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Rushing to or Retreating from Russia

By: Greg Seminara, Export Solutions
Topics: Metro,Auchan, World Food,Walmart

Are you brave enough to attack the Russian market ? Armies of leading consumer brands have aimed at Russia, one of the few remaining large markets with significant growth potential. However, recent political events suggest that the BRICS may become BICS. Negotiating the Russian landscape is not for export novices, but companies with a long term time horizon may say “Da” to the market.

Why Russia ?
Russia is an important country, with 142 million people, twice the population of France or the United Kingdom. Importantly, Russia boasts of tremendous wealth in natural resources, including substantial oil and natural gas reserves. Russia’s powerful economy ranks 6th  in the world and the largest market in Central and Eastern Europe. Retailers and Brand owners are “rushing to Russia” as “modern trade” has expanded rapidly to include more than 30,000 supermarkets. In the past, a shopping experience required lining up at state run stores for basic market basket items. Today, Russians living in major cities have access to vast new stores, bursting at the seams with products from around the world.. Sparkling Superstores from Auchan and Metro spread their footprints, creating important new outlets for the worlds leading brands.

Meet the Consumer
Russia’s Middle Class totals 35 million people with sufficient disposable income to purchase international brands. Housing and utility costs are relatively low, allowing consumers to devote up to 40 % of their incomes on food and beverage products.Russian’s spend less on automobiles, vacations, and non-food electronic items than western Europeans, leaving more money for food  purchases.Inflation is still a concern, with prices surging 6 percent in 2013 and 2014.The Rouble has also been risky, losing 8 percent in value versus the US dollar in 2014. Another consideration is the visible “upper class” which includes up to 80,000 “dollar millionaires” living in Moscow alone.

Retail Dynamics
Russia’s market offers strong growth potential ,but remains one of the most fragmented markets in the world. The Top 10 supermarket and hypermarket chains represent only 20% of sales. Currently, the modern trade sector is dominated by a mix of local retailers such as X5, Magnit, and Dixy competing with well known international players. Global retailers have studied this attractive market and encountered mix results. Auchan and Metro enjoy hard won success in the Hypermarket and Cash and Carry sectors. Rewe’s Billa unit has starting slowly in Moscow through a partnership with the local group Marta.  Carrefour, Ikea, and Edeka have retreated from Russia due to the complexities of government bureaucracy and corruption. Walmart joined the Russian retailers association and reportedly conducted financial discussions with several local groups. Most are betting on the long term consolidation of the market to traditional supermarkets creating enormous potential for retailers and brand owners.

104 Distributors & Importers
A common entry strategy is partnering with a distributor or importer to enter Russia.This allows you to link with a local expert who has an understanding of local trade practices, consumer habits, and government regulations. Most distributors of international brands speak English, but communication can be a challenge. Export Solutions distributor database tracks 104 different distributors and importers . These local companies maintain a broad spectrum of options from category specialists (Confectionery, Beverage,Non-Food) to geographic specialists with focus on Moscow, St. Petersburg , or other regions. As always, Export Solutions strongly recommends extensive due diligence of potential distributor candidates, especially reference checks with existing international suppliers and Dun & Bradstreet.

Getting Started
Russia is a strategic market that requires a measured approach to market entry.Don’t waste your time with a few containers of opportunistic shipments to a small Russian partner that speaks excellent English unless that is your long term view to the market. Our first step focuses on category analysis. Purchase your category data to understand size of the prize, competitors, and basic consumption and pricing information.Schedule a market visit to leading supermarkets in Moscow and St.Petersburg. Visit World Food , the largest food trade Show in Russia. In 2014, World Food will be held in Moscow between Sept 15-18 and attract around 50,000 visitors to 1,100 booths.

Purchase Export Solutions Russia Distributor list to gain an understanding of potential partner candidates. The development of a logical market entry plan can be completed following this country and category assessment step. Normally, international brands may elect to start by targeting leading international and local chains based in Moscow and St.Petersburg. There are also a number of opportunities in the Gourmet/Delicatessen sector as well as Foodservice/Horeca.

Mixed Outlook
Leading consumer products manufacturers are focused on the famous BRIC nations.Russia has the smallest population of the four “BRICS”but features the highest per capita income. However, its recent aggression in Crimea may provoke a strong reaction from the west. Recent developments may cause risk adverse companies to retreat to safer markets and limit investment. A core strategy is to “follow the global retailers” and Auchan and Metro in Russia supply an initial entry platform. A cautious approach is required, as mountains of examples of frustration and failure exist. Export Solutions point of view is that a strategic launch with a strong local distributor merits consideration as a viable route to market in this controversial powerhouse.