Belarusian furniture market: market overview & analysis of distribution channels into Russian furniture market Minsk, 2014
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2
I.
Furniture market situation in Belarus
II.
Russian furniture market overview
III. Assessment of various distribution channels utilization efficiency
3
Belarusian furniture market grows mainly due to the increase in prices and wages, while 20-25% of the market are the informal sector Furniture consumption dynamics including the informal sector, m USD
Furniture consumption dynamics in Belarus (official figures), m USD +10%
319
2007
399
2008
438
357
2009
2010
440
2011
519
2012
137
2007
4
2008
140
2009
164
2010
144
2011
163
649 130
475 119
319
399
357
438
440
519
2007
2008
2009
2010
2011
2012
Official figures
Belarusian furniture market structure, %
+4%
173
587 147
498 100
425 106
Informal sector Furniture consumption dynamics in Belarus, ths tons
547 109
Informal sector Official market 20-25%
2012
Source: the National Statistical Committee of the Republic of Belarus , the National Bank of the Republic of Belarus, UN Comtrade, EnterInvest
Furniture market volume depends heavily on the population income level and has a significant potential for further growth provided the economic circumstances are unvarying
Furniture market, m USD
The relation between furniture market capacity and average wages according to official figures
The relation between furniture expenditures and average wages by countries, 2012
550 2012
500
Russia
2008
Belarus
2009
350
98
14.400
9.120
5.388 55
Annual wages, USD Furniture consumption level, USD per person
Furniture expenditures, in % of annual wages
2006
250
Germany
2005
2,09
Czech Republic
250
300
350
400
450
Wages, USD
5
254
46.800
2007
300
100 200
2010
2011
400
150
980
Czech Republic
450
200
Germany
1,76
Russia
1,07
Belarus
1,02
by 1,7 times
-5%
Source: the National Statistical Committee of the Republic of Belarus , the National Bank of the Republic of Belarus, Sander Design, news sites
Under upside scenario of market growth, domestic consumption volumes might increase by more than 50%, up to 995 million dollars by 2015 Planned increase in average annual wages in Belarus, USD/month
The forecast of domestic consumption volumes in Belarus, m USD
+14%
449
509
601
670
+15% 872 765
2012
2013
2014
2015
Assumptions Import volume does not pass 20%
649 92
The economy of the country advances in accordance with the Program for Social and Economic Development in 2011-2015
The informal sector is steady and comprises around 20% of overall consumption
2012
Furniture consumption increases in proportion to wage increase
108
123
141 199
+53%
174
153
130
427
6
995
504
2013
Import Informal sector
575
2014
655
2015
Made in Belarus
Source: Program for Social and Economic Development of the Republic of Belarus in 2011–2015, IMF, EnterInvest
About 95% of domestic market is household furniture, 78 % of which are cabinet and upholstered furniture Furniture consumption pattern by scope of application, m USD 519 26 (5%)
Office
Furniture consumption pattern in Belarus by core sectors, m USD 62
493 (95%)
Total 2012 Furniture production pattern in Belarus by core sectors, m USD
166 1%
Household
9 2%
517
Other
Total 2012
12%
31% 280 3%
Kitchen Other
Upholstered
12% 2% 54% 32%
Cabinet Assumptions Âť Market structure is similar to production pattern Âť 70% of office furniture is cabinet furniture and 30% is upholstered furniture
7
51%
Cabinet Upholstered Kitchen Office
Household
Source: the National Statistical Committee of the Republic of Belarus, news sites, EnterInvest
Each year about 45-60% of furniture produced in Belarus is exported. The lion’s share of exports, which is 75%, goes to Russia Furniture exports, m USD and % of production volume
389 (59%)
2007
+13%
466 (53%) 271 (46%)
2008
Furniture exports, ths tons
2009
321 (46%)
2010
391 (52%)
2011
386 (52%)
2012
178
2007
+13%
174
2008
106
121
2009
2010
Export pattern by sales geography, %
73%
75%
77%
7%
9%
22%
10%
18%
15%
11% 12%
2008 2009 2010 Russia Kazakhstan
2011 Other
77%
7%
4% 18%
21%
2007
8
71%
73%
Source: UN Comtrade, EnterInvest
2012
133
2011
153
2012
I.
Furniture market situation in Belarus
II.
