FMCG SECTORANALYSIS2019-2020
Mary Chachanidze, CFA Managing Director, TBC Capital
Tornike Kordzaia, CFAHead of Research, TBC Capital
Tamar ZakaidzeSenior Research Associate, TBC Capital
Otar Nadaraia Chief Economist, TBC Group
Aleqsandre Bluashvili Head of Macro-Financial Analysis Division, TBC Bank
2016 2017 2018 2019 2020E 2021E 2022E
5,802 6,165 6,707 6,450 5,950 6,107 6,514
1,286 1,631 2,085 2,720 3,285 3,778 4,344
27% 28% 30% 21% 15% 15%
ORGANIZED MARKET REVENUE & LFL SALES GROWTH (YOY)
2016 2017 2018 2019 2020E 2021E 2022E
3% 8% 9% 6% 9% 6% 5%
15% 47% 82% -15% -83% 116% 169%
20% 14% 6% 7% -30% 7% 40%
4% 10% 13% 4% 1% 7% 10%
THE MARKET WILL SUSTAIN 2019 LEVEL, WITH GROWING SHARE OF THE ORGANIZED PLAYERS AND INCREASED COMPETITION
FMCG MARKET REVENUE (GEL BN & YOY %)
ORGANIZED MARKET MERCH. SALES 2017-2019 (GEL, MLN)
Source: Geostat, SARAS, Survey of selected FMCG retailers, TBC Capital,; Note: *SPAR sales YoY growth reached 59% in 2019, incl. Daily as well as other franchise stores (34% excluding all franchise stores);
**Daily operates under SPAR franchise from 2018; ***Jibe mostly operates in wholesaling trade, its retail trade accounted for 14,4% in total sales in 2019;
****Like-for like (LFL): same-store growth, not taking new stores into account
2
Yo
YG
row
th(%
)
-25%
0%
25%
50%
75%
Jan
-20
Fe
b-2
0
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Jun
-20
Jul-
20
Au
g-2
0
Se
p-2
0
Total Revenue
LFL Sales****
6.4 7.0
7.6 8.0
8.8 9.3
9.7 0.3
0.4
0.7 0.6
0.1
0.2
0.6
0.4
0.4
0.5 0.5 0.4
0.4
0.5
7.09
7.80
8.79 9.17 9.23
9.89
10.86
3
4
5
6
7
8
9
10
11
12
13Population expenditures
Tourist expenditures
Restaurant expenditures
ORGANIZED FMCG PLAYERS’ MARKET SHARE (INCL VAT)
• FMCG market is expected to reach 9.23bn GEL in 2020, growing 0.7% YoY. The market underperformed our pre-COVID expectations of 7% growth for
2020, however retained the overall positive dynamics
• Tourist spending and restaurants expenditures on FMCG have plummeted in 2020 with expected drops amounting to GEL 510 Mln and 152 Mln
respectively. The latter amount has partly contributed to the increased household consumption. We estimate the expected increase in population
spending at GEL+727 Mln in 2020
• The organized FMCG market sales is expected to grow by 21% to GEL 2.78bn (excl. VAT) in 2020, having posted 30% rise in 2019. The share of
organized market is expected to stand at 36% in 2020, up by +6pp YoY
• Following the strong growth of Q1 2020, the growth of the organized market amid the pandemic remained primarily fueled by the new store openings
further supported by the tendency of substitution of unorganized FMCG retailers; In contrast, the growth in like-for-like sales was much lower, depicting
the adverse effect of lockdown and reduction of working hours. Additionally, the reduction in purchasing power stimulated sales of low price goods,
increasing the downward pressure on like-for-like revenue growth
82%79%
76% 70%64% 62%
60%
18%
21%
24% 30% 36%38%
40%
7.09
7.80
8.79 9.17 9.23
9.89
10.86
3
4
5
6
7
8
9
10
11
12
13Selected Organized FMCG players' revenue
Unorganized Market Revenue
Selected Organized FMCG Market YoY Growth %
Note: Sales exclude VAT
6%
28%
33%
34%/59%
180%16%
22%16% 74%
3% 27% 72%7%
15% 29%
0
100
200
300
400
500
600
Ca
rre
fou
r
Nik
ora
Tra
de
Ori
Na
bij
i
SP
AR
*
Re
tail
Gro
up
Go
od
wil
l
Zg
ha
pa
ri
Me
mo
/U
niv
ers
am
i/U
ni
Ag
roh
ub
Fre
sco
Ma
da
go
ni
Sp
ar
Fra
nch
ise
Da
ily
** Sm
art
Jib
e**
*
Eu
rop
rod
uct
2019 YoY Growth %
2017 1,382
+28%2018 1,767
+30%2019 2,305
+21%2020E 2,784
MEDIUM-SIZE PLAYERS GRABBING ORGANIZED MARKET SHARE BY SALESAND TRADING AREA
Source: SARAS, Survey of selected FMCG retailers, TBC Capital;
*Market share is calculated based on sales merchandising values excl. VAT; Data for 9M 2020 is interim financial
information provided solely from players and can differ from the final audited;
**Daily started operating under SPAR franchise from 2018; ***In 2017 other players include Magniti and Jibe;
In the next years only Jibe is displayed as Magniti was acquired by LTD Retail Group, operating from 2018;
**** Other selected players include Fresco and Jibe; NOTE: Sales of Spar of 2018 year is adjusted based on
financial statements and independent auditor’s report of 2018; Also sales of Europroduct was corrected in 2018
MARKET SHARE OF SELECTED ORGANIZED FMCG RETAILERS BY SALES IN 2017 – 9M 2020*
3
• In 2019 and 9M 2020 market share of big players has decreased
compared to previous years due to more rapid expansion of several
FMCG retailers
• Besides competing among each other, there is still a big room to
