Market Information
Europe

Supermarket - Profile - Ukraine

January 2003

Canadian Embassy in Kyiv
31 Yaroslaviv Val, Kyiv 01901, Ukraine
Contact: Natalia Melnichenko,
Commercial Secretary
Tel.: (380-44) 464-1144
Fax: (380-44) 464-1133
E-mail: natalia.melnichenko@dfait-maeci.gc.ca
Internet: http://www.infoexport.gc.ca/ua

The objective of this report is to provide an overview of the rapidly expanding supermarket sector in Ukraine, and to focus on opportunities for Canadian supermarket equipment exporters.

Market Overview

Ukraine, located in Eastern Europe, has a consumer market of 48 million people.

At the beginning of the nineties, Ukraine had a state-owned network of stores with outlets in the oblasts and regions with an infrastructure for accumulating, processing, storing and distributing products. Currently, 90% of the state infrastructure at the wholesale level is privatised, which negatively affected the old well tuned distribution system. In practical terms, there are no long-term, consistent relations in the Ukrainian food market. The situation with consumer goods is somewhat better. The fairly new concept of the distribution chain {producer(importer)-wholesaler- retailer} is still in its infancy.

Over the past three years, new players have emerged in the food/consumer products retail sector, and introduced different formats of self-service food/consumer goods stores. The situation in this sector is now becoming clearer. In 1999, when the Ukrainian economy began to recover from a significant downturn, the formats "Cash-and-Carry" and "Supermarket" came to the country. From that time, cash-and-carry outlets have rapidly developed in major Ukrainian cities (with populations of more than 1 million) including Kyiv, Dnipropetrovsk, Donetsk, Kharkiv and Odessa, with the food products group dominating over consumer goods. The stores contain a combination of sales area, warehouse, extensive parking and security. Some of Ukrainian C&C establishments are from Germany (Billa, SPAR) and some are created by local food production/distribution companies (Fozzy, Rainford, Le Fourchette, Tiko Market, Velyka Kyshenya (Big Pocket), Maxi).

In 2000, the German retail operator REWE invested USD 9.4 million into the development of a western type supermarket chain in Ukraine, and became the second largest foreign investor in Kyiv (after McDonalds.) REWE has announced plans to open 5-7 supermarkets in Ukraine under the name BILLA each year for the next five years. The first three BILLA chain outlets have been built in the outskirts of Kyiv (each approximately 2,000 sq.m. of shopping space, carrying approximately 12,000 assorted items, employing 150 personnel, and serving 5,000 customers per day).

Introduction by the Ukrainian Government of mandatory bar coding on all food and general consumer goods to be completed by 2003 is an important factor that has made a positive impact on the development of large retail outlets in Ukraine.

By the end of 2001, Ukraine had 2500 self-service department stores, with 500 being super-, hyper- and mini-markets. The data for 2002 is not yet available, but in Kyiv alone, 20 new large stores were opened this year. In total, there are about 40 supermarkets in Kyiv, 29 of which belong to chains. In Kyiv, retail sales have seen 21% annual growth for the second consecutive year. Other large Ukrainian cities have experienced less but still considerable retail trade growth.

Formats

With a few exceptions of "imported" ones, Ukrainian self-service stores do not belong to one distinct format, they are rather hybrids. Earlier established discounters, oriented both on end-consumer and on a small retailer, widened their fresh and fresh/frozen group of products and are being re-equipped into supermarkets which are now the most popular format.

For a number of reasons, discounters and hypermarkets are less popular in Ukraine. According to retailers, discounters could be profitable if they created chain stores, which requires large investments and qualified management personnel, and both of which Ukraine lacks.

Consumer goods trade centres are being actively developed. Most of them are placed in the modernized Soviet department stores or in newly built underground trading areas. They are not malls yet but could be considered mini-malls.

An average Ukrainian Supermarket is:

• 600-2000 square metres in sales area,
• 200-700 square metres in warehouse area,
• 25-40% sales mark-up,
• US$ 10-15 single purchase,
• 1,500-2,500 buyers per day,
• 10,000-15,000 number of items on sale,
• 50-200 number of staff per store,
• and US$ 220-270 cost of 1 square metre of equipped sales area.

