Verdict: Retail Growth Potential in Russia is Huge

The long-term growth potential of the Russian retail market remains huge despite the damaging impact of the global financial crisis, according to a new report from Verdict Research.

Russia’s large population and expansive geography spanning 11 time zones will represent a sizeable market in which retailers can grow large-scale operations, once initial barriers such as poor infrastructure and an uncertain legislative framework are overcome, it says.

Billa, part of the Rewe Group, expanding in Russia

And, as per capita expenditure will catch up with the West eventually, the Russian opportunity is simply too big to be missed, says Verdict.

The retail analysts report Russia’s retail market has grown at a tremendous pace – by almost 500% over the last decade – reaching $451bn in 2008.

While the credit crunch and global financial crisis have dampened immediate-term growth prospects, a longer-term view of the market indicates significant growth opportunities for retailers in Russia.

Verdict Research forecasts that by 2012 the Russian retail market will be approaching $800bn and it will be difficult for any retailer to disregard.

“Retailers ignore Russia at their own peril,” said Simon Chinn, analyst at Verdict Research and author of the report. “Sure, at present the short-term outlook for the country is extremely bleak, but if we cast aside the current crisis for a second, the long-term growth potential of the market remains very strong.”

Although retail growth has slowed in the wake of the global financial crisis, annual retail sales growth in 2008 remained in double digits.

And, despite the current recessionary environment, many foreign retailers are looking to establish a foothold in the Russian market.

The general robustness of the grocery sector and its strong growth potential even in a downturn makes the market particularly attractive to foreign entrants, reports Verdict.

France’s Carrefour will open its first hypermarkets in the Russia in 2009 and US giant Wal-Mart is also exploring opportunities in the market. Earlier this year Germany’s Rewe acquired Moscow-based supermarket chain Njam Njam and Verdict predicts more acquisitions will follow and consolidation in most retail sectors to intensify.

The strong prospect for future growth has already attracted some of Europe’s largest retailers such as Auchan and Metro, says Verdict, and more are likely to follow suit in the future.

But, while Verdict believes the long-term growth potential of the market remains attractive, there are still several issues hindering retail development in Russia.

Significant barriers to entry and restrictions to growth include a complicated legislative framework, underdeveloped infrastructure, widespread bureaucracy and red tape. Furthermore, corruption persists at both regional and local levels.

Russia undoubtedly remains a risky market, but the long-term gains from successful market entry could be abundant, claims Verdict.

“We believe that in the wake of the global recession the market will return to buoyant growth, much like it did in the aftermath of the crisis in 1998,” concluded Chinn.