10 July 2003 17:03
Home-grown Hypermarkets
Two Russian companies, Sedmoi Continent and Gipertsentr, have started a new project, the Mosmart chain of hypermarkets. Mosmart is the first Russian attempt at this retail format.
Anastasia Matveyeva
Head-on collision
 Retail experts say that the Moscow market still has enough potential to accommodate at least a dozen more hypermarkets, such as the French Auchan, Russian Mosmart, Ramstores, or the recently announced plans by the German company Real to open one of its well-known Metros. No one knows for sure, of course. There are not enough statistics available to figure out what retail format consumers prefer: hypermarkets, supermarkets, corner stores, or discounters. It is impossible to guess how fast consumers might move from open-air markets to chain stores. The numbers we do have can be interpreted both optimistically and pessimistically. For instance, Rosbizneskonstalting’s research shows that chains will only conquer the Moscow market in five to seven years. Their data demonstrate that while the chain format has yet to dominate the market, it is developing rapidly. In 2002, chains’ market share in Moscow retail tripled from 8% to 24%.
The recently opened Mosmart could have easily avoided direct competition with Auchan even in terms of geographical location in the southeast, not northeast of Moscow. In this part of the city, there are fewer square meters of chain-format retail per inhabitant than anywhere else. However, the first Russian hypermarket was built ten kilometers from the first French hypermarket in Russia. There are several explanations for this. First and most obviously is the competition between Moscow City and Moscow Province for retail outlets that bring tax revenues and social benefits. Under the new Governor’s Ring Program, retailers got all necessary permits for construction considerably faster in Moscow Province than in the city. The first major construction projects began right outside Moscow’s Ring Road, close enough to attract Muscovite customers. Soon, Moscow City authorities also began to entice retailers to develop large retail centers.
Supply and selection
Mosmart has a good chance of success despite the expanding foreign presence on Moscow’s retail market. It is located in a densely populated bedroom community, much closer to many inhabitants than any other hypermarket. It sits right by the first exit off the Yaroslavsky Shosse. For those traveling out of the city, whose ranks swell in summer as people head to their dachas, Mosmart is the first convenient stop to pick up a few things on their way out of town.
Mosmart’s foreign managers will also improve its chances. The company’s general manager is Eric Blondeau and the store’s general director is Marchin Tocage, both formerly of the well-known French retail chain Carrefour. Many believe that a hypermarket’s success stems first and foremost from its use of business technologies to keep costs low. In this sphere, foreigners remain far ahead of Russian retailers, meaning Russians should look to other market niches. Yet as one market expert noted, you can always buy technology. Or hire people who know how to use it. This is why the Russian chain hired foreign managers. It seems especially important that Mosmart hired its top execs from a chain that uses a hypermarket plan more convenient for consumers than Auchan.
The most important thing for Russian consumers, however, is price. In order to compete, Sedmoi Continent held serious talks with its 500 suppliers. Vladimir Karnaukhov announced that these talks began six months before the store opened. The retailer’s strongest arguing point was that wholesalers would supply both Sedmoi Continent (with total retail sales for 2002 of $320 million) and Mosmart (estimated initial sales $50 million, and with the opening of one or two more stores, $100-150 million). Karnaukhov made it clear that the suppliers agreed to substantial price reductions. Mosmart’s other investors, Gipertsentr, tried to do the same thing on its own and couldn’t manage. Sedmoi Continent also has experience in offering a selection of goods Russian consumers prefer, even if they don’t differ much from the rest of the world’s preferences. Foreign chains usually need long-term market research to achieve this, according to Sergei Moiseyev, while Russian retailers have been honing their market instincts since the early 90s.
A question of capital
The pessimistic predictions for the project on the part of many analysts stem from Mosmart’s financial situation. The investors do not have enough money for a project of this magnitude, while their foreign competitors can fall back on transnational chains and abundant resources. However, one of the partners, Gipertsentr, is rumored to have capital available from certain export operations. In addition, it is also too soon to make a final judgement about Sedmoi Continent according to Alexei Krivoshapko. No one outside the company has seen any reports according to international accounting standards and no one has a clear idea of its profitability. At the same time, Kivoshapko believes that Sedmoi Continent’s turnover is more than enough to allow the company to invest the same amount every year as its initial investment in Mosmart. Mosmart will need these funds. Every market costs investors from $20-30 million. They have already announced that another $150 million will go to Mosmart from Sedmoi Continent and Gipertsentr’s joint budget next year.
For Sedmoi Continent, this new project has already proven a success. The one hypermarket has already expanded the company’s revenues several times more than a smaller-format retail outlet would. Though still behind three of the top five competitors in terms of revenue, this expansion will give the company a chance to become a market leader. It will also help the company on its way to the international stock exchanges, which welcome Russian companies with strong growth.
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