Equipment

Practically all trade and refrigerating equipment sold in Ukraine is imported from Poland, Germany, Italy and other European countries, since local manufacturing of this equipment is very weak and has no prospects of recovery. There are approximately six companies who can supply all the required store equipment on a turn-key basis, and only two of them provide this service together with store building (from locating the place and identifying target group of buyers to launching sales process).

Refrigerating equipment is the most costly part of the supermarket's infrastructure, it accounts for 40% of all interior equipment. Well known and popular foreign suppliers to Ukrainian market are Italian producers Aneg, MBM, ISA and Italian-Polish company Cold. Present also are Dutch brands Caravell, Vestfrost, Swedish-polish JBG and German-Polish Mors. Polish brands Juka, Cebea and Kujawiak are about half the cost of other brands.

The new wave of supermarket openings positively affects the market for high quality cooling equipment. Many retailers now understand that as their network of holdings expands, they should increase the profitability of their existing outlets. This first of all depends on the increasing effectiveness of the equipment in those outlets by investing in better equipment. The world class leader who recently came to Ukraine was German LINDE. It was followed by Italian Pastorfrigor and Detroit, and American Custom Cool. Foreign suppliers sell their equipment via specialized Ukrainian importers who usually are dealers for a number of producers. Large importers have their own show-rooms and storage and provide customised designer services and post-sales services. Smaller dealers often work by catalogues. Second-hand equipment in good condition is also in demand as it is one -third the price of new equipment.

Retailers say that it is much easier to work with one supplier of trading equipment. However, the maximum discount given by equipment suppliers for a turn key project is 10%, which is indicative of the lack of competition between suppliers and the increasing demand for new equipment.

The structural changes in food products also affects the choice of equipment. For example, lately the ratio of local food products to imported ones is 4/5, which indicates that the local supply of fresh food products is stable. This has led to the increase of cooling shelves over dry shelves. Over the past year, the "cooled" area increased from being one- third to being one- half of the sales area of the supermarkets. The majority of supermarkets also have their own in-store food processing facilities: salads production, mini-confectionaries, mini bakeries, meat and fish sorting/packing shops.

Software

Until recently, Ukrainian retailers payed little attention to automation of trade processes, and did not consider information systems as an "analytical" means to increase profitability or provide competitive advantages. Over the past year the approach to automation systems in retail has significantly changed. Retailers became more interested in multi functional, complex automation software. Ukrainian software companies offer a number of simple to more advanced programs, which are 2-5 times cheaper than imported alternative programs. However, retailers often complain that there is no single cost-reasonable software that could be installed and work without amendments and changes.

Market Trends

The year 2002 was characterised by changes in the structure of retail outlets in general and the rapid increase in supermarket format stores in particular; increase of trade process technology; increase of the population's purchasing power and its demand for higher quality in the varieties and services available.

The owners of supermarkets identify the potential of development of new outlets by the current number of food markets (bazaars) to be replaced, of which there are about 3,000 in Ukraine. The forecast for Kyiv is that by the end of 2004, there will be 120 supermarkets with an unsatisfied demand for more. The following three types of supermarkets will be in demand in Ukraine:

a) classical (10,000-12,000 items on sale),

b) economy (1,500-3,000 items on sale, with 100% self-service),

c) convenience stores.

The share of non-food items being sold increased to 56% of all sales in 2000, compared to being under 40% during the years 1995 to 1997. Market experts predict the share of non-food items (especially general consumer goods and electronics) will reach an estimated 63% of all sales by 2005. This trend may signify the recovery of the Ukrainian economy and further development of the middle class.

Equipment suppliers for self-service store predict the following tendencies for year 2003:

• Process of opening new supermarkets will speed up, and according to the most pessimistic forecast 3-4 new self-service department stores will be opened each week.
• Earlier installed imported second-hand equipment will be gradually replaced by new equipment and newly opened outlets will purchase new equipment
• Although there are very few hypermarkets (10-15 thousand sqm), experts believe that in 2003 there will be more of them. This format will require specific equipment (e.g. "gondola" shelves 4-5 metres long).
• Super-, mega- and hypermarkets will develop their own food processing facilities such as bakery, confectionery, salad making, pre-fab food, meat/cheese sorting/packaging shops. Most stores will have small food courts or catering services. All this leads to demand in related equipment.

