The current slowdown in the retail market in Russia is largely a consequence of economic sanctions against President Vladimir Putin’s government imposed by Western countries following its annexation of Crimea and subversion of Eastern Ukraine, as well as counter-measures implemented by Russia which include prohibition of food imports from the EU, Norway, USA, Canada and Australia.
The medium and long-term growth potential of the market is still promising, but it must be noted that this trend has been reversed several times by short-term events, such as the Russian financial crisis in 1998 and the global economic downturn in 2008-09. These are some of the conclusions of an upcoming report, Retail in Russia 2014 – Market Analysis and Development Forecasts for 2014-2019, published by PMR, a Krakow, Poland-based market research and consulting company.
The overall retail market in Russia is expected to register an 8% nominal growth rate year-on-year in 2014, says PMR. In 2015 results will likely be weaker. Nominal sales growth will be increasingly driven by inflation in these two years.
It should be pointed out that revenue from oil and gas sales support approximately 70% of the national budget, and that the price of crude oil has fallen by more than 20% in recent months to around $80 per barrel. Should prices slip further, coupled with increased capital flight from Russia as business oligarchs seek to preserve value in assets as the rouble deteriorates, it is likely that retail sales will be negatively impacted.
The driver of expansion in the Russian retail market in recent years has been the grocery segment, which not only accounted for the largest share (more than 60%), but also had the second highest growth rate among the analyzed five segments in 2013. The compound average growth rate for grocery retail sales is forecast at 9.9% over the 2013-19 period.
Non-food segments have been more affected by the depreciation of the rouble, because the share of imports is much higher than is the case with grocery products.
Large companies dominate the Russian retail market. According to Rosstat, the big players accounted for more than 40% of all retail revenues. The 25 largest retailers in Russia accounted for around 18% of the total retail sales in 2013. The aggregated revenues of the top 25 retailers increased by 17% last year.
The largest retailers operate in the grocery segment, where 12 of the top 25 players are active. The No. 1 retailer in 2013 was Magnit, followed by the X5 Retail Group, the Auchan Group and the Dixy Group. The first non-grocery retailer in the ranking is M.Video, which is ranked fifth.
Despite the lower growth rate and all the administrative measures in 2014, the large population and relatively low development level still make the Russian retail market a promising target for future investment in the medium term.