capture market share of unorganized retailers, especially outside the
capital
• Decreased Herfindahl-Hirschman index displays higher competition
among the select organized retail market players. While organized
market is growing and FMCG retailers are opening new spaces, HHI
index dropped to 1,192 in 2019 and is expected to drop to 1,152 in 2020,
indicating that competition in the organized FMCG sector is growing
SHARE OF SELECT PLAYERS BY TRADING AREA 2019 (INNER) 9M 2020 (OUTER)
HHI INDEX OF SELECT ORGANIZED FMCG PLAYERS*
1405 13501192 1152
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2017 2018 2019 2020E
Medium Concentration
Low Concentration
High Concentration
24.0%19.2% 17.1% 16.8%
2.0%
2.5% 3.3% 4.2%
8.0%
7.0% 6.2% 4.7%
3.9% 8.4% 11.3%
8.9% 10.4%12.7%
13.6%
12.2% 13.1%
13.4%14.1%
25.5% 24.3%19.7%
16.7%
19.4% 19.5% 19.1% 18.6%
2017 2018 2019 9M2020
Nikora Trade Carrefour
Ori Nabiji SPAR
Retail Group Goodwill
Agrohub Small organized players
2.9%1.3% 1.1% 1.1%
2.6%
2.1% 1.7% 1.2%
0.7%
1.0%1.0% 1.4%
4.3%
3.6%2.8% 3.2%
3.0%
2.8%
2.8% 2.6%
4.9%
3.9%
3.4% 3.9%
4.3%
4.5%
4.2% 3.3%
1.4%
2017 2018 2019 9M2020
Daily** Zghapari
Memo/Universami/Uni Madagoni
Fresco Europroduct
Smart Other players***
18.8%
14.0%
16.7%
15.0% 13.5%
16.0%
6.0%
19.1%
15.7%
16.8%
15.4%
13.3%
15.3%
4.4%
Nikora Trade
SPAR*
Retail Group
Ori Nabiji
Carrefour
Other Organized Players
Goodwill
2.6%
2.8%
2.7%1.8%
1.9%
2.3%
1.9%
2.4%
2.7%
2.6%1.8%
1.8%
2.3%
1.7% Other selected players****
Zghapari
Memo/Universami/Uni
Europroduct
Smart
Madagoni
Agrohub
2.0% 2.6% 3.1%
8.9%
8.5% 10.1% 10.6%
2017 2018 2019 9M2020
SPAR excl. Daily
SPAR Franchise Daily
10.7%
11.5%
3.3%
4.2%
2019
9M2020
*SPAR Share % Breakdown
SPAR excl. Daily SPAR Franchise Daily
GEOGRAPHYCAL DIVERSIFICATION AMONG SELECT ORGANIZED FMCG PLAYERS IS ON THE RISE
Source: Survey of selected FMCG retailers, SARAS, TBC Capital,
4
TBILISI vs REGION BREAKDOWN OF SALES OF SELECT ORGANIZED PLAYERS (SHARE, %) 2018 - 9M2020
REGIONAL ORGANIZED MARKET BY TRADING AREA (’000) (2018 - 9M2020)
REGIONAL ORGANIZED MARKET BY NUMBER OF STORES (2018 - 9M2020)
• FMCG organized market is expanding in the regions as the trading area concentration of selected players in Tbilisi decreases from
67% in 2018 to 61% in 9M2020
• Total trading area of the selected organized FMCG retailers rose by 40% in 2019 compared to 2018 and is expected to reach
300,000sqm in 2020 (up 19% YoY), while as of 9M 2020 period the indicator stood approximately at 282,000sqm
• Number of stores of selected organized retailers increased by 41% YoY to 1,106 in 2019 and is expected to surpass to 1,400 in
2020 (26.6% YoY growth), while as of 9M 2020 the number stood at 1,300.
• Outside Tbilisi, Adjara, Imereti and Kvemo Kartli lead the regions by the share in trading area (20%, 20% and 17% in 9M 2020
respectively), as well as in number of stores ( 17%, 23% and 14% in 9M 2020, respectively) of the organized market
10%
13%
-
40
80
120
160
200
Tb
ilis
i
Oth
er
Ge
org
ia
Th
ou
san
ds
20%6%
13%
45%-9% 16%
8%
10%
31%
139%
-
5
10
15
20
25
Ime
reti
Ad
jara
Kv
em
o K
art
li
Sa
me
gre
lo
Sh
ida
Ka
rtli
Ka
kh
eti
Mts
kh
eta
-Mti
an
eti
Sa
mts
kh
e-
Jav
ak
he
ti
Gu
ria
Ra
cha
-Sv
an
eti
Th
ou
san
ds
YTD Growth %
67% 61% 61%
33% 39% 39%
2018 2019 9M 2020
Share of Regions %
Share of Tbilisi %
15%
22%
0
100
200
300
400
500
600
700
800
Tb
ilis
i
Oth
er
Ge
org
ia
21%
27%
15%
35%17%
10%
17%
22% 36%
100%
0
20
40
60
80
100
120
140
160
Ime
reti
Ad
jara
Kv
em
o K
art
li
Sa
me
gre
lo
Ka
kh
eti
Sh
ida
Ka
rtli
Mts
kh
eta
-Mti
an
eti
Sa
mts
kh
e-J
av
ak
he
ti
Gu
ria
Ra
cha
-Sv
an
eti
YTD Growth %
65% 60% 58%
35% 40% 42%
2018 2019 9M 2020
Share of Regions %
Share of Tbilisi %
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
20
18
20
19
9M
20
20
Total Memo Fresco Universami Carrefour Europroduct Zghapari SPAR excl.Daily
Agrohub Ori Nabiji Goodwill Nikora Trade Smart Madagoni Jibe Retail Group SparFranchise
Daily
Share of Tbilisi (%) Share of Regions (%)
NUMBER OF UNORGANIZED PLAYERS ON THE DECLINE; TOURISM DEPENDENT REGIONS HIT THE MOST IN 2020
Source: GeoStat, Survey of selected FMCG retailers, SARAS, TBC Capital,
NUMBER OF ACTIVE ORGANIZATIONS IN FMCG 2015 – 2019 REGISTERED BAZAARS BY REGIONS 2008 – 2019
• Number of active organizations involved in FMCG sales decreased by more than 13% for the last four years till 2019, depicting the
increasing formalization of FMCG Market in Georgia
• In terms of regions, Kakheti, Imereti and Samegrelo delivered highest growth rates of FMCG expenses, however the turnover in
Tbilisi, Adjara and Mtskheta-Mtianeti, which were most exposed to the demand from tourism & restaurants, were hit hardest.
