Unofficial Translation

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Investors Count On the Consumer Market

By Andrei Ivochkin
April 2, 2003
Page 2

The consumer market is one of the most attractive sectors of the Russian economy for investors. This can be seen in the results of a marketing study called "The Top 100 Emerging Companies of the Russian Consumer Market," which was conducted by an independent research company called Interactive Research Group (IRG) with the support of Deloitte & Touche, Societe Generale and Altium Capital.

Such different companies like Comstar, Gloria Jeans, Daria, Gotek, Ochakovo and Bistroff have one thing in common — they are all among the one hundred most promising, competitive and successfully managed domestic companies working in the consumer goods and services market. Among these are agriculture and food producers, bakeries and confectionaries, furniture, beverage and drug retailers and wholesalers, members of the mass media, banks, construction companies, and others.

"If you're looking for dynamic Russian companies to invest in, lend to, acquire, merge with or market to, look no further," said Greg Thain, Chairman of Interactive Research Group (IRG). "This research reveals some of the most exciting and potentially rewarding investment and sales opportunities in Russia in the coming decade."

The consumer market is still quite fragmented — according to the report, the major domestic financial and industrial groups, such as Interros, Alpha and Sibneft, have stakes in only 14 of the companies. Approximately 25% of the firms have at least some minority foreign shareholders.

Previous studies conducted by IRG peg the Russian consumer market at USD 260-275 billion in 2002, up 15% from 2001. And, according to official Russian figures, individual real incomes increased by 8.5% in 2001 and 8.8% in 2002.

"Consumer demand in Russia is on the rise as real incomes increase, most significantly in Moscow and St. Petersburg. This is evident not only in the quantity, but also the quality of goods and services demanded by Russians," said Evgeniy Gavrilenkov, Chief Economist of Troika Dialog investment bank, "It is increasingly common for consumers to pay premiums for well known brand names and product quality guarantees."

The overwhelming majority of the companies report significant growth rates in 2002. Two examples include Moscow-based perfume and cosmetic retailer, Arbat Prestige, with a 70% increase in sales from 2001 to 2002; and, EFKO, an agricultural and food manufacturing and distribution firm, which reported 79% growth in sales last year. IRG forecasts that the average sales growth of the Top 100 companies will be 20-25% in 2003.