Tuesday, June 01, 2004

HIGHLIGHTS

RETAIL - EUROPE

Ahold Will Consider Takeovers in 2006
Dutch retailer Ahold will reportedly begin looking at takeovers again in 2006, the retailer's c.f.o. was quoted as saying, Reuters reports.
Although no concrete plans have been discussed, Hannu Ryopponen, Ahold's c.f.o., told Dutch daily Het Financieele Dagblad: "At around that time we will be ready to write a check for two to three billion euros. I would rather not invest a lot, but would be prepared to do so for a good acquisition."

Ahold, which has been struggling to recover after admitting to overstating earnings by more than U.S. $1 billion in 2000-2002, will reportedly eye takeovers in Europe in an effort to lessen an imbalance of its income structure, which currently generates 72 percent of sales in the United States, according to the newspaper report.
Acknowledging that the company's first priority this year and next was recovering from the accounting scandal, Ryopponen was quoted as saying: "It would be idiotic to go on the takeover path while the ship is still leaking. You cannot do too much that is new. First, we must be rid of the credit agencies' junk bond status. Then we will be ready for growth."

Noting that the company's U.S. focus will continue to be directed to strengthening its Stop & Shop and Carlisle, Pa.-based Giant Food Stores unit, Ryopponen said Stop & Shop's sales could double in 10 years through new store openings and small acquisitions.
Last week Ahold received a "serious warning" from Euronext, a European stock exchange, which officially reprimanded the global food retailer for breaking market rules by delaying the disclosure of accounting problems that had it near bankruptcy last year.
Date; Amsterdam, May 04

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SHOPPING MARKET – U.S.A.

Self-Checkout Transactions to Surpass $330 Billion Annually by 2007
Self-service shopping will generate transactions worth $70 billion in 2004, according to a new study from IHL Consulting Group. The study forecasts that the value of these transactions will increase to over $330 billion by 2007 as many more systems are deployed in the next few years.

The "2004 North American Self-Checkout Systems Market Study" details the trends as well as the quantitative functions of the self-checkout market, including system shipments, installed base, market value, key technology vendors, and the value of transactions through these systems.

The report also includes a four-year forecast for shipments, installed base and market value, and an analysis of projected penetration in key retail segments.

"We live in an age where self-sufficiency often reigns supreme, and time is at a premium," said Greg Buzek, president of IHL Consulting Group, an analyst firm and consultancy that serves retailers and retail technology vendors. "New self-service technologies are emerging that will revolutionize the way we shop for goods and services.

The report provides data, charts, and graphs on self-checkout trends and challenges, key vendors, retail segments, market opportunities, and forecasts. Some key insights from the report:

- In stores currently using self-checkout systems, as much as 40 percent of the total number of transactions now go through the self-checkout, allowing retailers to provide more customer assistance within the aisles to help customers find products.
- More and more retail segments are adopting self-checkout. The Home Depot now has more than 3,200 lanes installed.
- The key technology players in self-checkout are NCR, IBM, and Fujitsu
TransactionSolutions. NCR is currently the dominant player, but IBM and Fujitsu have recently entered the market through key acquisitions, bringing with them significant point-of-sale success.

"The No. 1 challenge facing retailers of all sizes is, 'How do we compete with Wal-Mart?'" said Buzek, adding that self-checkout systems are allowing retailers to move labour from checkouts to other areas of the store, creating a differentiation in customer service that can be used to compete with the world's largest retailer.
Date; May 04

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SUPERMARKETS – FOOD SECTOR – U.S.A.

Supermarkets, Packaged Food Companies Top National Customer Service Poll
Supermarkets and packaged food companies top the list of industries that scored the best marks for serving their customers, according to an annual Harris Poll ranking 15 industries on how well they serve consumers.
Fully 87 percent of the survey's respondents believe supermarkets do a good job of serving their consumers, while 77 percent said the same of packaged food companies.
Next on the list come airlines, at 74 percent, followed by computer hardware (73 percent), banks (73 percent), and software (72 percent) companies.
At the bottom of the list, only 30 percent think tobacco companies and managed care companies do a good job. Oil companies, with 32 percent, are only marginally better.
The Harris Poll was based on a survey of 979 adults surveyed by telephone between April 8 and 15. The polling organization said the substantial changes between 2003 and 2004 concerned airlines, which fell very sharply in 2001 but have bounced back, going from 64 percent last year to 74 percent this year. The airlines' score depicts a 23 percent increase since the airlines' lowest number, 51 percent in 2001.
By contrast, oil companies have slipped 10 points this year, from 42 percent in 2003 to 32 percent, a decline of 32 percentage points since their best number, 64 percent, in 1998.
Source; Harris Poll, May 04

