New trade law hits the market

Russia's new trade law comes into force on February 1, with both small producers and retailers being hard hit by the new restrictions.

On December 15th, after 3 years in making, the Duma passed a bill on retailing, which aims to make prices in shops more transparent and to boost competition within the sector.

Coming into force on Monday, the new bill will cap retailers’ market share in the cities at 25% and will limit the so-called bonuses to retailers which suppliers pay to get their product on shelves.

Lev Khasis, CEO at X5 retail group, Russia’s supermarket giant, says the law aims to increase the profitability of suppliers and the expenses of retailers, but ultimately it is the customers who will pay more.

“They will dramatically affect the retail prices, and will affect customers, affect the population. Instead of the current situation, where the top five players together have 7% of the market, in 10 years it will be a situation like in England, and the five biggest players will have a 40% share of the market.”

The producers are also affected, though to a different extent. Some are not worried, saying the big popular brands will boost their share in the shops, stimulating demand through advertising. But David Yakobashvili, the chairman of Wimm-Bill-Dann, which has a 34% share of Russia’s dairy market, built through good products and sound management, says success now makes it a political target.

“When we are saying 34%, it makes me a little bit nervous, because in this case we are immediately good customers of our antimonopoly service.”

However, Musheg Mamikonyan, president of the Russian Meat Union, is more upbeat, saying the new law will make Russia’s market fairer.

“Only those who abused their power will lose out. There are a number of big retailers who have 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.”

The government is giving the supermarkets six months to bring their activities into line with the new rules. It also says it will watch carefully to ensure competition is fair and the market transparent. If not, then we can expect further additions to the law's 300 amendments.