Russian Retail Insights 2018
Interview with Paul Foley on Russian retail for www.retailreport.at
How is the retail (grocery) and drugstore market in Russia structured? Are there differences to western Europe?
Foley Retail Consulting has been operation in Russia for 6 years. We have found the grocery industry is characterized by three large differences to Western Europe:
- The structure of society and earning power has much greater width in Russia than in Western Europe. Those consumers who are managing on earnings of €200 per month (and this is 40% of the population) consume very different products from those earning €2000 per month. This might sound obvious! However, in Western Europe the difference between consumer habits who earn €700 per month and €7000 is not so dramatic! The basic diet is not so dramatically different!
- Russia is almost a continent! The society and consumption habits are driven by very different locations. The Moscow market is much closer to European earning level. 3000 km east from Moscow in Tomsk for example, life is very different. The temperature difference from St Petersburg in the north to Krasnodar in the south is often 15°centigrade! Each region of the Russian federation has its own laws, dietary habits, customs and income levels. This makes it difficult for retailers to have an offer that is relevant for all the varying circumstances. Imagine have a retail chain in Finland that is relevant to consumers in Southern Spain
- The domination of large chains is far less in a retail industry that only started its relationship with the free market in 1989. Still 30% of the Russian grocery industry is managed through open markets and “mom &pop” stores. 40% is managed by regional chains and the largest players have only the remains 30%. This means private label is much less well developed as scale has not yet been achieved and big brands dominate.
The drug store format is very underdeveloped. Only Magnit has a significant chain and it is relatively new (10 years)! However, like everything in Russia when entrepreneurs spot a good idea they develop it fast and Magnit Cosmetic has already 4000 stores!
Figures of the russian grocery market (Source: Planet Retail)
Which market reports are available in Russia? Nielsen data? Are the market datas valid?
At Foley Retail Consulting we have found that the fragmentation of the market means that there are very few data bases that can be relied upon! Retailers are building their own big data capacities but Nielsen GFK and planet retail do not enjoy the level of accuracy they can be relied on in Western Europe!
Which retailers from western Europe tried or will try to enter the Russian market?
In significant scale, Auchan from France, Metro and Globus from Germany and Billa from Austria have managed to gain traction in the market. Carrefour tried and pulled out in 2009. It is a difficult market to break into! The laws are different from Western Europe, there is surprisingly strict regulation and the habits of the consumer are very much driven by their ever-changing financial circumstances. For example, a significant number of Russian families live in urban environments under 50m2. This means there is no room to do a weekly or 2 weekly large shopping trips! Customers shop little and often and this dramatically alters the formats that shopper require!
Which well-known western FMCG companies are at the Russian market?
Almost all the global brands are present on the market! Beer tends to be more national and the confectionary and snack market is dominated by brands that consumers have grown up with. Portion sizes of all meals are generally smaller and fruit and particularly vegetables are a bigger proportion of the diet than in Western Europe. Of course, it is also the home of Vodka!
Are Russian companies interested to invest in European retailers?
Not really! There is so much of their own country still to conquer why would they?
TS supermarket started in Berlin? What is your opinion?
I was wondering when the Upscale moves of Aldi and Lidl would leave sufficient gap for someone to reinvent hard discounting! However, I have serious doubts that TS stores have the investment budget to really make an impact on the German market!
If some companies want to enter the Russian market, what do they have to take care of?
Our advice is: do your research, it is a huge market 145m population who are well educated and know what good quality food looks and tastes like. But customs and practices are very different to Western Europe!
What are the strengths of Foley retail consulting? Why should someone work with FRC?
We are an exciting start-up since 2012. FRC has a growing reputation amongst retailers for industry best practice advice and investors for accurate assessment of retail and consumer facing companies’ health and value. We are fun to work with and have a good mixture of senior expertise amongst our senior consultants and an energetic back office team! Check us out.