About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Print this page

'Poundshops' and Convenience Stores Rewrite Russian Retail Landscape

Amid the impact of EU and US sanctions, Russia's retail sector is still managing to demonstrate substantial growth, albeit through the burgeoning popularity of convenience stores and the arrival of the Fix Price 'poundshop' concept.

Photo: Fix Price: Poundland becomes Ruble Realm.
Fix Price: Poundland becomes Ruble Realm.
Photo: Fix Price: Poundland becomes Ruble Realm.
Fix Price: Poundland becomes Ruble Realm.

Despite the economic turbulence caused by sanctions and the consequent devaluation of the Ruble, the Russian retail sector is continuing to grow. The nature of that growth, however, has changed. While, during the relatively stable 2010-2014 period, retail growth was characterised by consolidation, via mergers and acquisition, it is now more about the introduction of new formats.

Most obviously, a general downscaling is currently the dominant trend in the market. Germany's Metro Cash & Carry Group – previously best-known for its network of megastores, which cover nearly all of Russia, except for Far East and Eastern Siberia – has now launched its first "regular convenience store". The new outlet, trading as Fasol Express, opened in a subway leading to the Kursky Railway Station, Moscow's largest rail hub.

The new store is only 126 metres square and offers 1,500 food and non-food items, including take-away snacks, hot dogs and sandwiches. Metro is said to be testing and developing this new format with a view to offering it as a ready-made franchising solution for SMEs. Many such businesses are already participating in the Municipal Program of Convenience Store Expansion in the Subways, an initiative launched by the Moscow City Government to provide more stores in the city centre.

Metro's lead has been followed by Auchan, a French retail chain that has already been pushing its A2pas convenience store brand in its home country. The typical A2Pas store is slightly larger than Metro's own convenience store, but tends to still be below 500 metres square.

The company has yet to announce a name for its proposed Russian convenience store chain, but its first outlet is scheduled to open in Moscow before the end of the year. As with other retail operators, Auchan is believed to be focusing on the subway locations that were cleared of kiosks and semi-legal constructions by Mayoral decree in 2011.

In a second development, "poundshops" – low cost retailers offering an assortment of goods at one low price – are emerging to challenge the established discount supermarkets. Tellingly, inroads here are not being made by the international players in the sector – Dollar Tree, Daiso, Dollarama or Poundland – instead, it is a Moscow-headquartered company, Fix Price, that is making all the running.

A Fix Price outlet typically offers 2,000 different items at RUR39.00 (roughly Euro1.00) per piece. The items on sale include clothing, footwear toys and household goods, FMCG and car care items. The company currently operates 1,950 stores, having launched 500 new outlets this year alone.

Fix Price stores are now a feature of every Russian city with a population of 25,000 or more. This includes the more remote regions, as well as areas such as the Far East and Eastern Siberia that, up until now, have been largely ignored by the nationwide retail chains.

An average Fix Price store is just 250-350 metres square and is typically located in a basement or a refurbished workshop. One, however, is based in one of Moscow's busiest thoroughfares, Tverskaya, inside the Central Telegraph Building, a site never previously popular with retailers due to its eccentric interior design and gloomy façade.

The business model offered to Fix Price franchisees is somewhat unconventional. Under the terms of the standard deal, the company invests 25% of the cost of a new store (or several stores) in a particular location. These are then managed by the franchisee, while the company assesses the feasibility and efficiency of the stores in question. If the store proves viable, the company then buys the business from the franchisee.

A number of market analysts believe that this strategy has allowed access into a number of new locations, while avoiding any difficulties with local bureaucracy and regional competitors. In total, within three years, only 5% of newly-opened stores are still operated by franchisees.

As a result of Fix Price's success, a number of Russia's leading retail chains, including Magnit, the X5 Retail Group, Verny and Dixi, are said to be seriously considering launching their own "pound-shop" projects, though they may tinker with the formula. There is a belief that it is difficult to sell a genuinely wide range of goods for one fixed price. The upshot of this is that the established players are likely to opt for a three-tier price structure – "all for RUR33.00", "all for RUR55.00" and "all for RUR99.00".

As well as pricing a wide variety of goods, the other problem facing the sector is the uncertainties surrounding the Ruble exchange rate. When the first Fix Price stores opened, they offered "all for RUR30.00", with the chosen figure coming to represent a psychological barrier in the mind of the consumer. With one dollar now equalling RUR48.00 (and one Euro equaling RUR60.00), it is difficult to see at just which level such discounters will pitch their future pricing.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
Comments (0)
Shows local time in Hong Kong (GMT+8 hours)

HKTDC welcomes your views. Please stay on topic and be respectful of other readers.
Review our Comment Policy

*Add a comment (up to 5,000 characters)