Kazakhstan Food and Drink Report Q4 2009

Despite the government implementing a stimulus plan equivalent to 25% of GDP, BMI expects Kazakhstan to enter recession in 2009 with the economy contracting by a forecast 1.9% as deflating asset prices, deleveraging and subdued external demand take their toll. Although subsequent consumer weakness has affected the country's food and drink industry, specifically volume sales in the previously buoyant beer industry, Kazakhstan's underdeveloped mass grocery retail (MGR) industry remains a promising target for regional retailers. As discussed in BMI's recently published Kazakhstan Food & Drink Report for Q409, independent grocery retail outlets continue to dominate the fledgling industry.

Russia's Vester and Turkey's Migros Turk are the highest profile international retailers currently present (leading Russia-based retailer X5 is also present through a franchise agreement). Vester launched its first hypermarket in 2007 and has set aside US$35mn to finance further store expansions in 2009 with additional plans to grow its footprint to around 20 stores over the next four years. Migros has been less expansive; having entered in 1998 through its Ramstore subsidiary, it has expanded cautiously, investing just over US$40mn and launching 11 stores.

Despite the overtures of the mentioned pair, the transition from informal to formal retail will be a slow and drawn out process, particularly outside the main cities of Almaty and Astana where disposable income growth has barely filtered through. While economic restraints have been a major impediment, a proportion of the consumer base has been reluctant to alter their spending habits and have remained loyal to traditional outlets. Therefore, the ability of industry to attract significant foreign investment over the near-term at least, could hinge on the performance of Migros and particularly Vester, which is the first foreign retailer to pursue ambitious expansion in Kazakhstan.

Between 2009 and 2013, BMI has forecast food consumption to increase by 41.9% and reach KZT2,551bn (US$17bn). Rising disposable incomes on the back of a forecasted upswing - through to 2018, GDP growth is forecast to average 5.7% - in Kazakhstan's economic fortunes once the global slowdown finally reverses (pushing up oil prices) and increased investment in the food processing industry will be the main growth drivers. Increased aggregate spending and exposure to Western consumption trends should also boost the profile of the MGR industry.