TRANSASIA, Ltd. A successful Russian regional FMCG distribution company

1
TRANSASIA, Ltd. A successful Russian regional
FMCG distribution company

• Boston, ??
• October 29, 2003

2
Retail Business in Russia. The Past, 1993-1998

• Wild Times

3
How we started our business

• Time 1994
• Location Krasnodar
• Core business Wholesale Distribution of FMCG
  (fast moving consumer goods)
• Partners Western Manufacturers
• Johnson Johnson, LOreal, Procter Gamble

4
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

5
What were Transasias 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

6
Current Business Environment 1998 - 2003

• Grow Market Share as fast as Possible Hyper
  Growth Period

7
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

8
TRANSASIA Facts

• 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

9
Map of Russia
10
TRANSASIA geography of operations
11
TRANSASIAs Suppliers

• Total number of suppliers 46
• Procter Gamble
• Kraft Foods
• Nestle
• Mars
• Wrigley
• Chupa Chups, Bic, Cadbury
• Numerous leading Russian manufacturers

12
TRANSASIA Sales Revenues
13
TRANSASIA our customers

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TRANSASIA Revenues split by trade channels
15
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

16
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

17
TRANSASIA geography of operations
18
TRANSASIA PG experience

• PG products comprise 60 of total revenues
• During the period between 1996-98, PG corporate
  loaned Transasia 4 million dollars for capital
  expenditure purchases (e.g. vans, autos,
  machinery, etc.). Transasia paid back the capital
  to PG in 4 years.
• Working together Transasia and PG have enabled
  PGs products to capture leading market share
  positions in the Russian marketplace.

19
PG 1 Market share in all 5 product categories
in Russia
20
PGs competitors in Russia

• All main PG competitors work in Russia
  Henkel, Unilever, Kimberly Clark, Johnson
  Johnson, Colgate, LOreal
• Low investments into distributors development
  resulted into smaller market share, sales
  inefficiency, and lack of brand recognition

21
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 in the regions
• Many opportunities still exist for manufacturers,
  distributors, and retailers in the Russian retail
  marketplace. Capital investment is critical.

22
The Future for Retail Business in Russia.

• 90 of Russias population lives outside Moscow
  St. Petersburg. Wal-Mart started in the region
  of Arkansas while Target started in the region
  of Minnesota

23
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,
  its critical for Western manufacturers to have
  local partners to help them navigate the risks
  of Russia.

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What will happen in Russias 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.