Key growth drivers for Gum category in Russia 3 years perspective

Market overview

Russian gums market reached a maturity and as a consequence there are 2 main market players left Market leaders are using different marketing strategies: defensive and offensive; Perfetti is implementing a flanking strategy

Russian gum market life cycle

Market development

Fight for leadership

Maturity Decline

1990 1995 2003 2012

Flanking Guerilla

OffensiveDefensive

Wigley

Mondelez

Perfetti

Others

63%

33%

3%

1%

Volume share by manu-facturers. 2014

Orbit; 46%

Dirol ; 34%

Eclipse; 12%

Volume by brands. 2014

functionalem

otional

Market overview

After high volume increase in 2011 there was a drop in the gums market. After the drop total volume sales stabilized About 80% of the whole market are sticks, they are dominating in main producers portfolio (Wrigley, Mondelez) According to market tour 15-20% of the shelve is the kids gum, but only 10% is in the big format Distribution increase of bottles could be a good opportunity for premium development

Market structure. Market tour March 2016 

AV. NUMBER OF FACES/1

cashdeskAV.SHARE OF

SHELVENUMERIC

DISTRIBUTION

•2 MAGNIT•1 PYATYOROCHKA•1 LENTA •1 KARUSEL

AdultsSticks 180 80% 100%Wallet 15 8% 80%Bottle 10 5% 60%FTB 5 2% 20%Plate 12 5% 80%

KidsKids gum big 15 12% 100%Kids gum small 10 10% 60%

Sticks Wallet Bottle FTB Plate Kids gum big

Kids gum small

0%

20%

40%

60%

80%

100%

120%

80%

8%5%

2% 5%12% 10%

100%

80%

60%

20%

80%

100%

60%

Gum market structure

Av.share of shelve Numeric distribution

2010 2011 2012 2013 20140.0

5.0

10.0

15.0

20.0

25.0

13.4

20.818.2 16.8 16.5

2.0 3.1 2.7 2.5 2.5

Gums market volume 2010-2014. Th.tons

Adults Linear (Adults) Kids

Gum. Key growth factors3 years perspective

Economy situation

• Kids category

• Premium segment

• Premium packaging

• Functional products

• Focus on Modern Trade

• Private labels and licenses

• New instore point of sales

• E-commerce

Consumer behavior

• 55+ and kids growth

• Immigration recover

• Digitalization

Product development

Retaildevelopment

Google Moscow; 43.61%

Yandex Moscow; 24.84%

Google Spb; 15.46%

Yandex Spb; 2.59%

Retail development is a key factor for category growth

2013 2014 2015

44% 40% 37%

26% 29% 33%

17% 14% 13%

14% 17% 17%

MT channel development

TT Discounter Super Hyper

Growth of private labels

New point of sales. Cash desk change

Disney Lego Hello Kitty Simpsons Toy story Angry Birds

98%95%

91%96%

92% 91%

License awareness

Growth of licensed products

Pyatyorochka

Lenta

Monetka

Dixi

Aushan

Magnit

Marya Ra

Kopeika

10%

10%

11%

11%

12%

13%

16%

23%

Share of private labels in MT turnover 2015

Market tour. Magnit

Auchan. Cash desk

Retaildevelopment

Perekryostok. Cash desk

DigitalizationDigitalization will increase and e-commerce too

Map of hashtags outlines the level of digitalization in Russia Digital and e-commerce are much more developed in Moscow and Saint-Petersburg E-commerce and vending have potential to growth and develop the gums category

Example of Russian digitalization. Minsk agreements.Hashtag map.

Urbanization of digital. Orbit site geography

Google Moscow; 43.61%

Yandex Moscow; 24.84%

Google Spb; 15.46%

Yandex Spb; 2.59%

Google Kiev; 1.43%Yandex Voronezh; 1.34%

Yandex Ekat; 1.34%

Yandex Chelyabinsk; 1.34% Others; 8.04%

Retaildevelopment

Consumer behavior

New consumer segments New Gum segments will appear due to change of population

2012 2015 2020f

16% 17% 18%

12% 10% 9%

31% 33% 32%

15% 14% 13%

24% 26% 28%

Kids and Teens (0--15) Youth (16-24) Adult (25-45) Adult (46-55)Retirees (56+)

Russia was one of the most immigrant overloaded country in the world before the crisis. After economy recession this trend will recover

Special preferences of immigrants and new Russians 55+ and 0-15 will form a new segmentation

The population in Russia is getting older 55+ or Kids

USA

Russia

Germany

Saudi Arabia

Canada

France

Great Britain

Spain

India

Ukrain

42.8

12.3

10.8

7.3

7.2

6.7

6.5

6.4

5.4

5.3

Immigration afflux before the crisis in 2014 (million)