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RETAIL – U.K

New formula is working, claims buoyant Boots
Boots chief executive Richard Baker, the former Asda director, yesterday said the retailer was "changing fast", as he unveiled a 2.7pc rise in underlying profits to £544m.
The company also announced plans for a £700m share buyback over the next two years.

This sent the shares up 43.5 to 675.5p, making it the second-biggest riser in the FTSE 100 yesterday.
The news cheered investors, who were shocked just seven weeks ago when the company revealed a £390m investment plan that would hit profits.
However, credit rating agency Standard & Poor's cut the 150-year-old group's rating two notches to A- on fears that it would have less cash to pay off debt. The group's net debt at the end of the year to March rose £97m to £149m.

Mr Baker, who was working behind the tills at the Boots store on Cannon Street on Tuesday, said: "We do expect some degree of disruption from the investment."
However, he was bullish about the prospects for the company, whose 1,400-strong chemists chain accounts for 90pc of profits.

Boots, which took a £16m hit from voluntary redundancies, said cost cuts and rising sales, up to £5.325m from £5.320m, helped offset lower prices. Boots unveiled a 6.6pc rise in operating profit to £531m, while same-store sales rose 3.9pc, against growth of 4.8pc last year.

However, the chemist chain suffered a fall in operating margin to 11.9pc from 13.3pc, due to cutting prices 18pc on 2,000 products.
The photography division struggled with the tradtional development business down 12pc and overall down 6pc.

Meanwhile, the optician and dentalcare business saw losses narrowed to £5m from £31m and the international arm reported losses down to £10.4m from £22m.
Boots also said 15pc of its pension funds assets would be transferred out of bonds, although Mr Baker said: "This is not a view on where the equity market is."
Source; Telegraph Group Limited, May 04
Write; by Helena Keers

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BUSINESS – CORPORATE

P&G; Realignment of management structure USA
The US consumer goods giant Procter & Gamble Co (P&G) has announced some business unit realignments and associated management changes in the course of which several senior managers will be retiring within the next six to twelve months.

Steven N. David, 55, chief information officer and business to business officer will retire on January 2, 2005. Until that time, he will continue to be the global business to business officer.

Michael J. Griffith, 47, president-global beverages will retire on January 2, 2005.

Mark D. Ketchum, 54, president-global baby & family care, will retire on November 1, 2004.

Jorge P. Montoya, 57, president-global snacks & beverages and Latin America, will retire on October 1, 2004.

Martin J. Nuechtern, 50, president-global hair care, will retire on June 30, 2005.

New senior managers
The company will realign its business units effective July 1, which will take the form new units called global beauty care, global health, baby and family care, and global household care.

Bruce L. Byrnes, 56, currently vice chairman of the board and president-global beauty & feminine care and global health care, will become vice chairman of the board and global household care.

R. Kerry Clark, 52, currently vice chairman of the board and president global market development and business operations, will become vice chairman of the board and global health, baby & family care.

Susan E. Arnold, 50, currently president global personal beauty care and global feminine care, will become vice chairman global beauty care.

Robert A. McDonald, 50, currently president global fabric & home care, will become vice chairman global operations.

International changes
Additionally, the company is creating a new group president position to recognize the scope of these business responsibilities. Werner Geissler, 51, currently president Northeast Asia, will become group president Central & Eastern Europe, Middle East and Africa.

Dimitri Panayotopoulos, 52, currently president Central & Eastern Europe, Middle East and Africa, will become group president global fabric care.

Paul Polman, 47, currently president Western Europe, will become group president-western Europe.

Robert A. Steele, 48, currently president North America, will become group president-North America.

In line with these changes, the following executives were elected to new positions, effective July 1: Ravi Chaturvedi, 44, currently vice president Greater China health & beauty care, will become president Northeast Asia.

Christopher de Lapuente, 41, currently vice president United Kingdom & Ireland, will become president global hair care.

Jorge A. Uribe, 47, currently vice president customer business development and marketing, Latin America, will become president Latin America.

