Rising disposable incomes and growing consumerism is changing the way Russians buy their food and, according to a recent report from the Polish market research and consultancy group PMR, this is leading to a larger market share and huge opportunities for supermarket operators. Ben Cooper reports.
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The development of the Russian retail market and rising disposable incomes is precipitating a major change in the way Russians buy their food, according to a recent report from the Polish market research and consultancy group PMR.
Traditionally, most Russian consumers buy their food provisions from small, independent shops as well as in open-air markets. However, according to the report Retail in Russia 2007, the country’s emerging middle class consumers are looking for better comfort, quality and safety when shopping, all of which is good news for supermarket chains.
Companies operating supermarkets, hypermarkets and discount stores are developing faster than the whole grocery market and increasing their value share. The share of the market represented by organised retail chains has risen from 9.5% in 2005 to an estimated 12% in 2006, and PMR forecasts that it will increase to as much as 15.6% in 2007.
This has clearly been at the expense of more traditional retail formats. The independent retailers’ share of the market fell from 66.5% in 2005 to an estimated 65% in 2006, and PMR forecasts that it will fall again to 62.4% in 2007. At the same time, the share of sales represented by open-air markets has fallen from 24% to 23% in 2006, and is expected to be 22% in 2007.
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By GlobalDataAs the retail market develops and consumer buying habits evolve, Russian companies are experimenting with various store formats. One example cited by the report is Sedmoy Kontinent, a successful operator of supermarkets, delicatessen supermarkets and convenience stores, which is now developing a hypermarket chain. Much in the same vein, Tander, which owns the country’s largest discount store chain, has also decided to invest in hypermarkets.
PMR believes it is highly probable that foreign hypermarket operators, such as Wal-Mart and Carrefour, will enter the market in the near future. Auchan and the Metro Group, with its Real brand, are already present in the country.
An influx of foreign retailers would represent a further significant change in the Russian retail market, says PMR, as at present the Russian grocery sector is not dominated by foreign companies, unlike the other markets in Central Europe. While companies such as Metro Group, Auchan, Rewe and Spar have prospered in Russia, the market leader is X5 Retail Holding, the Amsterdam-based concern that operates Russian food retailers Pyaterochka and Perekrestok.
It is not only the food retail market developing rapidly in Russia though, and PMR sees growing disposable income impacting on all areas of the retail market, from food to electronic appliances and DIY stores.
In 2006, the total turnover of the Russian retail market amounted to RUB8.6 trillion (US$0.33 trillion), which was 22% up on the previous year. In real terms, the value of retail trade grew by 13.2%. This compares with RUB3.77 trillion in 2002. Moreover, PMR forecasts that the market will grow to RUB21.14 trillion by 2010.
The Russian retail sector is still underdeveloped in comparison with Western countries. While supermarkets, hypermarkets and discount stores have sprouted up all over the country, their market share is significantly lower than that seen in most advanced retail markets, says PMR. According to the report, organised retail networks control only 12% of Russian retail sales in total.
PMR also points out that the situation and stage of development of non-food retail differs from sector to sector. For example, in the clothing and footwear retail segment organised retail chains represent only about 5% of the market. On the other hand, four large retail chains control Russia’s electronic appliances retail market.
All in all, the Russian retail market is developing rapidly, and not only in terms of sales. Russian retailers are gaining more and more expertise, and becoming increasingly sophisticated in their approach, PMR says. As a result, the market share of the largest players is growing across all sectors, meaning future entrants will face a more competitive environment than those companies already setting the pace.
