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May 8, 2009

RUSSIA: Dixy sees foreign invasion ahead

The Russian food retail sector will see a "dramatic" increase in foreign investment within three years, the World Retail Congress was told today (8 May).

The Russian food retail sector will see a “dramatic” increase in foreign investment within three years, the World Retail Congress was told today (8 May).

Ilya Yakubson, president and CEO of Russian grocer Dixy Group, said Russia’s food retail market remained fragmented and forecast foreign firms would up their presence in the country.

Yakubson pointed to the “success” of Germany’s Metro Group in Russia and the investment from French hypermarket Auchan – and insisted more foreign retailers would follow suit.

“Two weeks ago, there were rumours about Carrefour buying one of the leading retail chains in Russia – Seventh Continent. Wal-Mart has reiterated its commitment to enter the Russian market, so the situation will change dramatically in three, five years time,” Yakubson said.

The Russian economy has suffered amid the global recession, with incomes falling and both unemployment and inflation rising. After rapid growth in recent years, Russia’s GDP is forecast to fall by around 6% this year.

Yakubson said the sector’s “worst fears” about inflation had “yet to materialise”. However, he added that other economic factors, including the steep depreciation of the rouble, had shaken the industry.

“The food retail industry in general and discounters in particular were not very well prepared for this economic downturn,” he said. “Depreciation was a bad surprise for many retailers and producers. An important part of our consumption is produced in part or in whole
outside of Russia. Our food production industry is not self-sufficient. Retailers have had to quickly change their product mix and try to fight price increases passed over by Russian producers.”

Weak distribution and expensive retail space are also hurting Russian retailers, Yakubson argued, while a number of the country’s largest firms, including Dixy and rival grocers X5 Retail Group and Seventh Continent had received state financial support.

Last month, Dixy secured credit lines worth RUB2.6bn (US$80,2m) for the next year from Alfa Bank and state-owned bank VTB.

In March, the retailer announced plans to close its VMart convenience stores in St Petersburg to cut costs.

“All these factors create quite a challenging environment for retailers to operate in,” Yakubson said.

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