Wal-Mart will have to play catch-up to European competitors that have already entered Russian market; concerns about Russian bureaucracy have kept retailer out of Russia while competitors such as Auchan, Metro AG have taken hold
April 9, 2012
– Once fearful of delays caused by Russian bureaucracy, Wal-Mart Inc. will now have to play catch-up to European competitors that have already entered Russian market, the Business Standard reported April 10.
Wal-Mart’s delay in entering the Russian market has cost it the 30%-plus sales growth rate that the chain’s European competitors have been enjoying in Russia. Since the fall of Communism, a majority of urban Russian shoppers have embraced malls and supermarkets. Companies in Russia are beginning to realize that future growth will be dependent upon their expansion into less wealthy Russian provinces, which is likely to reduce their sales growth.
Low-quality warehouses and roads will make expanding into smaller towns and the countryside more difficult and costly while low incomes will hinder sales growth. Competition in Russia’s major cities will also likely extend the length of time that it takes for new stores to break even.
Prosperity Capital Management Ltd. Director Alexei Krivoshapko said that, in the present market, there is both increased risk and increased return. Later on, both risks and returns will likely decrease.
Even if Wal-Mart tires to buy a local Russian player, it will likely face competition from other foreign retailers. Russia’s forthcoming accession to the World Trade Organization in 2012 will simplify the import process, which will likely increase the Russian retail sector’s appealing for international players.
The Russian market consists of roughly 140 million people. Wal-Mart competitors Groupe Auchan SA and Metro AG are the third and fourth-largest retail chains in the US$300 billion food sector.
Along with Brazil, China, and India, Wal-Mart has long set its sights on Russia for international expansion opportunities.
The primary source of this article is the Business Standard, Mumbai, India, on April 10, 2012.