Regional demand was also backed by the migration to the rural areas from the capital amidst the pandemics
• Tbilisi and other regions display increasing market penetration from 2017-2019 and growth trend is expected in 2020 as well
76 63 64
65
48 43
28
24 25
21
25 25
16
18 15
25
13 11
10
9 9
26
18 16
267
218 208
2008 2014 2019
Tbilisi Imereti
Samegrelo-Zemo Svaneti Kakheti
Kvemo Kartli Adjara
Shida Kartli Other Regions
FMCG EXPENSE BY REGIONS (GEL BN) IN 2017 – 2020E
5
-6%
-4%
-2% -1%-4%
-3%
-4%
2%
-4%-2%
-2%
0
1,000
2,000
3,000
4,000
5,000
6,000
Tb
ilis
i
Ime
reti
Sa
me
gre
lo &
Ze
mo
Sv
an
eti
Ad
jara
Ka
kh
eti
Kv
em
oK
art
li
Sh
ida
Ka
rtli
Sa
mts
kh
e-
Jav
ak
he
ti
Gu
ria
Mts
kh
eta
-M
tia
ne
ti
Ra
cha
-L
ec
hk
hu
mi
2015-2019 CAGR 2015-2019
3.3
5.9
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Tb
ilis
i
Oth
er
Ge
org
ia
1.1
0.9
0.9
0.8
0.7
0.6
0.4
0.2 0.2
0.1 0.0
-
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Ime
reti
Kv
em
oK
art
li
Ad
jara
Ka
kh
eti
Sa
me
gre
lo
Sh
ida
Ka
rtli
Sa
mts
kh
e-
Jav
ak
he
ti
Gu
ria
Mts
kh
eta
-M
tia
ne
ti
Ra
ch
a-
Le
ch
kh
um
i
Sv
an
eti
SHARE OF FMCG EXPENSES BY REGIONS (%. 2019)
25%
50%
75%
100%
Mts
kh
eta
-M
tia
ne
ti
Ad
jara
Tb
ilis
i
Sa
mts
kh
e-
Jav
ak
he
ti
Kv
em
oK
art
li
Gu
ria
Ka
kh
eti
Ra
cha
-L
ec
hk
hu
mi
Ime
reti
Sa
me
gre
lo
Sh
ida
Ka
rtli
Population Tourism Restaurants
AS THE EXPANSION OF ORGANIZED MARKET CONTINUES, SOME MAJOR REGIONS REMAIN UNDERPENETRATED
Source: Geostat, Survey of selected FMCG retailers, SARAS, TBC Capital
6
ORGANIZED MARKET PENETRATION (%) AND TOTAL FMCG EXPENDITURE (GEL MLN) IN 2019 AND 2020E
• As described in our previous report, the FMCG retailers are entering the underpenetrated locations. In 2020 the first
store of the organized market appeared in Racha. At the same time expanding market penetration in Svaneti and
Guria. There is still a great untapped potential for growth in Kakheti and Samtskhe-Javakheti. Market Penetration in
Tbilisi stands at 56% in Tbilisi in 2019 and is expected to reach 58% in 2020
Adjara 2020
Imereti 2020
Kvemo Kartli 2020
Shida Kartli 2020
Samegrelo 2020
Kakheti 2020
Mtskheta-Mtianeti 2020
Samtskhe-Javakheti 2020
Guria 2020Svaneti 2020
Racha 2020
Adjara 2019
Imereti 2019
Kvemo Kartli 2019Shida Kartli 2019
Samegrelo 2019
Kakheti 2019
Mtskheta-Mtianeti 2019
Samtskhe-Javakheti 2019
Guria 2019
Svaneti 2019
Racha 20190%
4%
8%
12%
16%
20%
24%
- 200 400 600 800 1,000 1,200
Org
an
ize
d M
ark
et
Pe
ne
tra
tio
n %
FMCG Expenditures (GEL MLN)
Adjara 2020
Imereti 2020
Kvemo Kartli 2020
Shida Kartli 2020
Samegrelo …
Kakheti 2020
Mtskheta-Mtianeti 2020
Samtskhe-Javakheti 2020Guria 2020
Svaneti 2020
Racha 2020
Adjara 2019Imereti 2019
Kvemo Kartli 2019
Shida Kartli 2019
Samegrelo 2019
Kakheti 2019
Mtskheta-Mtianeti 2019
Samtskhe-Javakheti 2019
Guria 2019
Svaneti 2019Racha 2019
0%
4%
8%
12%
16%
20%
24%
190 210 230 250 270 290 310 330 350 370 390
Org
an
ize
d M
ark
et
Pe
ne
tra
tio
n %
FMCG Expenditure per Household (GEL)
ORGANIZED MARKET PENETRATION (%) AND FMCG EXPENDITURES PER HOUSEHOLD (GEL) IN 2019 AND 2020E
MONTHLY FMCG EXPENDITURES PER HOUSEHOLD (GEL)
34% 35% 34% 36% 37% 39% 36% 35% 31%
0
50
100
150
200
250
300
350
400
Tb
ilis
i
Ge
org
ia
Ad
jara
Kv
em
oK
art
li
Ka
kh
eti
Sa
me
gre
lo-
Ze
mo
Sv
an
eti
Sh
ida
Ka
rtli
Oth
er
Ime
reti
2011-2019 Share in total consumer expenses
FORMAL MARKET PENETRATION BY EXPENSE 2017 – 2020E
24%
19%
17%
15%
14% 13%
10%10%
9%
3%
9%
0%
5%
10%
15%
20%
25%
30%
Mts
kh
eta
-M
tia
ne
ti
Ad
jara
Ime
reti
Kv
em
oK
art
li
Sh
ida
Ka
rtli
Sa
me
gre
lo
Ka
kh
eti
Sa
mts
kh
e-
Jav
ak
he
ti
Gu
ria
Ra
cha
-L
ec
hk
hu
mi
Sv
an
eti
58%
15%
0%
10%
20%
30%
40%
50%
60%
Tb
ilis
i
Oth
er
Ge
org
ia
USA
UKGermany
France
Latvia
TurkeyRussia
Georgia: 4,986 ,
Azerbaijan
R² = 0.72
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
- 20,000 40,000 60,000 80,000 100,000
Fo
od
Ex
pe
nd
itu
res
pe
r C
ap
ita
GDP Per Capital
LONG TERM TRENDS ON FMCG MARKET SIGNAL GROWTH IN FMCG SPENDING AS WELL AS CONTINUOUS FORMALIZATION
Source: World Bank, Geostat, TBC Capital
WEIGHTS OF FOOD IN CONSUMER BASKET % VS GDP PER CAPITA
FOOD EXPENDITURES PER CAPITA VS GDP PER CAPITA
SHARE OF ORGANIZED MARKET IN FMCG % VS GDP PER CAPITA
• The share of food expenses in consumer basket
