However, particular retailers as well as individual regions of the country will be affected in different ways, depending on the unique characteristics of local markets shaped by their specific economic and retail environment development stage.
The Russian retail market was worth RUB 13.85tr ($558bn) in 2008, having recorded growth of close to 28% y-o-y. However, according to the latest report by research and consulting company PMR, each of seven federal districts (Central, Volga, Southern, Siberian, Urals, Northwestern and Far East) exhibits significant differences with regards to the current stage of retail markets, existing competition and thus, their development prospects.
The smallest, but most populous, Central Federal District, with Russia’s capital — Moscow — is the largest retail market in the country, accounting for 34% of country sales, having generated retail turnover of €189bn in 2008, according to PMR. Interestingly, the Northwestern federal District, which incorporates St. Petersburg and Leningrad Province is not among the greatest contributors to the total retail sales in Russia. In fact, it accounts for less than 10% of the country’s retail turnover, prevailing only over the Far East, which traditionally has the lowest share of retail sales (4%) from among the Federal Districts in Russia. In 2008, according to PMR’s estimates, the latter generated slightly over €20bn of retail sales.
Partly, the abovementioned differences are being affected by the number of people inhabiting each of the abovementioned regions as well as their purchasing power and degree of abundance of retail outlets. Thus, the Central Federal District leads in terms of retail sales per capita (€5,100), with regards to the high purchasing power of its inhabitants. Interestingly, the Urals follows with €4,890, also exceeding the country’s average, with this ratio influenced by the value of the average wages found in the District, highest from among all regions of Russia.
Southern and Urals catch up fast
PMR estimates that the most dynamically developing regions in terms of retail include the Southern Federal District and Urals Federal District. Retail sales there are estimated to have grown during 2008 by 34% and 33% y-o-y, respectively. The Central region, with regards to its higher base and maturity level, develops at the lower rate.
Also in terms of national retail chains’ presence, various Federal Districts exhibit different penetration levels. The majority of nationwide chains have originated or, in the case of foreign retailers, firstly invested in the Central District (14 out of the 20 top chains in Russia) and only later expand into some other regions. Yet it is interesting to note that from among the 12 largest foreign retailers which invested in Russia, only one (Rutakesko) did not invest in Moscow first. Very few retailers, however, have managed to expand to every Federal District of Russia. This gives an advantage to a number of local players, which with regards to the size of the country, operate and sometimes even lead their segments on a local/regional basis.
M&A opportunities expected
The current general economic downtrend in Russia is expected to stimulate M&A activity in the retail industry throughout the country. In light of the current economic slump and with the weakening of the rouble in comparison with the dollar as well as the decrease in the growth rates of average incomes, some retailers may encounter severe problems with sustaining their businesses and become more attractive as a potential acquisition target. Many retail chains are already unable to grow at the same pace as previously and some have frozen up all capital-intensive projects. The coming years are likely to see troubles for some middle-sized national (such as Mosmart) and small local players, which have taken considerable bank loans for development. At the same time, the largest players are expected to withstand the crisis, being among others supported by government initiatives (enabling access to loans aimed at financing strategic projects and acquisitions inside Russia) or entering co-operations with foreign operators.
One way or another, it is likely that existing players will boost their storecount or new foreign players will enter the market of Russia through acquisition of some medium national or regional players. Global retail giants, such as Wal-Mart and Carrefour have already set up their offices in Russia and are said to be interested in taking over control of some Russian retailers (e.g., Lenta or Sedmoy Kontinent). At the same time, Russian retailers might use the opportunity to expand by taking over local enterprises, which are abundant in remote regions of Russia.
More information on the report:
tel. /48/ 12 618 90 00
e-mail: marketing@pmrcorporate.com
