Supermarkets still catching on and catching up

Supermarket chains are increasing their presence in Russia's food retail market, but experts say the sector is still underdeveloped.

Modern stores are still just a small part of the food retail industry in Russia. Ten years ago supermarkets, discounters and hypermarkets did not exist in the country and they are slow to catch on. Most people still prefer outdoor markets, kiosks and old-fashioned groceries. Not only  are they cheaper, they can offer better quality.

Markets are an important outlet for some manufacturers who are denied shelf space in supermarket chains. Like SoyuzMolProdukt, producer of cottage cheese snacks. Even though it is a popular product, it cannot be found in supermarkets.

“The price is the main problem we face in attempting to enter supermarket chains. They are interested in lower prices, but we are not ready to cut prices at the expense of quality,” explains Aleksandr Klerikov, PR manager, SoyuzMolprodukt.

They are not the only producers to find themselves locked out of the supermarkets. Some canned products like restaurant-quality instant lamb soup for instance could be a winner, but Russian supermarkets do not want to stock it.  

“It’s difficult to enter the supermarkets, especially in the capital, because they are used to working with the same suppliers,” complains Olga Fomenko, head of the sales department, “Insa” Trading House.

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Retailers do have the ability and they enjoy this ability to overcharge or charge extra for the listing in the stores. It’s just the state of the development of the market

Natasha Zagvosdina, analyst of Renaissance Capital Group

Mid-price stores are looking for low-price goods thus guaranteeing high profit margins.  Supermarkets say they have to cover the costs of real estate, lack of qualified personnel and poor logistics. This results in one of the supplier’s biggest complaints the listing fees supermarkets charge simply to give a product shelf space.

Though foreign retailers are keen to enter the Russian market, rating it as the second most attractive after India, Russian experts say the sector is underdeveloped. Leading local players are growing at a rate of 30-50% a year, however, their market share stands at about 15% as opposed to the western average of 60%.

“It’s the under-consolidated market where the largest retailer has less than 3% of the market. In total we estimate that chains which in essence are more than formats combining  supermarkets, discounters and hypermarkets – everything which is not a stand alone grocery store Produkty and which is not open markets and kiosks, so combined this modern formats now have 20%,” adds Natasha Zagvosdina.