tends to be lower in developed countries, whereas the
absolute value of these expenditures tends to increase
with the GDP per capita
• More consolidation is observed on developed
markets worldwide. The share of organized retail
stands at 8% in India, 20% in China with the share of
the unorganized retail market decreasing as the
wealth of the country rises. The share of organized
retail in US is 85%, 89% in Japan and as much as 92%
in the UK. The share of organized FMCG market has
been growing in Georgia from 18% in 2016 to 30% in
2019. It is further expected that this share will reach
36% by the end of 2020
• The estimated benchmark for organized FMCG
market penetration in Georgia by 2022 is 40%,
Considering current level of the GDP per capita (PPP)
in Georgia and other developing and developed
countries, we project that organized market share
could reach 40% in 2022. To achieve this benchmark,
organized FMCG’s market share should increase by
15% CAGR over the next three years.
7
USAUK Germany
France
Latvia
Turkey
Russia
Georgia: 4,986 , 30.76%
Azerbaijan
R² = 0.7078
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
- 20,000 40,000 60,000 80,000 100,000
Fo
od
We
igh
ts in
Ba
ske
t
GDP per Capita
IndiaGeorgia 2016:
4,305 , 18%
China
Georgia 2019: 4,986 , 30%
RussiaTurkey
USA
JapanUK
R² = 0.6671
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
- 20,000 40,000 60,000 80,000 100,000
Org
an
ize
d M
ark
et
Sh
are
%
GDP per Capita
CROSS-SAMPLE ANALYSIS - INDICATIONS
FOR GEORGIA:
• THE MEDIUM-TERM GROWTH POTENTIAL
FOR ORGANIZED MARKET AT 15%
• 2022 MARKET PENETRATION: 40%
NONCASH PAYMENTS BECOMING DOMINANT IN FMCG IN 2020
Source: TBC Capital, Google Mobility index; *Change compared to first 5 weeks of 2020, Data for Georgia is unavailable from 5/19/2020 to 7/2/2020
NONCASH TRANSACTION VOLUMES & NUMBER 2019-2020 (YoY %)
• Volume of consumer noncash payments in FMCG sector
rose sharply by 82% YoY in April-2020 and number of
transactions increased slightly by 11% YOY as consumers
were buying in bulk
• Over the 10-month period in 2020 volume of consumer
noncash payments in FMCG rose by 50% YoY and number
of transactions by 27% YoY
• Due to the Covid-19 pandemic consumers have changed
their shopping habits and increased their spending on
grocery during 10:00 – 18:00 hours on weekends while
transactions at retail stores have declined from 18:00
o’clock onwards compared to 2019
• Even though the number of visits to grocery stores has
declined amid pandemic, online ordering of food has edged
up and amounted to 2% of total FMCG sales in 2020 while it
constituted on average 0.2% of total sales in 2019
• FMCG retailers have started to further develop e-commerce
sales channels as online services are gaining great
importance for grocery consumers in Georgia
• Average check size is higher while grocery store foot traffic
has fallen amid pandemic. Based on the surveyed market
players average ticket size increased by 32% on average in
9 months period of 2020 compared to the same period in
2019
CONSUMER AGE (YoY %)
2%
20%
34%
25%
13%
5%
1%2%
21%
33%
24%
13%
5%
1%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0-19
20-29
30-39
40-49
50-59
60-69
70+
10M 2019
10M 2020
82%
11%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Jan
-19
Fe
b-1
9
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-
19
Au
g-1
9
Se
p-1
9
Oc
t-19
No
v-1
9
De
c-19
Jan
-20
Fe
b-2
0
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Jun
-20
Jul-
20
Au
g-2
0
Se
p-2
0
Oc
t-2
0
10M
20
19
10M
20
20
Volume (LHS) Number of Transactions (RHS)
8
TIMING (10M2019 & 10M 2020) MOBILITY IN GROCERY & PHARMACY*
-80
-70
-60
-50
-40
-30
-20
-10
0
10
20
Fe
b-2
0
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Jun
-20
Jul-
20
Au
g-2
0
Se
p-2
0
Oc
t-2
0
No
v-2
0
EU & UKGeorgia*CIS (excl. Russia)
0%
2%
4%
6%
8%
10%
12%Work Days 2019
Work Days 2020
0%
2%
4%
6%
8%
10%
0:0
0
2:0
0
4:0
0
6:0
0
8:0
0
10:0
0
12:0
0
14:0
0
16:0
0
18:0
0
20
:00
22
:00
Weekend 2019
Weekend 2020
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
20
19
20
20
Kakheti Svaneti Adjara Mtskheta-Mtianeti
ShidaKartli
Racha-Lechkhumi
Samtskhe-Javakheti
Guria Samegrelo Imereti Tbilisi KvemoKartli
Cards Issued in Georgia International Cards
SHARE OF INTERNATIONAL NONCASH PAYMENTS IN FCMG