Russian furniture market overview
III. Assessment of various distribution channels utilization efficiency
9
Since 2008 annual furniture market growth rate in Russian Federation has been about 13%, where imports share is sizeable and grows steadily Furniture consumption dynamics in Russia, bn USD +13% 9,8 2,3
Furniture production dynamics in Russia, bn USD
13,5
14,1
10,7 2,4
3,6
3,9
8,5 2,4
9,4 2,5
7,4
6,1
6,9
8,3
9,9
10,2
3,1
3,4
2,7
2,9
3,3
3,5
2007
2008
2009
2010
2011
2012
2007
2008
2009
2010
2011
2012
Informal sector
+3%
Official market Imports share in furniture consumption, %
10
48%
47%
51%
53%
55%
54%
2007
2008
2009
2010
2011
2012
Source: The Association of furniture and woodworking enterprises of Russia
Top market share, as in Belarus, is household furniture while core sales markets are Moscow and Moscow region Russian furniture market structure by sectors, %
Furniture consumption regional pattern in 2011 in Russia, % Moscow
10%
14%
20%
Moscow region
14% 55%
90%
80%
5% 4% 4% 4%
Sverdlovsk region
Leningrad region Tumen region Rostov region Other
Office furniture consumption regional pattern in 2011 in Russia, % Moscow Volga Federal District (FD)
6% 8% 2% 8%
2003-2004
2010-2012
Office furniture Household furniture
11
Source: MAAN group
43%
10%
Northwestern FD (including S.-Petersburg) Siberian FD Ural FD Central FD
10% 13%
Southern FD Far Eastern FD
Cabinet furniture market is not consolidated while more than 50% office furniture market is occupied by three major players Cabinet furniture sales pattern in Russian market, %
Office furniture sales pattern in Russia, %
Ikea
Felix
10%
Informal sector
25%
“Shatura” 8%
Other players
24%
36%
5% “Maria”
5% MZ5
36%
12
2% 4% “Stolplit” 2% “Angstrem” “Lubimiy dom” “TriYa” “Lazurit”
4% 4%
Kraft Sp mebel
Source: “Proinvestconsulting“, expert judgment, company’s data, EnterInvest
20% Defo
12% Unitex
Belarusian furniture prospects are mostly associated with good positioning , when, with similar quality factors, advantage is achieved from lower prices Cabinet furniture positioning on Russian market Quality
12 10 8 6 4 2 0
Germany
Belarus China Russia Belarus 0
1.000
Italy
China
Germany
3,3
Italy Russia
Price
2.000
3.000
4.000
Furniture market volume in Russia, bn USD 2012
China
Belarus Russia
10,7
5.000
6.000
7.000
8.000
10.000
Belarusian furniture share in Moscow market, %
7%
14,1
Moscow and Moscow region The rest of Russia Assumptions 60% of Belarusian furniture exports to Russia goes to Moscow
13
9.000
Source: RBC, news sites, companies’ sites, EnterInvest
93%
The interest towards Belarusian furniture is comparable to the interest to Italian goods due to their significant advantage for key characteristics over most Russian competitors Natural raw material content
Quality product
Modern design
Reasonable price
Belarusian furniture Russian furniture Foreign furniture High degree of characteristics
The number of requests in search engine Yandex in 2012 in Russia, ths times “Belarusian furniture” “Italian furniture”
14
Low degree of characteristics
Comment 377,9
274,6
Source: Mebel Professional, RBC, BelMebel, Yandex
In 2012, 377,9 thousand requests “Belarusian furniture” were generated through the search engine Yandex in Russia, while, for comparison, “Italian furniture” was requested 274,6 thousand times. This figure speaks volumes for the popularity of Belarusian furniture among the Russians
Currently, the Russian and Belarusian markets is not "ripe" for the European business model, in which the business of manufacturing and selling are separate what leads to the need to develop its own sales network The European model
3%
Model of Russia and Belarus
8%
10%
4% 3%
4% 24%
13%
15% 63%
12%
20% 18%
Network retail Independent retailers Purchase through catalogs Manufacturing custom Not furniture retailers Other channels retail network
15
Source: RBC, news sites, Smartcebuproject, EnterInvest
Shopping Malls Independent retailers Furniture retailers Large-scale network (Ikea, Hoff) Manufacturing custom Internet Markets
I.
Furniture market situation in Belarus
II.
Russian furniture market overview
III. Assessment of various distribution channels utilization efficiency
16
There are several key options for supply to Russian market
Furniture distribution options in Russian market 1
2
3
4
5
17
»
Lease of space in large furniture centers
»
Entry into retail chains
»
Show-room based online-shop
»
Own store in Moscow (lease of space for own store)
»
Dealer and wholesaler involvement
The most in-demand furniture retail format is multi-format furniture center, which in due course will be replaced by specialized shopping centers The development of a large-size furniture retail in Russia « Seizure» of the market
“Uncivilized commerce” » «Nameless» stores » Markets
Fight for the patronage
» «Civilized» commerce stores which core competencies are «large» and/or «cheap»
» New comfort-oriented shops, easy-to-buy Europe
Russia Multi-format retail facilities
The emergence of international furniture centers (IKEA, Kika)
The emergence of specialized furniture centers
The share of large shopping center furniture sales in sales volume, %
2009 2012
18
Source: RBC, news sites, EnterInvest
35% 36%
Increased level of incentives when choosing a place for shopping
The cost of entry into large-size furniture retail facilities is relatively low and is about 0,3 million USD, while operational costs will be no less than 0,34 million USD The cost of entry into furniture centers (retail facility of 175 m2), ths USD Registration of a company
5
Initial contribution
due to a wide range of furniture and full coverage of all price segments
150
» When you promote the center you also promote all the brands being sold there
47
Advance for the lease (retail+stock) Space planning and arrangement
44
Branding
40
Total costs
Lease payment
120
Wages
11
Marketing
19
» There are other services attractive for visitors (cafes, restaurants, car services, cash machines, entertainment sectors, etc.)
