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14 Feb, 2007 11:08

Is Wal-Mart about to establish itself in Russia?

Is Wal-Mart about to establish itself in Russia?

The world's biggest supermarket chain, Wal-Mart, has been looking at entering Russia for the past 5 years, but some say this year could see the opening of Wal-Mart's first store in the country.

Wal-Mart is one of several companies wanting to join Russia's retail boom.

The food retail segment earned around $US140 BLN in 2006. Analysts say the market is likely to grow at just under 20% for at least another 5 years – and bring the market value to $US240BLN (by 2011).

Growth attracts new entrants. But so does the low penetration – relatively few people use supermarkets compared with other countries.

Supermarkets, hypermarkets and discounters account for 20% of the food retail market. Open-air markets account for another 20%, kiosks another 20% and stand-alone grocery stores the remaining 40%.

Media reports speculate that Wal-Mart will acquire existing retailers like Lenta, O.K. and X5, to launch its business in Russia. 

“It is too late to develop greenfield operations because market is rather saturated. Window of opportunities is closing. That is why partnerships are likely,” Svetlana Sukhanova, analyst Consumers & Retail at UBS in Moscow believes.

But if French retailer Auchan and German cash-and-carry Metro were able to succeed after entering the market 5 years ago, others say there's still room for more retailers to go it alone – as long as the market remains fragmented.

According to Natalia Zagvozdina, Director at Renaissance Capital in Moscow, “the whole argument about foreign retailers having to find Russian partners is based on the premises that they'd be at a loss as to how to find stores. For example, the supermarket operators of smaller stores they have to have a chain of 50 stores plus. I don't see it is that necessary to be partners with someone to be able to operate efficiently.”

Ms Zagvozdina says the Russian retail market has matured enough for Wal-Mart to make its mark this year. With 150 hypermarkets across the country, there's no longer a lack of retail space. Logistics is improving and there are available qualified personnel.

Wal-Mart isn't the only company wanting to take advantage. Carrefour may already be ahead of Wal-Mart as media reports have claimed the French retailer is in talks with Russian supermarket. Carrefour has appointed the head of its Italian operations to also cover Russia.

Ms Sukhanova points out that Russia isn't the only country on Wal-Mart's radar.

“I think Wal-Mart have other priorities like China, India. They are currently moving into India making partnership with local telecom operator. Russia is on the priority list but not as an immediate priority,” she stresses.

But Ms Zagvozdina says Russia still has the upper hand among the large emerging economies. 

“I think only China and India can offer higher growth rates but in Russia you also have 70% of the population being urban one. It is not a rural country. Therefore a number of cities and towns where small retailers are in demand is much greater compared to India,” she concludes.

The trend is clearly in favour of modern supermarkets and hypermarkets, which account for 80% of most European countries' food retail sectors. And although Russia is set to become Europe's biggest retail market in 5 years, it's not yet following the beaten path.