FINANCIAL METRICS FOR GEORGIAN AND INTERNATIONAL FMCG RETAILERS
Source: SARAS, Bloomberg, REWE Group, Survey of selected FMCG retailers, TBC Capital;
*, **. *** IFRS financial metrics, incl. IFRS 16 impact; Note #1: NET DEBT considers interest bearing liabilities of the retailer minus cash & cash equivalents; Interest bearing
liabilities: loans, bonds and financial lease liabilities: Note #2: Inventory days are calculated as follows: inventory balance divided by COGS, adjusted by the amount of retro bonuses;
Note #3 Carrefour Group (EU) excludes Georgia
PROFITABILITY FOR REGIONAL FMCG RETAILERS IN 2019*
• The profitability ratios of Georgian organizedFMCG retailers are on average the same comparedto the organized retailers in different countries.Gross margins vary from 20-25%, the same range asit was in 2018.
• Gross margin of Georgian FMCG players decreasedslightly to 20.6% compared to 20.7% in 2018 whileEBITDA margin increased from 3% in 2018 to 7% in2019. Furthermore, NET DEBT/EBITDA ratio rosefrom 2.3x in 2018 to 3.3x in 2019
• Key impact on financials and ratios: EBITDA andNET DEBT Ratios are higher primarily due to theinitial application of IFRS 16 in 2019. Under newaccounting standard IFRS 16 the elimination oflease expenses had a positive effect on EBITDAwhile higher lease liabilities led to increase in debtratios, respectively (as all leases are treated asfinance leases, with the exception of short-termleases and low value leases).
• Moreover, application of IFRS 16 resulted in a lowerof rent/to sales ratio, amounted to 1.5% in 2019while excluding IFRS 16 impact this ratio accountedfor 4%
• Average current ratio for Georgian FMCG sector isof less than 1, in line with peers and stands at 0.6 in2019
• Average inventory days ratio of Georgian FMCG isin-line with other peer countries, except Russia,Turkey and UK. As for the account payable days,Carrefour reported the largest indicator among theselected retailers
• In 2019 Average inventory turnover and payabledays for Georgian retailers remain unchanged in2018 and 2019 (36 and 73, respectively)
• Organized FMCG market expansion in Georgia leadto higher average payable days to suppliers andpressure on current ratio. It is mainly driven by thestrong bargaining power of Georgian FMCGretailers, so that suppliers are safe to provide longerpayment days to the them.
9
SOLVENCY FOR REGIONAL FMCG RETAILERS IN 2019**
LIQUIDITY METRICS FOR REGIONAL FMCG RETAILERS IN 2019***
Note: Non-IFRS Financial Metrics for
Georgian FMCG retailers excl. IFRS 16
Impact:
EBITDA margin: 4.2%
NET DEBT/EBITDA: 1.8x
24%22%22%22%21%
0% 7% 6%10% 9% 8% 8% 8%
0% 7% 6%10% 9% 7% 8% 8%
0%
5%
10%
15%
20%
25%
30%
RE
WE
(G
erm
an
y)
Ca
rre
fou
r G
rou
p (
EU
)
Le
nta
/Ma
gn
it (
Ru
ssia
)
BIM
/Mig
ros
(Tu
rke
y)
Ge
org
ian
re
tail
ers
RE
WE
(G
erm
an
y)
Ca
rre
fou
r G
rou
p (
EU
)
Le
nta
/Ma
gn
it (
Ru
ssia
)
BIM
/X5
(T
urk
ey
)
Ge
org
ian
re
tail
ers
Ma
xim
a G
rou
p (
Th
e B
alt
ics)
TE
SC
O/S
ain
sbu
ry's
(U
K)
RE
WE
(G
erm
an
y)
Ca
rre
fou
r G
rou
p (
EU
)
Le
nta
/Ma
gn
it (
Ru
ssia
)
BIM
/X5
(T
urk
ey
)
Ge
org
ian
re
tail
ers
Ma
xim
a G
rou
p (
Th
e B
alt
ics)
TE
SC
O/S
ain
sbu
ry's
(U
K)
Gross margin EBITDAR margin EBITDA margin
14.9
10.2
7.5
5.9
3.2 2.9 2.6
3.8 3.0 2.9 3.1
1.5
3.3 4.0
0
2
4
6
8
10
12
14
16
Ca
rre
fou
rG
rou
p (
EU
)
Ma
xim
a G
rou
p(T
he
Ba
ltic
s)
RE
WE
(Ge
rma
ny
)
TE
SC
O/S
ain
sbu
ry's
(U
K)
BIM
/Mig
ros
(Tu
rke
y)
Ge
org
ian
reta
ile
rs
Le
nta
/Ma
gn
it(R
uss
ia)
EBITDA / INTEREST EXPENSE
NET DEBT/EBITDA
88 8473
6053
483838 40 36 34 32
57
20
0.8 0.8
0.6
0.70.7
0.9
0.7
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
0
10
20
30
40
50
60
70
80
90
100
Ca
rre
fou
rG
rou
p (
EU
)
BIM
/Mig
ros
(Tu
rke
y)
Ge
org
ian
reta
ile
rs
RE
WE
(Ge
rma
ny
)
Ma
xim
a G
rou
p(T
he
Ba
ltic
s)
Le
nta
/Ma
gn
it(R
uss
ia)
TE
SC
O/
Sa
insb
ury
's(U
K)
Average payable days Inventory days Current Ratio
FINANCIAL METRICS FOR GEORGIAN AND INTERNATIONAL FMCG RETAILERS
SELECTED FMCG RETAILERS’ SALES/SQM IN DIFFERENT MARKETS IN 2018 & 2019 (USD)
• Along with the increasing penetration of the organized market sales per square meters in Georgia continues to decline. In GEL
terms sales per/sqm was down 12% YoY in 2019 and is expected to decline by 3.5% YoY in 2020.
