Guiding Lines: No Hope of an Easy Victory

Free space in that sector is diminishing rapidly. While a year ago retail chain outlets rarely adjoined one another, these days the chains have to compete for customers, many of whom live close to more than one supermarket.

The share of the local chain operators on the Novosibirsk grocery market is currently estimated at 35-40% and is likely to double and reach 70% should the growth continue at the same rate.

Holiday Classic alone – one of the largest local operators – is set to expand its chain by 70%, from 23 to 39 outlets, spending at least $30 million on the expansion. In 2006, the total sales of the chain are expected to reach $250 million, as compared to $180 million in 2005.

Last year the company spent approximately the same amount on the development of the chain but the lion’s share of those funds was used for the acquisition and redevelopment of the distribution center and redevelopment of the Altai hypermarket in Barnaul measuring a total of 60,000sqm.

Kvartal, a local company developing neighborhood supermarkets, is also set to expand its chain by 70%, from the 24 department stores the company runs today to 40 by the end of the year.

The Sibiriada chain, operating 30 stores in Novosibirsk, plans to spend $10 million on expansion and increase the number of outlets, each measuring approximately 1,000sqm, by 30% to 40 shops. It also plans to open a 4,500sqm shopping center in the Severo-Chemsky residential area. In 2005, the company’s sales exceeded $85 million; Sibiriada invested $7 million in the development of eight new stores.

The Novosibirsk retail holding Sibirsky Gigant (Siberian Giant) and the Kranoyarsk-based company Sibirskaya Gubernia are active in the sector of major retail centers. In 2004, Sibirsky Gigant developed the 8,000sqm shopping center Megas, worth $5 million. In December 2005, the company launched the 22,000sqm retail center Gigant, worth $11 million. As a result, the chain’s sales are expected to grow by 50% in 2006.

Today, Gigant’s sales are estimated at $100 to $110 million. The chain comprises the 22,000sqm retail center, two cash & carry outlets and two grocery supermarkets. This spring the group is set to begin construction of a 28,000sqm shopping center on a site near the city bus terminal that was secured at an auction. Construction is to be completed by February 2007.

At the same time, the group is considering launching retail development projects in neighboring cities, in particular, in Barnaul where there are virtually no large shopping centers and Krasnoyarsk where the consumer market has huge potential.

Sibirsky Gigant’s key rival is the Kransnoyarsk-based Sibirskaya Gubernia, which runs a chain of Alpi hypermarkets. In the period 2005-2007 the company has plans to open four Alpi hypermarkets in Novosibirsk, estimated to be worth a total of 650 to 700 million rubles.

In November 2005, Sibirskaya Gubernia opened its first store on Petukhov Street, in Novosibirsk. The company had spent 450 million rubles on the 10,000sqm facility. The Krasnoyarsk firm has already found a site for its second store in Novosibirsk that will measure 24,000sqm, on Dusya Kovalchuk Street next to a local meat-packing plant.

Moscow operators should not hope for an easy victory over the “indigenous” players. Earlier, Moscow’s Paterson and Avoska chains stumbled in Novosibirsk; only Pyaterochka succeeded in opening 30 stores over 12 months, but even they are operating under franchising deals.