In depth: The Expansion of Chains
For the majority of chain operators the main strategy of development is the principle of the population of a city. Therefore development of chains in the regions is decreasing: first of all cities with a population of a million or more, then cities with a population of 500,000+ and only after cities with a population of 300,000+. Other factors important for chain operators are the level of income per capita, unemployment figures and commodity turnover per person. These factors allow operators to define the most promising regions: Moscow, St. Petersburg, Yekaterinburg, Novosibirsk, Nizhny Novgorod, Samara, Kazan, Ufa, Chelyabinsk, Perm, Rostov, Omsk, Volgograd and Tyumen.
In choosing regions chain operators need to consider not only the above factors, but also the feasibility of logistics and the delivery of goods. In connection to this the development of chains usually occurs in clusters, i.e. within certain clusters: Central cluster, Northwest cluster, Volga cluster, South cluster, Ural cluster, Siberian cluster.
In connection with the fact that many chains begun developing in the regions at the start of 2000 (among them Ramstore, Metro, Lenta, and Perekrostok), when planning the construction of a hypermarket in the regions now, it is necessary to choose the location very carefully so that investments break-even. Some regions are already oversaturated with trade operators, and chains do not consider them as promising for new openings (many chain operators pessimistically look at St. Petersburg, Kazan, Naberezhnye Chelny, Tolyatti and Samara). It is natural, that depressive regions with a low earning population are uninteresting for operators.
The strategy of development in the region varies for different companies: for example, traders develop both through the construction of their own complexes, and through participating in shopping and entertainment centers as the anchor tenant. Some chains have signed strategic agreements on development with large developers: for example, France's Ashan develops in cooperation with Sweden's IKEA as Part of the Mega shopping centers. Chains with a cash and carry format (Metro and Lenta) develop a regional network only by constructing shopping complexes on their own land plots.
Land wars
The criteria for choosing a land plot are obvious for the construction of hypermarkets: close proximity to a densely populated area, convenient entrance, the possibility for a large car park (not less than 1 space per 15 sq.m of trading area). Considering that the requirements for land plots are identical for grocery chains there is currently a struggle for the most favorable areas for the construction of their own shopping complexes in the regions.
The land market in the majority of Russian regions has not been molded yet, the granting of land plots is spontaneous, as the majority of cities do not have developed general plans. Land plots can be bought on the secondary market, or obtained from the local administration.
Prices for land plots on the secondary market currently stand at $1.5-$2 million per hectare in a number of regions. Rostov-on-Don is considered especially expensive: here prices reach $3 million per hectare. If the land plot belongs to the seller by property rights then a sale and purchase agreement is concluded, and after its registration the property rights pass to the purchaser. It is necessary for the buyer to remember that before purchasing a land plot it is necessary to obtain information from all available sources such as land and town-planning cadastres. It is also obligatory to receive data on the presence of possible servitudes - water-security and riverside-protective zones, sanitary-protective zones, archeological zones, etc. Knowledge of all servitudes will protect the investor from any "surprises" when realizing the project.
The institution of private property rights for land plots has not developed everywhere equally: in the majority of regions the investor acquires the right to buy a land plot only after the construction on it has finished (Samara, Yekaterinburg, Chelyabinsk, etc.). In some regions within the city's boundaries there are many former collective farms and state farms, therefore a lot of land plots suitable for the development of shopping centers, is private property (Ryazan, Tolyatti, Tyumen).
In some cases the proprietor of a land plot has already officially registered part of the initial permittence documentation, and received a decision on the sanction of a shopping center project and specifications concerning the engineering capacities. In this case the buyer usually buys the shares or part of the company-seller. As a result of the transaction the purchaser becomes the owner of the company-seller, the land plot and everything earlier received under the initial permittence documentation.
Often chain operators find perfect sites, which are rented to them by municipal authorities for 3-49 years for the construction of shopping complexes. In this case two variants are also possible: either the right to rent is transmitted (if for short-term then with the consent of the lessor, i.e. municipal authorities, and if for long term then with notification from the lessor), or through the sale of shares or part of the company - the tenant of the land plot. In purchasing, the company should carry out both legal and financial audit.
Auctions and tenders
The second possible way to get a land plot for construction is from local administrations. According to the land code of the Russian Federation there are two possible procedures for granting land plots: by preliminary agreements of the location or by auction. The administration chooses a method independently, proceeding from regional legislation, available town-planning documentation, and the quantity of applications for the land plot.
For example, in Kazan, Nizhny Novgorod, St. Petersburg, Kemerovo and a number of other cities the granting of land plots occurs mainly by means of auctions. In a number of administrations there is a practice, whereby if only one application for participation in an auction is received, this application wins and the land plot is sold at the minimum price. In the majority of regions if there is only one application the auction does not taken place. It is regulated by local laws and practices, which have developed in the region. If an auction is carried out the administration independently receives technical conditions, guaranteeing the authorized target use of the land plot.
In many regions granting of land plots for construction occurs by the procedure of the preliminary approval of a place of accommodation. The procedure has become complicated now that according to regional legislation in the majority of regions, the work on preparing the certification for the choice of land plot, the project's borders of the land plot and work on issuing decisions on the granting of land plots for rent for construction are carried out by administrations of different levels (for example, the Samara region and the Yarosksky region). The selection of a land plot is made by municipal authorities, and the signing of an order on granting land plots for rent for construction is done by the governors of the regions. As a rule, such distribution of responsibility between administrations leads to the length of projects being extended and for investors it is necessary to spend even more time passing through various channels of authority.
According to the land code of the Russian Federation the administration can give rent out land plots for the construction of premises for any length of time. Investors often immediately insist on 49 years (not forbidden by federal legislation). As a result at times there are unpleasant cases when the investor, having received the land for rent for 49 years, does not carry out the construction of the premises as specified in the rental contract and the land plot (often in the city center or on main highways) remains vacant.
The investor regularly pays rent, but the administration has no levers of influence on the investor with the purpose of its compulsion to building. The architectural shape of the city, and also the budgets of the city and regional administrations suffer from this, as it receives less taxes (on property, on profit, etc.) because of non-realized projects.
With the purpose of avoiding similar situations regional authorities include levers of influence on investors when granting land plots to rent. Under the first variant, administrations give land plots for rent for a period of one year during the design stage. The investor is already compelled to pay rent during the period of designing which makes it more likely to finish designing and move onto the stages of construction. This has been applied in Samara, among other regions. The second variant: the administration gives a land plot for rent for three years for the period of construction and includes a condition in the contract, that if the land plot remains undeveloped within the three years the rental contract is terminated. Such a practice is used in Yaroslavl.
Analyzing the land market in regions of the Russian Federation, we come to the conclusion that development of regional town-planning policy is complicated first of all by an absence in cities of approved general plans of construction. As a result administrations may struggle with long-term undevelopment of land plot by investors and repeated resale's of land plots. The architectural shape of the city suffers from this, and budgets at all levels receive less in taxes and the land remains uninvolved in economic turnover.