• In USD terms sales/per sqm of selected Georgian FMCG players is one of the lowest among foreign peers. However, price
differences between countries may significantly distort the picture. To account for this, sales/per sqm are adjusted by purchasing
power difference.*** With this adjustment Georgian retailers come on top of peers and show the space for further expansion
10
SELECTED FMCG RETAILERS’ SALES/SQM IN DIFFERENT MARKETS IN 2018 & 2019 (in PPP; International Dollars**)
14,5
23
11,1
97
10,0
75
9,8
53
9,5
01
8,4
58
7,3
27
6,0
75
6,4
82
5,4
08
3,9
59
12,2
95
11,4
96
9,5
69
10,2
81
9,0
67
8,7
56
7,3
33
6,3
45
6,2
64
5,3
38
4,0
38
11,3
34
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
Georgianretailers
Tesco (UK) Maxima Group(The Baltics)
REWE(Germany)
Lenta /Magnit(Russia)
Migros(Turkey)
Kroger (USA) Carrefour (EU) Seven & IHoldings Co
(Japan)
Cencosud(Chile)
Soriana(Mexico)
2018 2019 2020
10,1
76
8,5
59
7,3
27
6,0
35
5,8
53
5,2
78
3,9
46
3,4
67
2,7
40
1,8
70
9,9
99
8,4
98
7,3
33
5,8
38
5,3
12
5,2
44
3,7
32
3,1
47
2,6
96
1,9
35
Tesco (UK) REWE(Germany)
(Euro)
Kroger (USA) Seven & IHoldings Co
(Japan)
Maxima Group(The Baltics)
Carrefour (EU) Lenta /Magnit(Russia)
Cencosud(Chile)
Migros(Turkey)
Soriana(Mexico)
2018 2019 2020E
In GEL
Source: Bloomberg, IMF, Survey of selected FMCG retailers, TBC Capital;
*Note: Selected organized FMCG retailers average sales/sqm is 15% higher in Tbilisi and -22% lower in Adjara region in 2019, compared to the country average. As for other
regions, the metric is also less than country average, mainly driven by lower purchasing power and smaller population density
**Sales/per sqm is adjusted by PPP conversion factors using IMF estimates; ***Purchasing power parity (PPP) conversion factor is a spatial price deflator and currency converter
that controls for price level differences between countries, thereby allowing volume comparisons of gross domestic product (GDP) and its expenditure components:
4,6
99
3,7
48
3,2
97
0
2,000
4,000
6,000
8,000
10,000
12,000
Georgianretailers*
12,006 10,565 10,200
Source: Survey of selected FMCG retailers, TBC Capital; *Inventory days are calculated as follows: inventory balance divided by COGS, not adjusted by the amount of retro bonuses
*FAO Data, **GeoStat Data
PROFITABILITY & LIQUIDITY METRICS FOR GEORGIAN SELECTED FMCG RETAILERS’ 9M 2019 – 9M 2020 (Non-IFRS)
11FINANCIAL METRICS FOR GEORGIAN SELECTED FMCG RETAILERS AND DISTRIBUTORS
• Gross margin for Georgian selected FMCG retailers remains the same (21.2%) in 9M 2019 and 9M 2020, impacted by the fact that in 2020 FMCG
retailers revenue has been generated mostly from the sales of low-margin products and compensated by the income of cashback from the
suppliers/distributors.
• On the contrary, EBITDA margin edged up from 2.7% in 9M 2019 to 3.6% in 9M 2020, driven by the internal and external factors. Internal factors
represent effective cost optimization done by FMCG players. while external factors are cost cuttings of income taxes on salaries as a result of tax relief
and exemptions for businesses according to Georgian government Covid-19 economic stimulus plan. Furthermore, this improved growth has been
derived from the rental expenses reduction facilitated by the approved agreement between the landlords and tenants caused by Covid-19 crisis.
However, pandemic has resulted in rising costs for businesses and FMCG retailers incurred additional expenses in dealing with the challenges related
Covid-19 such as employees transportation during the restrictions, extra cleaning and safety gear, etc.
• Average payable days for selected Georgian FMCG retailers’ stand almost at the same point in both years period. Inventory days increased slightly
from 31 to 32.
