Russian retail looks beyond Moscow

The growth of the food retail market has been largely driven by the increase in disposable income, the report highlights. This stems from government policy to sell privatize large amounts of the public housing sector. Flats were sold off to the public at modest prices and the outcome is that now the average Russian spends only 5 per cent of their income on accommodation. Conversely the proportion of income spent on food and drink is exceedingly high, averaging 56 per cent of income.

All this has added up to huge growth for the food retailing sector, much of it centring on higher end goods as the countries middle class continues to burgeon. The Lebensmittel Zeitung report also highlights the fact that both St. Petersburg and Moscow continue to lead the way with regards food retail development. Moscow currently has 5.9 per cent of the total population in Russia, but still accounts for 29 per cent of national retail sales, which amounts to $125 billion a year. However as retail growth slows down in the capital, neighbouring regions and provinicial capitals with populations of more than 1 million are becoming the new focus of attention for retailers.

Although the market continues to be penetrated by foreign players, the report says that domestic players are becoming increasingly important. Currently German retail group continues to dominate the Russian food retail sector, reporting a turnover of $1.08 billion last year. However, domestic groups Pyaterochka and Magnit are battling out in second and third places with sales of $755 million and €580 million respectively last year. Many market analysts are tipping Pyaterochka for strong future growth due to its high level of organisation, the report says.

This expansion has not only been driven by a few, but prominent foreign retailers such as Metro or Auchan, but also primarily by Russian multiples who have been growing strongly and becoming increasingly professional. Currently "Magnit" supermarkets run by Tander company have been growing fastest. Sales doubled from 2002 to 2003. With 650 outlets in 35 cities Magnit is market leader in terms of store numbers. A further 200 to 250 new stores are planned for this year.

Equally the report highlights that good growth prospects are expected from the Kopeyka, currently the eighth largest food retailer in Russia and Sedmoi Continent, currently the sixth largest. Interestingly Sedmoi Continent is said to be looking for smaller store formats to drive future growth. These stores will focus on convenience shopping in main urban areas.

Ultimately there is still a great deal of potential for further expansion. The report highlights the fact that only 18 per cent of the food retail market has been captured by modern retail formats. This is due to the fact that some 70 per cent of national food retail sales are made through open markets and very small local shops.

Although development of the Russian food retail market has been rapid in recent years, vast swathes of smaller urban conurbations remain almost untouched by the big players. Obviously this spells out huge potential for the future, but equally economic development is not expected to take off with the same alacrity as that already experienced in St. Petersburg and Moscow. For most of the food retailers wanting to expand into new regions the really hard work has only just begun.