Fillippo Passerini, 46, currently global business services officer, will become chief information and global services officer.
Source; LB, May 04


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FOCUS

TRADE – RUSSIAN MARKET

An inside look at Moscow
Moscow Giant shopping centers everywhere, rents at an astronomical level. Interest in
German investment.


Europe. Moscow is a city that is changing at lightning speed. West European companies who'd like to take part in this economic development will have to change their perceptions.

The rules are not exactly known for their clarity and potential investors have a hard time getting to grips with things. As the Russian poet Fjodor Tjutschev once said, "Russia can neither be understood with intellect nor with a measuring stick," and this is as true today as it ever was.
No wonder that the first question that investors ask is what are the chances in this country and how high are the risks? Where are the bad guys? How can I find the good ones? Managers who don't have the guts or who get ensnared by false prophets will never get the doors open.

Opportunities abound
Having said that, consultants such as A.T. Kearney and the Federation of German Economists in the Russian Federation report that the city stands for growth. "The opportunities in Russia are close at hand. The German economy must not, and will not, miss the boat."

Siegfried Hübner, a German marketing consultant, has been keeping his eye on the city's development for two years, and he is keen to pass his knowledge on to the new Federation of Russian-European Entrepreneurs.

The federation's goals are quick to explain. The transfer of know-how to both retailers and manufacturers for successful market penetration, the development and support of investment strategies, as well as the creation of specific contact networks.

Good food, good business
These contacts are particularly important, and this is something that Cesim Cacan, a German-Turkish restaurateur knows all too well. The various restaurants he operates in Moscow, such as Bosfor, Route 66, Kebab fast food places and ethnic food restaurants have brought him wealth and prestige.

He is chairman of the Preussisch Gesellschaft Berlin Brandenburg and realised very early on which opportunities lie waiting in Moscow, a city with more than 20 million inhabitants.
He is also vice-president of the Turkish-Russian Association and has a widespread and prestigious gastronomic network. His company ABA Handelslogistik acts as supplier to such well-known retailers as Metro, Auchan, Marktkauf or the Russian Ramstore.

Turkish network
Turkish is the common language in his restaurant Bospor, it is a popular meeting place for many Turkish entrepreneurs. One of his guests is sometimes Haluk Bozoðlu, vice-president of Günal Construction Trading & Industry Co. Inc., a construction company specialising in bridges, dams and, nowadays, shopping malls. It belongs to the Ankara-based conglomerate MNG Group.
Bozoðlu's company is currently building a fantastic shopping mall on a premium sight at Puschkin Square. When asked if this would be a good address for German food retailers, Bozoðlu replied that basically, of course, yes, but he doubted whether they could achieve the rents.

Astronomic rents
He is planning on square meter prices that seem astronomical, anywhere between 900 and 1000 US dollars. Metro would have to sell nothing but caviar in Germany for years before being able to afford rents like these.
Of course Bozoðlu could build more affordable sites, for instance for stores like Kaufland, Minimal or Plus, in fact his company has already secured relevant sites. But even these would charge rents of around 180 US dollars per square meter, much higher than any charged for greenfield sites in Germany.
In a neighbouring table in Bozoðlu's restaurant Bosfor there is another German business man with a thorough knowledge of the Russian market, Michael Deines. He is an advertising and marketing specialist who has been working on projects for Rewe and Tengelmann.

A simple message
He "got stuck" in Moscow, so to speak, after the completion of a project for the AVA subsidiary Marktkauf Rus, and now operates an advertising agency with a Russian partner.
Deines has plenty to report about German-Russian business dealings, as well as about day to day business. Although he can now read Russian, he still chooses to count the stations of the legendary Moscow Metro system rather than relying on his reading skills. Just to make sure.
He has a simple message to pass onto any entrepreneurial-minded retailer: the only mistake anyone can make is not to open at all.

Modern Russian managers
Someone else with deep-seated wisdom of what is happening here is Andrei Gorski, in fact one could say that he is the archetype modern Russian manager. He is extremely well-educated, speaks several languages, open-minded and oozes self-confidence.
In his mid-thirties, Gorski joined Tengelmann in the mid 1990s, was managing director of the Russian subsidiary of its production company Wissol between 1995 and 2001. This was followed by a period as head of non-food procurement at the AVA subsidiary Marktkauf Rus.