21.2%
2.7%
21.2%
3.6%
0%
5%
10%
15%
20%
25%
Gross margin EBITDA margin
9M 2019 9M 2020
31
59
32
59
0
14
28
42
56
70
Inventory Days* Average Payable Days
9M 2019 9M 2020
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan
-20
Fe
b-2
0
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Jun
-20
Jul-
20
Au
g-2
0
Se
p-2
0
Oc
t-2
0
Meat Price Index Dairy Price Index
Cereals Price Index Oils Price Index
Sugar Price Index Food Price Index
0%
5%
10%
15%
20%
25%
30%
35%
Jan
-20
Fe
b-2
0
Ma
r-2
0
Ap
r-2
0
Ma
y-2
0
Jun
-20
Jul-
20
Au
g-2
0
Se
p-2
0
Oc
t-2
0
Alcoholic Beverages & Tobacco
Bread & Cereals
Oils & Fats
Vegetables
Meat Products
Sugar, jam, honey, chocolate & confectionery
Milk, cheese, eggs
YOY PRICE CHANGES OF PRODUCT CATEGORIES** (%, 2020Y) YOY PRICE CHANGES OF PRODCT CATEGORIES*** (%, 2020Y)
FMCG PRICE TENDENCIES AT A GLANCE
• Retail prices on food and non-alcoholic beverages in Georgia rose sharply in 2020 compared to 2019 period: The largest consumer price
increases were observed from March to June (CPI at 16.1% in April, 14.7% in May) while in September and October it declined to 6.3% and 5.5%,
respectively
ANNEX: FMCG REGIONAL MAPPING;ACRONYMS AND ABBREVIATIONS
Source: GeoStat, Survey of selected FMCG retailers ,TBC Capital:
*Organized market footprint - Number of selected FMCG retailers' stores
12
ABKHAZETI
SAMEGRELO
RACHA-LECHKUMI
IMERETISHIDA KARTLI
SAMTSKHE-JAVAKHETI
GURIA
ADJARA
KVEMO KARTLI TBILISI
MTSKHETA-MTIANETI
KAKHETI
REGIONAL DISTRIBUTION OF FMCG MARKET*
Organized market footprint: 755Population: 1,185kFMCG market size: GEL 3,331mln
Organized market footprint: 61Population: 310kFMCG market size: GEL 779mln
Organized market footprint: 76Population: 434kFMCG market size: GEL 945mln
Organized market footprint: 27Population: 93kFMCG market size: GEL 223mln
Organized market footprint: 22Population: 152kFMCG market size: GEL 370mln
Organized market footprint: 94Population: 352kFMCG market size: GEL 864mln
Organized market footprint: 15Population: 108kFMCG market size: GEL 241mln
Organized market footprint: 65Population: 302kFMCG market size: GEL 699mln
Organized market footprint: 53Population: 255kFMCG market size: GEL 607mln
Organized market footprint: 2Population: 25kFMCG market size: GEL 65mln
Organized market footprint: 2Population: 14kFMCG market size: GEL 34mln
Organized market footprint: 127Population: 487kFMCG market size: GEL 1,072mln
SVANETI
CAGR Compound Annual Growth Rate
CPI Consumer Price Index
E Estimated
EBITDA Earnings Before Interest, Taxes, and Depreciation
EU European Union
FAO The Food and Agriculture Organization of the United Nations
FMCG Fast Moving Consumer Goods
FX Foreign Exchange
GDP Gross Domestic Product
GeoStat National Statistics Office of Georgia
GNTA Georgian National Tourism Administration
HHI INDEX Herfindahl Hirschmann Index
IMF International Monetary Fund
IFRS International Financial Reporting Standards
NBG National Bank of Georgia
PPP Purchasing Power Parity
SARAS Service for Accounting, Reporting, and Auditing Supervision
Sqm Square Meters
VAT Value Added Tax
LEGAL NOTICE
This publication (the “Publication”) has been produced and distributed by the “TBC Capital” LLC (the “TBC Capital”). It is provided to our clients for informationpurposes only, and TBC Capital makes no expressed or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particularpurpose or use with respect to any data included in this Publication. TBC Capital is operating and performing its professional services on the territory of Georgiaand is duly authorized to produce and distribute this Publication on the territory of Georgia. The Publication does not constitute an offer of, or an invitation by oron behalf of, any company indicated in Publication or TBC Capital to subscribe or purchase the investment and shall not form the basis of, nor may itaccompany, nor form part of, any contract to acquire the investment in any jurisdiction. The distribution of the Publication and the offer or sale of theinvestment may be restricted by law in certain jurisdictions and the Publication does not constitute an offer of, or any invitation by or on behalf of any companyor TBC Capital to offer or sell the investment in any jurisdiction in which such offer or invitation is not authorized or to any person to whom it is unlawful tomake such an offer or invitation. Accordingly, the investment may not be offered or sold, directly or indirectly, and the Publication may not be distributed in anyjurisdiction, except in accordance with the legal requirements applicable to such jurisdictions. Persons who come to possess the Publication are required by theTBC Capital to inform themselves about and to observe any such restrictions. Neither TBC Capital nor its affiliates accept any liability to any person in relation tothe distribution or possession of the Publication in or from any jurisdiction. The Publication is not investment research and has not been prepared in accordancewith legal requirements designed to promote the independence of investment research. The Publication is not intended to provide the basis of any investmentdecision, credit or any other evaluation and is not to be considered as a recommendation by TBC Capital to participate in the transaction/s described therein. Allinformation contained in the Publication is subject to change without notice, and neither TBC Capital nor any of its affiliates is under any obligation to update orkeep current the information contained in the Publication. The delivery of the Publication at any time does not imply that the information in it is correct as ofany time after its preparation date or that there has been no change in the business, financial condition, prospects, creditworthiness, status or affairs of theIssuer or anyone else since that date. TBC Capital does not undertake to update the Publication or to correct any inaccuracies therein which may becomeapparent. Descriptions of the companies or the securities or other financial instruments of any company or securities underlying or related to such instrumentsor the markets or developments mentioned in the Publication are not intended to be complete. The Publication may include forward-looking statements, but notlimited to, statements as to future operating results. Any “forward-looking statements”, which include all statements other than statements of historical facts,involve known and unknown risks, uncertainties and other important factors beyond TBC Capital’s control that could cause the actual results, performance orachievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Suchforward-looking statements are based on numerous assumptions regarding present and future business strategies and the environment operating in the future.By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may notoccur in the future. No assurances can be given that the forward-looking statements in this document will be realized. TBC Capital does not intend to updatesuch forward-looking statements. All statements of opinion and all projections, forecasts, or statements relating to expectations regarding future events or thepossible future performance of investments represent TBC Capital’s own assessment and interpretation of information available to them currently. ThePublication may not be reproduced, redistributed or published, in whole or in part, without the written permission of TBC Capital, and neither TBC Capital nor anyof its affiliates accepts any liability whatsoever for the actions of third parties in this respect. Without limiting any of the foregoing and to the extent permittedby law, in no event shall TBC Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees have any liability for (a) any special,punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or other financial loss, even ifnotified of the possibility of such damages, arising from any use of this Publication or its contents.