285
Operational costs (retail facility of 175 m2), ths USD a year
Tax
» A furniture center attracts more target buyers
» The necessity to compete with major furniture brands in Russia » There are requirements for initial contribution and product range
» Target audience is not formed independently, you work with customer pool that has been already created
20 24
Stock
160
Total costs
336
Source: companies’ sites, news sites, EnterInvest
The entry into retail chains, where 20% of all furniture sales in Russian market are made, is possible only for office furniture, at the extreme complexity – for household cabinet furniture Buying preferences when choosing a place for furniture shopping, %
Major furniture chains structure in Russia broken down by formats, %
64%
Office furniture
13%
36%
4% 42%
10%
Cabinet furniture 0%
14%
17%
Kitchen furniture
Internet Large shopping centers Independent furniture stores Furniture retail chains Make-to-order Markets
20
28%
Upholstered furniture
Source: RBC, companies’ sites, client’s data, EnterInvest
72%
100%
8%
92%
Multibrand
Monobrand
Currently, this channel is a big players domain, though strategically the market is inclined to increase the proportion of retail chains The share of retail chains in Russia and EU, %
Chain
Retail format
Thu number of stores
multibranding
By 2 times
>600
Own product 70%
63% 30% Russia
EU
Comment As a result of fragmented market and relatively low level of furniture retail chains development as a sales channel, major market members have to create their own retail chains to sell own products
monobranding
>250
100%
monobranding
>250
100%
monobranding
100%
monobranding
>120
100%
monobranding
>130
100%
70%
100%
multibranding
monobranding
21
>200
Franchising
Source: RBC, Smartcebuproject, companies’ sites
>60
>15
Furniture Internet-trading in Russia is in the making, however global tendencies make it possible to predict a considerable increase in onlinesales Furniture online sales market share, % Germany
Cost of Internet-store launch , ths USD Registration of a company
13%
USA
Site development
Advance for website promotion
9%
Show-room design Russia
4%
Advance for lease (show-room+stock)) Total entry cost
»
5 20 10 33
73+
An opportunity to set lower prices at the expense of lower sales costs
»
The customer spends less time on comparing models of various manufactures
»
Customer-centered approach: an opportunity of 3D furniture modeling online, custom furniture manufacturing
»
Customer convenience in terms of time expenditures, an opportunity to buy without living the house
22
5
Source: news sites, companies’ sites, EnterInvest
» Currently there is only restricted audience of users and therefore insignificant scope and potential for sales increase
About a quarter of Russian furniture market is localized in Moscow and Moscow region and the opening of own retail shop seems quite attractive Furniture consumption in Moscow and Moscow region in 2011, bn USD
There are no intermediates «reducing» the margin An opportunity to set independently pricing policy Emphasis on own customers attraction
brand,
loyal
Flexibility due to the opportunity to build up independently the range of products and brands
3,61 bn USD
There are no strict limits and requirements, inculcated by partners
Shop opening costs, ths USD Entry cost
243
Annual average operational costs
23
Source: news sites, companies’ sites, EnterInvest
Self-risk-taking
961
The necessity to create “traffic” of target customers without the help of partners
Furniture sales through intermediates (dealer and wholesalers), despite the fact that manufacturer’s expenditures are not high, still reduce the margin of a manufacturer Ways to look for a dealer Advertisements in local media (newspapers, town internet forum, etc..) Cross-selling (study of furniture fittings distributors sites, noncompeting furniture segments in the list of local dealers of targeted region
» Targeted auditory has been already created
» It saves administrative resources » As a rule, a dealer can offer several options for promotion, does some actions on own initiative » Inferior expenditures/investment on development » A branch opened in the region faces tough competition from local companies operating on the market
Advertisement about a search for a partner in the local paper, on the forum.
Criteria for a choice of a dealer 1» 2» 3» 4» 5» » 6 » 7
Organizational structure of sales system Sales points for several years The kind of product a dealer sells The total number of goods of various manufactures Dealer’s market image Financial aspects Geographical market coverage and targeted groups
24
Source: news sites
Significant loss of margin! Dealers are often disloyal Dealers are hard to be managed and coordinated It is impossible to control who and in what state gets the goods Sales integration by an uncontrolled dealer enhances the loss of market threat
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For more detailed information contact: Oleg Chanov
Oleg Andreyev
Andrei Matsiavin
Managing partner Management Consulting
Managing Director, Investment Banking
Business Development Director
34-210 Sherbakova Str. Tel.: +375 17 266 95 04 Mob.: +375 29 652 20 14 Fax: +375 17 230 95 11 e-mail: oa@enter-invest.com
34-210 Sherbakova Str. Tel.: +375 17 266 95 04 Mob.: +375 44 744 99 68 Fax: +375 17 230 95 11 e-mail: oa@enter-invest.com
34-210 Sherbakova Str. Tel.: +375 17 266 95 04 Mob.: +375 29 754 36 12 Fax: +375 17 230 95 11 e-mail: am@enter-invest.com