Experts also predict a boom in self-service stores for consumer goods, home appliances, building materials, and stationary.

The German firm "METRO AG", fourth in the world by trade turnover, intends to build two hypermarkets for EUR 20 million each (18,000 sq.m) in Kyiv in 2003 and to invest 60 million Euro to build a hypermarket chain in 6 other large cities (Dnepropetrovsk, Odessa, Donetsk, Kharkov, Zhaporozhie and Lviv). These trading centres will work with end users and small retail outlets.

A Lithuanian drug store chain VINIAUS PREKYBA MARKET is going to open the first self-service drug-stores in Kyiv in 2003.

Opportunities for Canada

The development of the Ukrainian retail sector may offer good sales opportunities for Canadian manufacturers and suppliers of supermarket equipment including: cash registers, conveyors, bar-coding machines, scanners, ATMs, security systems, refrigerators and freezers, etc.

Franchising is an option for the development of the retail network in Ukraine. Canadian supermarket developers and chain owners may try to follow the market entry success of European retail companies. By introducing their Western chains, foreign retailers also bring their own suppliers to the country.

Market Access Considerations

Direct sales to a good distributer is the safest way of operating in the Ukrainian supermarket equipment market. Joint ventures or leasing agreements are also good methods of entering the market. The best way to get a solid lead is to visit Ukraine. The Embassy will assist companies by identifying key players in the sub-sectors that are of interest.

Canadian companies entering the Ukraine market are strongly recommended to pay close attention to where, when, how and whether they will be paid. Assumptions on this point too frequently lead to disappointment.

Constraints

Severe tariff rates (20-25% customs duties, 20% VAT) as well as the imposition of technical standards and certification requirements on many imports by the State Committee for Standardisation of Ukraine (Derzhstandart) are the basic barriers to imports. Certification procedures of Derzhstandart continue to be non-transparent, lengthy and expensive. Canadian exporters should leave these complexities to their local partner.

Bibliography

Food Products magazine, August 2002
Wholesale and Forming of Wholesale Markets in Ukraine, UNDP Agricultural Policy Project, October 2002
BUSINESS newspaper, Trading technologies overview, November 2002.
Ukrainian News Agency, Business News Daily.
Ukrainian State Statistic Committee Data

Useful Internet Sites

• Ministry of Agrarian Policy in Ukraine:
  http://www.minagro.kiev.ua/index-e.html
• Ukraine in World Wide Web, useful links:
  http://www.wu-wien.ac.at/groups/ukraine_hp/ukrnet.html
• Canada Europa:
  http://www.canadaeuropa.gc.ca
• Commercial Section of the Canadian Embassy in Ukraine.
  http://www.infoexport.gc.ca/ua

Upcoming Events:

Note: In 2003, there will be at least one trade show devoted to supermarket/restaurant/hotel equipment in each of the large Ukrainian cities (Dnepropetrovsk, Odessa, Donetsk, Kharkov, Zhaporozhie and Lviv). The following two trade shows in Kyiv are recommended:

Margo-2003 including specialized expositions Promholod 2003, 4th international conference "Retail: effective structure of trading company", Food-Drink Tech 2003 March 25-28, 2003, Kyiv, http://www.euroindex.ua Equipment for department stores; Cooling and refrigerating for trading areas; industrial refrigerating equipment; Cash registering, weighting, packaging and bar-coding equipment; software for trade and storage; storing equipment; tents; security systems for shops, restaurants, hotels; equipment for shops, restaurants and hotels. Food processing equipment and technologies

Restaurant Expo 2003
November 27-29, Kyiv, http://www.kmkya.kiev.ua
Image expositions of restaurants, cafes, bars, professional and trade equipment for catering and hotels

Key Contacts

Note: The Commercial Section of the Canadian Embassy in Kyiv does not have personal knowledge of all of these companies, and cannot attest to their operations.

