased 2 pp Q-o-Q to 67%. As a result, our trading-up index, which shows the difference in the share of those who trade up and those who trade down, improved 2 pp Q-o-Q to -38% in 4Q19, although this is well below the recent high of -30% recorded in 3Q18. We expect trading down to decline further thanks to low inflation together with stable income growth in 1H20. > The easing in trading down was accompanied by a decrease in the popularity of certain strategies for spending less on food. The share of Ivanovs buying promo items in order to save on food was down 1 pp Q-o-Q to 63%, versus 60% in 4Q18. The share cutting back on purchases of premium products and delicacies decreased to 55% from 56% in 3Q19. Despite the smaller share of Ivanovs trying to save on food, the share who monitor prices (either all the time or regularly) remained at 73% last quarter, though some of those who used to monitor prices constantly now do so intermittently. However, a counterintuitive observation is that the percentage of those visiting stores solely for promos hit a record high of 51%, edging up from 50% in 3Q19 and 48% in 4Q18. We think this was driven by aggressive promos of retail chain (particularly Magnit), which, in our opinion, were unnecessary. > The most recent renovation of Pyaterochka stores marks a new phase for Russian retail, we believe. After a long period of focus on price and promos among key retail chains, Pyaterochka is taking a step to differentiate itself based on non-price factors as well, offering new services and product categories and stepping up its fresh offering. We asked about whether an increased fresh offering could drive people to a nearby grocery store: 83% told us they would visit the store more often, while 50% said they were likely to pick up some other items besides fruits and vegetables during their visits. Having an in-house bakery is also viewed as a strong plus: 47% are ready to visit a nearby grocery store for fresh bread, even if they had not shopped there previously. In contrast, in-house coffee shops, which look attractive in the company's presentations, are not a big draw: 42% find R99 per cup (what Pyaterochka charges) expensive, while 27% said they do not drink coffee at all.> Our respondents said they would spend an average of R8,879 to celebrate the New Year, up 17% y-o-y. We assume that food spending increased 10% y-o-y. Pyaterochka was the most popular destination for holiday food shopping among the Ivanovs, mentioned by 21%, the same as in 4Q18. Meanwhile, Magnit's share dropped from 16% to 14%. Therefore, we assume that the very important last weeks of December should have been much stronger for X5 than for Magnit.> The share of respondents naming Pyaterochka as their primary store remained flat both Q-o-Q and y-o-y at 24% in 4Q19, while the share for Magnit was 19% in 4Q19, down from 22% in 3Q19 and 20% in 4Q18. The share visiting Pyaterochka at least occasionally reached 58%, the highest among peers and the highest we have recorded, up from 57% in 3Q19 and 56% in 4Q18. This suggests that Pyaterochka remains the top retail chain by number of unique visitors, though we attribute some of its rise to its having the highest selling space growth. The traffic conversion rate (the percentage of those who make most of their purchases at a store they live near) in the two largest retailers' overlapping areas echoed the statistics on store visits. Among those living nearby, Pyaterochka has continued gaining customers, with the conversion rate (the percentage of those who make most of their purchases at a store they live by) rising 1 pp y-o-y to 33% of Ivanovs in 4Q19, while Magnit's fell 1 pp to 32%. On the positive side, Ivanovs' assessments of assortment and quality at Magnit stores improved, which we attribute to their noticing changes carried out in 2019. However, their assessment of Pyaterochka stores improved as well.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.
Detskiy Mir PAO is a Russia-based company, which is primarily engaged in the children products retail sector. The Company offers a wide range of products, such as toys, clothing and footwear, baby goods, stationery, school and learning related products, creative kits, sport related products, food, car seats, furniture, among others. The Company's structure includes the chain of stores Detskiy Mir and the retail network ELC (Early Learning Center). The Company's Detskiy Mir chain comprises over 480 stores located on the territory of the Russian Federation and Kazakhstan, as well as more than 40 ECL stores. Detskiy Mir PAO is primarily active domestically and in the Commonwealth of Independent States (CIS) countries. In addition, the Company sells products online via its Website. The Company's major shareholder is AFK Sistema PAO.
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 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.
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.
M.video PAO (formerly known as M.video OAO) is a Russia-based consumer electronics and home appliance retail chain. M.video PAO operates through numerous stores in over 100 cities, as well as through online store within the Russian Federation. It offers audio, video, digital, small and large home appliances, media and entertainment products, as well as accessories. It also offers products delivery and repair services. In addition, the Company provides management and consulting services for holding companies and for companies active in the financial and industrial sectors. M.video PAO operates through two wholly owned subsidiaries, located in Moscow. As of December 31, 2011, the Company's major shareholder was Svece Limited with a stake of 67.78%.
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.
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.
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.
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 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.
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.
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