New retail law to come before Duma

A long awaited new retail law will go before the Duma in the coming week, with critics saying they could mean higher prices.

3 years in the making and 300 amendments. Russia’s new law on retailing aims to make how prices in shops more transparent and is intended to boost competition within the sector.

It might also prohibit retailers from opening a new store in a region if their market share exceeds 25%, and Sergey Galitsky CEO of Magnit Retail Group sees it as a new barrier.

“It’s an anti-market measure. We are ready to submit to new conditions in order to open a store, but we are not ready for a total ban on new shops.”

Another hot topic is the entry fee which suppliers pay to retailers to get their products on shelves. The so-called bonus to retailers can be as much as 5 thousand dollars for a product. The new law will put a stop to the practice but according to Lev Khasis, President of X5 Group, Russia’s largest retailer, customers will ultimately pay more.

“The intention of this law is to increase the profitability of suppliers and to increase the level of operational expenses of chains. Who will pay for this? I know only one source – wallets of customers.”

Suppliers are not worried- they say the big popular brands will boost their share in the shops, stimulating demand through advertising. But smaller producers will not be able to compete and may have to sell their products under a chain’s private brand. Musheg Mamikonyan, President of the Russian Meat Union welcomes proposals to boost the power of suppliers.

“Only those who abused their power will lose out. There are a number of big retailers who had been taking advantage of their position to make excessive profits at the expense of the suppliers. This law will make it harder for that to happen.”

Analysts say foreign players are concerned that the laws are changing in such an unpredictable way. And fear it may happen again to their disadvantage. But the longer term objective is clear – to bring some order to one of the fastest growing areas of the economy and one of the least transparent.