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Slide1: 

David Noble Supervisory Board Director Boston 29th October , 2003

Introduction: 

Introduction 1 The Food Retail Market in Russia 2 A Brief History of Pyaterochka 3 Questions and Answers 2

Overview: 

An Overview of the Russian Food Retail Market in 2003 Overview

AT Kearney: 

AT Kearney Global Retail Development Index Source: AT Kearney GRDI 2003-( EDS) Go Now Go 4 AT Kearney

Institute of Grocery Distribution’s (UK) Market Index : 

Institute of Grocery Distribution’s (UK) Market Index

Slide6: 

Top 5 European Grocery Markets (2001) Source: Institute of Grocery Distribution (IGD) 6

Western food retailers in Eastern Europe : 

Western food retailers in Eastern Europe 7 Source: IGD, M+M Planet Retail

Food retail spending in Moscow by outlet type: 

Food retail spending in Moscow by outlet type Source: Moscow City Hall 8 Supermarkets and hypermarkets 12% Traditional small shops and kiosks 58% Outdoor markets 30%

Major food retailers in Russia: 

Major food retailers in Russia Source: Company data, UFG 9

Share of top 3 food retailers: 

Share of top 3 food retailers Source: ACNielsen, Company estimate for Russia 10

Why international retailers have not come (Yet!): 

Why international retailers have not come (Yet!) shortage of suitable retail properties the difficulty of getting access to land and necessary permits lack of long-term leases underdeveloped supply infrastructure huge distances between major urban centers shortage of qualified retail staff BUT IKEA , METRO, AUCHAN, AVA/EDEKA have taken the plunge

Market Summary: 

Market Summary Russia is among the world’s top 10 grocery markets with over $100 bn turnover in 2002 Share of open markets and small shops is still high Domestic food retail chains enjoy strong growth, but share of top 3 retailers is only 1.1% Foreign competition is insubstantial 12

Slide13: 

Pyaterochka Overview

Pyaterochka: Introduction: 

Pyaterochka: Introduction Pyaterochka is the leading grocery chain in Russia by sales and number of stores 162 own stores and 20+ franchised Pyaterochka was formed after 1998 financial crisis from two food wholesale operations First store opened in February 1999 Positioned as a soft discounter with 3500 products Average store size 585 sq m Mostly located in residential districts EBRD has been a shareholder since 2001 14

New store openings in 1999-2003E: Rapid Growth: 

New store openings in 1999-2003E: Rapid Growth 15

Slide16: 

16 Pyaterochka stores in St. Petersburg and Moscow

Pyaterochka Proposition: 

Pyaterochka Proposition OUR CUSTOMER STORE CHARACTERISTICS Low to middle income group Convenient location Average basket ~ $4.5 Competitive prices Frequent shoppers Guaranteed quality of products Majority do not have cars Well-chosen range of products Live within 1,5 km Always in stock 17

One of Pyaterochka stores in St. Petersburg: 

One of Pyaterochka stores in St. Petersburg 18

Inside the store: 

Inside the store 19

Pyaterochka Phase One Strategy: 

Pyaterochka Phase One Strategy Build Pyaterochka brand as fast as possible Lease all stores rather than buy or build Increase range from 600 to 3500 SKU’s Build reputation for low cost quality branded goods Concentrate on supply chain issues Introduce best practices throughout organisation 20

Pyaterochka Phase Two Strategy: 

Pyaterochka Phase Two Strategy Continue aggressive roll out strategy Buy well located stores Build stores when the opportunity arises Introduce a number of own label products Leverage buying power to keep prices low Build consolidated warehouses Introduce best of breed IT solutions across the supply chain Develop larger format 21

Pyaterochka Critical Success Factors: 

Pyaterochka Critical Success Factors Keep it simple Limited Promotional Activity No Internet Home Delivery No Credit and Loyalty Cards Every day low prices Same price in every store in each region Well trained employees Pyaterochka training school 3 week course Source products locally 2000 50% of all products imported 2003 95% of all products bought locally Always in stock Very high sales per sq m on a range of 3500 products 22

Pyaterochka as a Proxy for Russia - Positives: 

Pyaterochka as a Proxy for Russia - Positives Rapid growth in all forms of organised retail Stock market up by over 50% av for each of last three years Increasing interest from Multi Nationals in setting up local operations All big 4 accountants present and very busy (and expensive) EBRD and IFC very active Top Law Firms and Investment Banks returning since 1998 financial crisis 23

Pyaterochka as a Proxy for Russia - Negatives: 

Pyaterochka as a Proxy for Russia - Negatives St Petersburg and Moscow reasonably easy places to do business- regions less so A bit of a bubble again with high real estate prices. Leases still short 5-6 yrs common Infrastructure Road & Rail need investment Little sale/ lease back activity No 3rd Party Logistics Operators- Do it all yourself! Red tape does mean you need a local partner 24

Pyaterochka Key Challenges: 

Pyaterochka Key Challenges Finding appropriate locations 2 teams of people in St Pete & Moscow Keeping highly trained employees Continual learning at training school Above average compensation Keeping costs low Re-investing supplier discounts into lower prices for customers Fight competition Outdoor markets, other discounters, Western operators 25

Financials and operating data: 

Financials and operating data 26 Key performance measures in 2002: Inventory turnover: 11 days Average purchase bill: $4.5 Average daily number of purchases: 296,228 Sales/sq. metre of selling area: $8.986 Long term debt/equity: 0.05 (as of end 2002)

Benchmarking Analysis: European Comparables: 

Benchmarking Analysis: European Comparables 27 Source: SSSB, Company data (audited IAS)

Slide28: 

Continue rapid organic growth of existing format in Moscow & St. Petersburg Increase purchasing power with suppliers; enhance gross margins and volume Increase share of owned and purpose built stores to 50/50 Expand into the regions (through franchising) Develop larger format Be well positioned to fight eventual competition from other Russian and foreign retailers Become a strong candidate for an IPO 28 Pyaterochka Plans

Conclusion: 

Conclusion 29 Growth in consumer spending in Russia will further boost development of all retail chains Food retail industry is very fragmented, but entering stage of fast consolidation Suppliers need to set up shop in Russia to do business Excellent opportunities for western Suppliers prepared to invest in Russia Logistics and IT services companies in short supply but translation issues must be tackled Own label manufacturers will have massive demand over next 5 years

Contact details: 

Contact details 30 Any questions? E mail David Noble Supervisory Board Director Pyaterochka e-mail: dnoble@e5.ru