Mary Chachanidze, CFAManaging Director
Otar NadaraiaChief Economist, TBC Group
Tornike Kordzaia, CFAHead of Research
Aleqsandre BluashviliHead of Macro-Finance Department, TBC Bank
Tamar ZakaidzeSenior Research Associate
Ana MjavanadzeAnalyst
Andro TvaliashviliResearch Associate
Juli AvlokhashviliIntern
Luka ChigilashviliResearch Associate Tel: +995 32 2 272727
Email: [email protected]: www.tbccapital.ge; www.tbcresearch.geVladimer Choghoshvili
Intern
This publication (the “Publication”) has been produced and distributed by the “TBC Capital” LLC (the “TBC Capital”). It is provided to our clients for information purposes only,and TBC Capital makes no expressed or implied warranties, and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect toany data included in this Publication. TBC Capital is operating and performing its professional services on the territory of Georgia and is duly authorized to produce anddistribute this Publication on the territory of Georgia. The Publication does not constitute an offer of, or an invitation by or on behalf of, any company indicated in Publication orTBC Capital to subscribe or purchase the investment and shall not form the basis of, nor may it accompany, nor form part of, any contract to acquire the investment in anyjurisdiction. The distribution of the Publication and the offer or sale of the investment may be restricted by law in certain jurisdictions and the Publication does not constitute anoffer of, or any invitation by or on behalf of any company or TBC Capital to offer or sell the investment in any jurisdiction in which such offer or invitation is not authorized orto any person to whom it is unlawful to make such an offer or invitation. Accordingly, the investment may not be offered or sold, directly or indirectly, and the Publication maynot be distributed in any jurisdiction, except in accordance with the legal requirements applicable to such jurisdictions. Persons who come to possess the Publication arerequired by the TBC Capital to inform themselves about and to observe any such restrictions. Neither TBC Capital nor its affiliates accept any liability to any person in relation tothe distribution or possession of the Publication in or from any jurisdiction. The Publication is not investment research and has not been prepared in accordance with legalrequirements designed to promote the independence of investment research. The Publication is not intended to provide the basis of any investment decision, credit or any otherevaluation and is not to be considered as a recommendation by TBC Capital to participate in the transaction/s described therein. All information contained in the Publication issubject to change without notice, and neither TBC Capital nor any of its affiliates is under any obligation to update or keep current the information contained in the Publication.The delivery of the Publication at any time does not imply that the information in it is correct as of any time after its preparation date or that there has been no change in thebusiness, financial condition, prospects, creditworthiness, status or affairs of the Issuer or anyone else since that date. TBC Capital does not undertake to update the Publicationor to correct any inaccuracies therein which may become apparent. Descriptions of the companies or the securities or other financial instruments of any company or securitiesunderlying or related to such instruments or the markets or developments mentioned in the Publication are not intended to be complete. The Publication may include forward-looking statements, but not limited to, statements as to future operating results. Any “forward-looking statements”, which include all statements other than statements ofhistorical facts, involve known and unknown risks, uncertainties and other important factors beyond TBC Capital’s control that could cause the actual results, performance orachievements to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-lookingstatements are based on numerous assumptions regarding present and future business strategies and the environment operating in the future. By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. No assurances can be given thatthe forward-looking statements in this document will be realized. TBC Capital does not intend to update such forward-looking statements. All statements of opinion and allprojections, forecasts, or statements relating to expectations regarding future events or the possible future performance of investments represent TBC Capital’s ownassessment and interpretation of information available to them currently. The Publication may not be reproduced, redistributed or published, in whole or in part, without thewritten permission of TBC Capital, and neither TBC Capital nor any of its affiliates accepts any liability whatsoever for the actions of third parties in this respect. Without limitingany of the foregoing and to the extent permitted by law, in no event shall TBC Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employeeshave any liability for (a) any special, punitive, indirect, or consequential damages; or (b) any lost profits, lost revenue, loss of anticipated savings or loss of opportunity or otherfinancial loss, even if notified of the possibility of such damages, arising from any use of this Publication or its contents.
LEGAL NOTICE
Mary Chachanidze, CFAManaging Director
Otar NadaraiaChief Economist, TBC Group
Tornike Kordzaia, CFAHead of Research
Aleqsandre BluashviliHead of Macro-Finance Department, TBC Bank
Tamar ZakaidzeSenior Research Associate
Ana MjavanadzeAnalyst
Andro TvaliashviliResearch Associate
Juli AvlokhashviliIntern
Luka ChigilashviliResearch Associate Tel: +995 32 2 272727
Email: [email protected]: www.tbccapital.ge; www.tbcresearch.geVladimer Choghoshvili
Intern