Russian food retail market and its “low hanging fruit”

Food retail Russia FRC

Russian food retail business has been showing impressive growth during the last decade. And there is no doubt that this process will continue for some time to come. There are still a lot of white spots on the map and a number of local and international retailers are rushing to fill them with their concepts.

However a market with such potentials as the Russian one naturally appears to be shaped very unevenly and presents itself as unfinished and rough.

Although organized Russian retail has been growing rapidly over the last years- the retail scene is still dominated by non-organized / traditional players. According to studies three-quarters of Russians living in larger cities with a population larger than half a million buy groceries already at supermarkets but at the same time still half of these cities’ inhabitants continue to frequent traditional markets.

If benchmarked against the international retail landscape, two other main peculiarities of Russian retail can be noticed: price sensitivity plays a far bigger role than in most European countries and convenience chains are virtually non-existent. So the composition of the market is very different to the rest of Europe, although it superficially appears similar to Germany.

However the mentioned discount segment has still a long way to go in order to offer a comparable level of efficiency, value proposal, right assortment depth and private label policy of German/Western discounters.

Another big difference in Russian retail versus established retail markets is that there still is not one dominant market leader in any one sector. For example when it comes to supermarkets Russian food retail is very fragmented- the biggest retailers in Russia have a market share of around 10% compared to Western retailers whose dominant players command double or more.

Saturation is also very unevenly distributed. Small cities and the Eastern part of the country are still heavily underserved.

These opportunities and potential of the market is widely known.

Therefore it remains a challenge for Russian retailers to model their format or to create a new offspring in response to the demands of the Russian consumer and to fill up the vast empty space of the retail landscape with successful ideas. This means, creating concepts that suit smaller cities, bringing the best-in-class private label products to the market or inventing discount formats that function efficiently. All this and more appear to be an open opportunity in the vast Russian market.

With the correct lessons from the leading and pioneering global retail executers (like ALDI and Biedronka) and an expert knowledge of the retailer’s own native market this should turn out a very rewarding task. Long-term profitable growth is a question of strategies that work.