23 September 2003 02:32
PwC Says Russia`s Ripe for Picking
 To all the Wal-Marts of the world, PricewaterhouseCoopers has only one piece of advice: "Invest!" A new study by the Big Four auditor shows that Russia and Turkey are the most attractive of nine countries in Central and Eastern Europe for retail investment.
The 120-page report on consumerism, released here Tuesday, concludes that the good - rosy economic figures, growing consumer spending and a large, unsaturated marketplace - far outweighs the bad in the two countries' foreign investment climates. Both Russia and Turkey earned an "Invest!" rating on PwC's investment barometer. Recommendations for the other countries in the report - Slovakia, the Czech Republic, Hungary, Bulgaria, Lithuania, Romania and Poland - were more cautious. The rapidly consolidating markets of Poland and the Czech Republic both received an "Act With Caution."
A Russian middle class is emerging with a large disposable income that it is ready to spend, said Chris Skirrow, partner in the consumer and industrial services group of PwC. At 87 percent, Russia has one of the highest ratios of disposable income to per capita GDP among emerging markets. Citing Renaissance Capital data, PwC said the figure is expected to settle at a more typical 75 percent in coming years. "In 2001, expenses on food formed 46 percent of average household consumption in Russia, which is a lot," Skirrow said. "However, we expect a very significant decrease of this share over the next few years. Absolute spending on food may be the same, but the share of consumer spending will reduce as they'll spend more on nonfood items like house purchases, services and nonfood items."
The emerging middle class is most apparent in Moscow and St. Petersburg, he said. The report highlighted the gulf between Moscow and the regions. Consumers in the capital have 19 times more spending power than their provincial cousins and consequently opt for more prestigious foreign labels, the report says. Regional consumers on the other hand are fiercely loyal to regional producers, and imported goods come at the bottom of their shopping lists.
Irina Martakova, a tax partner with PwC, said it was hard to point to a particular retail format -- be it cash and carry or megamalls - that was attracting investment, since the market is still very young. She, however, expressed doubt that new foreign arrivals would opt for buying an existing Russian chain. "Most of the global retailers, such as Auchan and Metro, have set up their own retail facilities in Russia, and we believe that this strategy is likely to be used by new market entrants as well," Martakova said. "It eliminates the need for extensive due diligence and generally involves less risks."
While Russia wins hands down in terms of unrealized potential, Skirrow applauded Prime Minister Mikhail Kasyanov's recent remarks highlighting the need to spur foreign investment. "The investment attractiveness of the market must be increased," he said, adding that in this regard Hungary, Romania and Slovakia lead the field. In a week that has seen new media reports that the world's biggest retailer - Walmart of the United States - is in town testing the waters, representatives of German retailer OBI were the latest to officially announce their planned arrival. The home improvement giant announced in Berlin on Tuesday that it intends to invest $250 million to $300 million in building 30 stores in Moscow, St. Petersburg and Yekaterinburg over the next four to five years.
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