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TRANSASIA, Ltd. A successful Russian regional FMCG distribution company. Boston , МА October 29, 2003. Retail Business in Russia. The Past, 1993-1998. “Wild Times”…. How we started our business. Time: 1994 Location: Krasnodar

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TRANSASIA, Ltd. A successful Russian regional FMCG distribution company

Boston, МА

October 29, 2003

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Retail Business in Russia. The Past, 1993-1998

“Wild Times”…

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How we started our business

  • Time: 1994

  • Location: Krasnodar

  • Core business: Wholesale Distribution of FMCG (fast moving consumer goods)

  • Partners: Western Manufacturers

  • Johnson & Johnson, L’Oreal, Procter & Gamble

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What was the market

Retail market – total chaos!

  • Death of old Soviet system

  • Empty counters in the state stores

  • Outside kiosks & tables (open-air), flea markets

  • Flood of low quality or fake goods

  • Chaotic pricing

  • Quick (several days) money turnover

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What were Transasia’s differences

Start of creation a Western distribution system according to common business practices!

  • First distribution company in the city

  • Quality goods and products

  • Western brands

  • Advertising support

  • High quality customer service

  • Credit lines for retail outlets

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Current Business Environment 1998 - 2003

Grow Market Share as fast as Possible Hyper Growth Period

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The present period started in 1998…

Economic crisis in Russia – August 1998

  • Consumer purchasing power decreased 3-4 times

  • Some Western companies left Russian marketplace

  • Russian manufacturers began to gain market share

  • Many banks and distributors went bankrupt

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  • Covers Southern Russia – 12 million people (8% of the total Russian population)

  • 1 HQ + 8 regional branches

  • Over 1,000 employees

  • 141 delivery vans and trucks

  • 95 automobiles used by sales representatives

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TRANSASIA’s Suppliers

  • Total number of suppliers 46

  • “Procter & Gamble”

  • “Kraft Foods”

  • “Nestle”

  • “Mars”

  • “Wrigley”

  • “Chupa Chups”, “Bic”, “Cadbury”

  • Numerous leading Russian manufacturers

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TRANSASIA – Operations

  • Our key business – distribution of fast-moving consumer goods (FMCG) to open markets and small shops (50 to 100 sq. m.)

  • Sales representatives get orders from clients

  • All orders are delivered in 24 hours

  • Our clients are spread all over the region, both in urban and rural areas

  • Revenues come mostly in cash

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TRANSASIA – Logistics

  • During the daytime sales representatives visit our clients to get new orders (use handheld computers)

  • In the evening these orders are processed and sent through Internet to main office

  • At night time orders are loaded into the big trucks in the distribution center and shipped to the branch offices

  • In the morning our vans deliver the goods to the clients

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TRANSASIA – P&G experience

  • P&G products comprise 60% of total revenues

  • During the period between 1996-98, P&G corporate loaned Transasia $4 million dollars for capital expenditure purchases (e.g. vans, autos, machinery, etc.). Transasia paid back the capital to P&G in 4 years.

  • Working together Transasia and P&G have enabled P&G’s products to capture leading market share positions in the Russian marketplace.

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P&G’s competitors in Russia

  • All main P&G competitors work in Russia: “Henkel”, “Unilever”, Kimberly Clark”, “Johnson & Johnson”, “Colgate”, “L’Oreal”

  • Low investments into distributors’ development resulted into smaller market share, sales inefficiency, and lack of brand recognition

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Conclusions on Current Marketplace

  • Markets will continue to grow

  • Small players will disappear and others consolidate

  • Retail chains are here to stay, their market share will continue growing quickly

  • Western retail companies have just recently come to Russia, mostly to Moscow and St-Petersburg

  • Open-air markets and small shops still have 70% market share inthe regions

  • Many opportunities still exist for manufacturers, distributors, and retailers in the Russian retail marketplace. Capital investment is critical.

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The Future for Retail Business in Russia.

90% of Russia’s population lives outside Moscow & St. Petersburg. Wal-Mart started in the “region” of Arkansas while Target started in the “region” of Minnesota

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Future of Retail in Russia – what we start from

  • The large territory of Russia and scattered population significantly increases the importance of logistics for retail, especially in the regions

  • Although competition currently among distribution companies is fierce, only those companies with technological focus and investment will survive

  • Although the opportunities in Russia are huge, it’s critical for Western manufacturers to have local partners to help them navigate the “risks” of Russia.

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What will happen in Russia’s regions?

  • Purchasing power will increase

  • Sales volume in each category will grow annually

  • Rapid growth of the civilized retail channels: shopping malls, hypermarkets, etc.

  • Barriers to entry to late players will increase. All the good locations will be taken.

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Additional important information

  • Middle class in Russian provinces – ready consumers for your products

  • Russian consumer market – moneymaker for number of multinationals (a new ones to come to Russia)

  • Krasnodar region – safe, stable and dynamic = “Russian California”

  • My other business ventures – how I diversified

  • Leisure business: “Strike” and “Orange Fitness” = great success. Payback period less than 3 years.