Russia's economy, buoyed in recent years by the country's vast natural resources, kicked off 2009 with something of a whimper.

Last month, official figures showed that in January Russia's GDP shrank by 8.8% year-on-year as the global downturn began to have an impact on one of the world's fastest growing economies. With real incomes falling as inflation started to creep up, and with unemployment rising, consumer demand began to slow, causing concern about the prospects for one of the much-touted BRIC markets.

Russia's major food retailers reported robust sales figures for 2008, although many saw growth slow during the last quarter of the year. And, all the while, a number of Russia's leading grocers, including the largest, X5 Retail Group, have received financial support from state-controlled banks to help them navigate the financial crisis.

Nevertheless, there is the feeling that Russia's grocery sector could provide a beacon of hope for retail multinationals in 2009 in a tough global food retail industry - while also continuing to provide growth for the country's largest domestic players.

Generally, analysts feel that most elements of the food retail sector will escape the worst of the ongoing credit crisis, and that Russia will replicate this trend. "The effect of the ongoing crisis will be more on the non-food retail segment," says Shushmul Maheshwari, chief executive of market researchers RNCOS, which recently published a major report on the food retail sector in Russia. "Only premium category products like organic food will witness a slowdown. Consumers will continue to spend on food retail but they will cut down their spending on non-food retail."

Last week, Carrefour, the French retail giant, signalled its confidence and revealed that it will open its first hypermarket in Russia this summer. The opening is part of Carrefour's plans - first announced last September - to invest up to US$100m over the next five years to develop a hypermarket business in the Krasnodar region in southern Russia. Carrefour, meanwhile, has also been linked with the possible acquisition of a majority stake in local retailer Seventh Continent, although the French company has, so far, remained silent over the rumours.

Metro Group, the German retail group and the largest foreign grocer operating in Russia, opened new nine stores in the country last year. Rewe, Metro's German rival, has also targeted Russia for expansion. In December, Rewe acquired 13 supermarkets from the Russian grocery chain Njam Njam in Moscow and opened its first 24-hour Selgros cash-and-carry market in Kotelniki in the Moscow region. Rewe has not ruled out further acquisitions, and has suggested it could open 70 stores under the Selgros banner. Indeed, Rewe has forecast that its sales in Russia would jump by 40% during the 2008/09 financial year.

Among the major domestic players, X5 and Dixy Group enjoyed bumper sales growth in 2008. X5 posted a 57% jump in revenues to US$8.3bn, buoyed in part by the acquisition of the Karusel chain, although for a second consecutive year, the group said its like-for-like sales growth exceeded 20%. X5's consolidated sales growth slowed during the final quarter of 2008 but still reached a healthy 41%.

What's more, looking to the year ahead, X5 said last week that it expects to grow revenues by more than 25% in spite of the economic downturn that has sapped Russian consumer confidence.

Dixy, meanwhile, saw its 2008 sales rise by 32% to RUB48.2bn (US$1.35bn) and jump 36% when measured in US dollars to $1.9bn. The retailer's like-for-like sales grew by more than 20% in 2008. Dixy's discount sector performed well, up 28% in rouble terms, up 32% in US dollars to US$1.6bn. Growth slowed in the last quarter significantly, but still remained high at 19%, compared with the same period in 2007.

Last week, Dixy may have announced plans to close its Vmart convenience stores in St Petersburg but the retailer's voracious appetite for takeovers remains undimmed. "The credit crisis gives us more bargaining power vis-à-vis possible M&A targets, who are hit hard by the liquidity crisis," says Yaroslav Grekov, Dixy's director of communications. "We are interested in acquisitions for a reasonable price of small to medium-sized companies in the south, central and Siberian regions of Russia."

The trend for takeovers in Russia's competitive market continues apace: even during the comparatively sluggish last quarter of 2008, X5 acquired 74 stores. Further acquisitions in the course of the year look likely to include X5's purchase of the Kopeika retail chain. While remaining publicly tight-lipped, X5 is understood to be attracted by Kopeika's 2008 turnover of RUB51.6bn (US$1.45bn), up 34% in rouble terms on 2007. Kopeika has attributed the growth to strong like-for-like sales of 18.6% and its move to open 98 new stores in Moscow, St Petersburg and other regional centres.

"The small capital base and limitation in strategic choices make these small companies more vulnerable to current market conditions as compared to big and established players," says Maheshwari. "There may be consolidation in the industry as these small players will be either bought out by big companies, or there will be mergers of two or more small entities."

Yet uncertainty remains. X5's short-term debt at the end of 2008 was RUB17bn, according to official company statements, and in February, the Russian state-controlled bank VTB increased its existing credit line to X5 to RUB9bn (US$249.2m) from RUB7bn.

Despite the fact that X5's credit lines are now RUB13bn, the company is confident about its prospects for 2009. "These additional credit lines are recognition of the steps we've taken to strengthen the company's financial position and reflects the government's continued strong support of the retail sector of the economy," says Evgeny Kornilov, X5's CFO, adding the company had reduced its debt to equity ratio from 3.2:1 to 2.5:1. "We expect that our successful multi-format business strategy, strong cash generating capacity, prudent approach towards capital expenditures and efficient cost controls will result in additional resources for strengthening X5's balance sheet."

X5 is not alone in securing funding from VTB. Fellow retailers Seventh Continent and Magnit were among the food retailers that obtained financing from the state-controlled bank, although Maheshwari believes this funding alone will not underpin long term success. It would "enable them to survive the ongoing crises", but "rather than bailing out these retailers government must focus on creating demand which in turn will benefit the retail companies".

Nevertheless, dome of Russia's food retailers see the downturn as an opportunity to thrive. According to Dixy's Grekov, the credit crisis will strengthen the company. "For our discounter chain the crisis will only bring benefits in terms of consumer behaviour, as more consumers looking for cheaper food will flock to our stores, instead of some more expensive supermarkets," he says. "The premium segment will be slowing down significantly, but we are not involved in it. Discounters, on the contrary, will flourish."

Other analysts also believe Russian food retail will continue to grow this year. This is partly, according to Greg Badishkanian from Citigroup Global Markets, because of higher restaurant prices. The greater cost of dining out "combined with a weakening economy continues to drive consumers out of restaurants and into grocery stores", he says.

And retailers from Russia to Germany and France will be hoping the optimists are proved right.