AISBERG LTD.
1 Glushkova Str., Ukraine Exhibition Centre, pavilion 11
Tel/Fax: +380 (44) 251-9696, 251-9330
E-mail: aisberg@aisberg.kiev.ua
http://www.aisberg.kiev.ua
Offers the ful range of professional equipment for kitchens, restaurants, bars, refrigerated storages, mini-and supermarkets. There are show-rooms and service centres in Kyiv, Odessa, Simferopol, Dnipropetrovsk, Kharkiv, Zaporizhia, Donetsk, Mykolaiv.

INTERTORGAVTOMAT
4 Svobody Ave., Office 289, Kyiv 04108, Kyiv
Tel/Fax: +380 (44) 467-4266
Tel: +380 (44) 467-4267, 248-72126
Fax: +380 (44) 467-4265
E-mail: iro@alex-ua.com
Vending machines for hot drinks, packed goods, packed cold drinks. Sales, installation, after-sale service.

CONTACT (Ukrainian-USA JV)
5/2 Filatova Str, Odessa 65080 Ukraine
Te/Fax: +380 (482) 655134, 618043
E-mail: vkontakt@tm.odessa.ua
http://www.jv-kontakt.com
Importer and distributor of professional equipment for department stores, bars; restaurants from Italy, South Korea, USA. Cooling and refrigerating, packaging, thermal equipment. Computer design, assembling, after-sale service.

NOVY PROJECT
62 Degtiariovskaya Str., Kyiv 04112, Ukraine
Tel/Fax +380 (44) 456-9898
Fax: +380 (4) 458-0879
E-mail: info@np.kiev.ua
Offers the ful range of professional equipment for kitchens, restaurants, bars, refrigerated storages, mini-and supermarkets. There have show-rooms and service centres.

MEDIO
6 Garmatna Str., Kyiv 03680 Ukraine
Tel: +380 (44) 239-1598, 446-2011, 446-7024
Fax: +380 (44) 455-6201
E-mail: medio@kiev-page.com.ua
Sales, installation and service of domestic and imported equipment for kitchens, restaurants, bars, refrigerated storage, mini and supermarkets. Has show-rooms and service centres.

MIKHALYCH
1 Vyzvoloteley Avenue, Office 306, Kyiv 02125 Ukraine
Tel/fax: +380 (44) 543-959890, 543-9507, 246-3605
E-mail: michalich@svitonline.com
Offers the full range of professional equipment for kitchens, restaurants, bars, refrigerated storages, mini and supermarkets. Has show-rooms and service centres.

T.D.S.
2-B Geroev Kosmosa Str., Kyiv
Tel/fax: +380-44-455-4855
E-mail: ndnipro@navarex.kiev.ua
Equipment for supermarkets, new and used.

TECHNOSPHERE-CARAVANE
Office 711, 7-A Vozziednannia Prospect, Kyiv 02166 Ukraine
Tel (380-44) 536-1643, 559-9195, 559-9874
Fax: (380-44) 559-3631
E-mail: technosfera@yahoo.com
http://www.my-market.com.ua
Cooling, frosting and trade equipment for stores, supermarkets, cafes, bars, restaurants

UKRTORGKOMPLEKT
8 Ivana Lepse Blvrd., Office 405, 03124 Kyiv, Ukraine
Tel/fax: +380 (44) 488-7088
Offers the full range of professional equipment for kitchens, restaurants, bars, refrigerated storages, mini and supermarkets. There are showrooms and service centres.

SERVIA UKRAINE Ltd.
165, Gorky St., Kyiv 03150
Tel: +380 (44) 2681184
Tel/Fax: +380 (44) 268-3286
E-mail: servia@carrier.kiev.ua
Equipment for kitchens and catering, automatic coffee machines
Design, installation and after-sale service.

SPRUT
Tel: +380 (44) 458-0207, 458-4350
E-mail: sprut@vimas.com
http://www.sprut.vimas.com
Software for automation of large trading systems, supermarkets, wholesale companies. (Based on Oracle)

SYSTEMA
TeL: +380-44-248-8939, 490-9251
E-mail: vitaly.moroz@systema.kiev.ua
Electronic trading equipment for supermarkets (POS systems, cash registers, weights, theft security, scanners, coding systems)