Consumer behavior

Growth of kids segmentMothers come back to work in periods of economic

instability, it creates a potential for gum and confectionary as redemption for children

1996 1997 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20120

10203040506070

Working mothers (children till 10 years)

The history of crisis in Russia outlines that mothers come back at work during the economic instability Sufficient price per unit increase doesn’t lead to kids category decrease (kids are not reason to spare)

CrisisCrisis

2013 2014 2015 Forecast 20161500

1550

1600

1650

1700

1750

16791698

1666 1673

Dynamics of kids category. YTD 10 2013-2016

Volume. Tons

2013 2014 2015 Forecast 20160

20406080

100120140160180

0102030405060708090100

134149 150 161

30.442.8

90

54.4

Dynamics of kids category. ValueYTD 10 2013-2016

Product development

Fast recover of premiumTea market example

DJ 2011

FM 2011

AM 2011

JJ 2011

AS 2011

ON 2011

FM 2012

AM 2012

AS 2012

ON 2012

10% 10% 9% 11% 12% 12% 11% 10% 9% 8%

17% 16% 16%18% 19% 20% 18% 17% 16% 16%

15% 15% 16%18% 17% 17% 17% 17% 16% 16%

16% 16% 16%16% 16% 16% 17% 16%

16% 16%

25% 24% 23%21% 21% 21% 22% 24%

25% 25%

18% 19% 19% 16% 14% 14% 15% 16% 18% 19%

BelarusCrisis 2011

Discount Low Economy High EconomyMedium Low Premium High Premium

Russian tea market examples outlines that premium continue to grow even during the crisis Belarussian example outlines that after short economy growth premium begin to recover even in countries with lower

GDP/capita Premium segment has the fastest recovery after the crisis

201520142013200920082007 201220112010 F2016 F2017

RussiaCrisis 2008

2007 2008 2009 2010 2011 F2012 F2013 F2014 F2015 F2016 F20170%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

10% 9% 9% 9% 8% 8% 7% 7% 7% 7% 7%

18% 17% 18% 17% 16% 15% 15% 14% 13% 12% 11%

19% 19% 18% 16% 17% 16% 16% 16% 16% 16% 17%

28% 28% 28% 28% 30% 30% 31% 31% 32% 32% 33%

20% 22% 22% 24% 24% 25% 25% 26% 26% 26% 27%

1% 2% 2% 2% 3% 3% 3% 4% 4% 4% 4%

Discount Low Economy High Economy Medium

Low Premium High Premium Super Premium

2007 2008 2009 2010 2011 2012 2013 F201620152014 F2017

Product development

Premium packaging potentialPremium gum. Perfetti example

Low economy should growth due to regions Big bags, cubes and wallets have a medium potential to growth Bottles have the highest potential to growth

0

50

100

150

200

250

Series1

Price map

High premium

Economy

Medium

Premium

High potentialHigh potential

Medium potential

Product development

Functional products growth80% of power for 20% of growing market

80% of gums market are sticks which are developing trough new flavors and long taste Functional products sales volume in Russia is growing There are different functional products in the gums market but they will growth in volume in 3 years perspective

2012 2013 2014 2015 F2016 F2017240

250

260

270

280

290

300

310

320

1.7

1.8

1.9

2

2.1

2.2

2.3

267.4275.5

285.5

295.8

306.8 314

1.9 1.9

2

2.1

2.2 2.2

Functional products in Russia. Volume increase

Volume,th.t kg/pers.

RefreshmentFlavor

Long TastePrice

Brand awarenessHealthy

62%57%

42%20%

14%3%

Key factors for choosing a gum

80%

20%

Product development

Economy situation helps most localized producers to growth

Importance of economic situation for localized producers

0102030405060708090

35.2

64.1 73.1948.1

72.980.12

Local currency devaluation

USD/RUB EUR/RUB

FX rate 2M’2014

2M’2016

Dev.

USD/RUB 35,2 73,19 107%EUR/RUB 48,1 80,12 67%Cross-rate (EUR/USD) 1,37 1,09 -27%

Fixed cost reduction per unit VC – Variable cost FC – Fixed cost Q – Quantity

Gum category will growth trough volumes replacement by of small and medium not localized companies by big localized market players

Economy situation

Localized production

NO Localized production

Growth drivers attractivenessmatrix

Impotance for category leaders

The current growth drivers attractiveness matrix outlines the correlation between importance of group of factors for driving a category and for top producers

Economic situation and consumer behavior are most important factors for category growth but hardly to be influenced by main producers Category and retail development are most important factors for top producers to growth because they can influence on them as category leaders

Impo

rtan

ce f

or m

arke

t ca

tego

ry Economic situation

Retail development

Ptroduct development

Consumer behavior

Thanks for your attention!!!