Calling on dynamics
Both he and the Russian Department of Trade and Industry, which invited Lebensmittel Zeitung to Moscow, are more than a little disappointed in AVA's reticence to get on with its expansion in the Russian capital. The government had hoped that the company would be quite a bit more dynamic.
Gorski, who is also consultant to Tigran A. Karachanov, Russia's Minister of Economics and responsible for the conurbation around Moscow called Oblast, is particularly interested in the success of German companies in this area.
The area is in direct competition with Moscow itself. The political leaders of the region, led by its governor Boris Gromov, would like to convince more investors of the advantages of setting up operations in Oblast.

Beyond Moscow's doors
Gorski waxes lyrical about the advantages that the region has to offer, taking care to draw attention to the growing traffic congestion in the capital itself and the exorbitantly high rents. "The margins to be achieved here were last achieved in Germany 30 years ago."
Minister Karachanov's message is quite simple: he would like to see German companies investing in his region, and Gorski is the man to help when it comes to first steps and speeding things up.

Where funds flow ...
Gorski doesn't hide the fact that corruption still exists, but what actually is to be classed as such is difficult to say. Money paid to the authorities for services such as security and health, for instance, does not end up in the pockets of the staff there. Instead it is paid into a kind of social fund, says consultant Siegfried Hübner, and is part of the country's business system.
Some companies work closely with the ministries and supply food to kindergartens, others supply the offices of the welfare service with modern equipment and still others have delivered air-conditioning units to a controlling institution.

. . . and if they don't
Not so long ago, the Swedish furniture giant Ikea discovered that it was not always such a good idea to show reluctance to ideas put forward. A regional authority put its foot down about the erection of a new building because, it was said, environmental demands had not been fulfilled.
Metro Group, which has strict behavioural rules for expansion into foreign countries, just as Ikea does, realised quite early on that in Russia's case "ministers have to be treated the same way that business partners are".

Connections is the name of the game
It is of paramount importance to have the right connections to the right offices if a business venture is to be successful and carried through without any major hassles. Those who do not heed this maxim often end up paying for their misjudgement.
The security services, often run by former military players, play a major role here. The call themselves services providers, and their service is to iron out problems between state agencies and the investors in a pragmatic way.
Although Lebensmittel Zeitung would have liked to hear more about this subject, the interview with Tigran Karachonov, aged 60, draws to a close. The 30 minutes that were planned ended up as 45, although this included several mobile phone conversations.

European companies considered slow
Karachonov, who is keen to extol the advantages for German investors opening up shop in the region, wonders why there are so many negative reports about business in Russia, while at the same time the list of interested parties is growing longer by the day.
Maybe VW will be building a factory after all? Talks have not broken down entirely yet although the car builders want special treatment in the form of a reduced VAT rate for its cars. "Agreeing to such a demand would put our own car manufacturers at a disadvantage.
The minister is also surprised that German food retailers often take such a long time to get going. "Russians tend to take a long time to prepare things, but when the decision has been made then we pull the whole thing through quickly."

This is probably a stab at Rewe who was presented with various options for the Oblast region already a year ago. Although it would like to, Lebensmittel Zeitung is unable, at present, to report that Rewe is taking Penny to Russia.

The road to Eldorado
There are plenty of shopping centers lining the roads leading out of Moscow, and the names filling them are all too familiar: Metro, Obi, Ikea and Auchan.

A quick look into Auchan shows plenty of German products on the shelves. "Saturday is so busy," says Wolfgang Deines that all 86 checkouts have to be opened.

Another French company, the dairy group Danone recently opened a new production facility south of Moscow. The French company plans to increase its turnover in Russia by 30 per cent this year, and the new plant will certainly help it to achieve this goal.

The Department of Trade and Industry lists quite a few German companies who have already set up in this region around Moscow. Ritter Sport (chocolate) EUR 15 million, completion 2005; Hochland (cheese) USD 35 million; Ehrmann (dairy) USD 30 million; Döhler (fruit concentrates) EUR 5 million; Obi (DIY) EUR 25 million; Metro (C+C) EUR 100 million and Marktkauf (Hypermarket/DIY) 32 million.

All in all, it can be said that the region's favourable strategic position is truly a region with a promising future, and the governmental agencies see further growth on the backs of western investments.
Date; May 04

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