Grocery Chains Face Cap on Growth

A government provision surfaced Thursday in a food retail bill that could severely restrict business growth on a market that has recently attracted interest from Western chains such as Carrefour and Wal-Mart.

The provision — a new article in the government-sponsored bill — would affect food retail chains that report nationwide sales exceeding 1 billion rubles, or $31 million. It would ban such chains from buying or leasing any new stores if they also control a quarter of the market in Moscow, St. Petersburg or any of the country’s other cities and surrounding areas.

The bill presented to the Presidium, a scaled down Cabinet, on Monday did not contain the proposal, but government officials did say they would add amendments. The addition to the bill appeared in the version that the Cabinet submitted to the State Duma, which was published on its web site Thursday.

X5 Retail Group, the country’s largest grocer by sales, assailed the 1 billion ruble sales cap.

“This restriction could put a halt to the development of retail trade because 1 billion rubles in annual sales is standard for a chain of five to six stores,” X5 CEO Lev Khasis said in an e-mailed statement. “The wording is so absurd that I hope the government will correct it to make it comply with common sense.”

Retail food sales topped 1 trillion rubles in Moscow and 200 billion rubles in St. Petersburg last year.

X5 Retail Group includes the chain of Perekryostok stores, one of which Prime Minister Vladimir Putin paid a surprise visit to last month. Putin criticized what he called high markups at the store.

Khasis attributed the proposed sales restrictions to the Federal Anti-Monopoly Service.

The idea to introduce the 1 billion ruble cap came from the Cabinet, said Timofei Nizhegorodtsev, chief of social issues and retail department at the Federal Anti-Monopoly Service. The agency only proposed the 25 percent restriction on market share in cities, towns and villages and their surrounding areas, known as “metropolitan districts” and “municipal areas,” he said. Such units comprise a central settlement and a number of smaller ones around them.

“The government’s goal is to have a choice of at least four retail chains for customers and suppliers within those areas,” Nizhegorodtsev said. “It is aimed at maintaining competition.”

He said the sales cap might be removed during debates in the Duma.

Asked about the potential effect of the proposal, Maria Kurnosova, a spokeswoman for French retailer Auchan, said the chain was nowhere close to controlling a quarter of the market in any Russian region. The proposed restrictions could be a problem if large chains wanted to set up shop in sparsely populated or small areas, she said.

Auchan operates in eight Russian cities, with 20 locations in the greater Moscow area alone, and countrywide sales reached 4 billion rubles last year.

Yevgeny Fyodorov, chairman of the State Duma’s Economic Policy and Entrepreneurship Committee, said he took the proposal as a way to keep prices down by reserving room for more retail chains.

“The anti-monopoly service has this position: It’s better to have many small chains than one big chain,” he said. “They will compete.”

His faction, United Russia, is undecided about the proposal, he said.

As it is, the proposal looks “menacing” for large retail chains because it could reduce the retail business to a “system of street food stalls,” said Tatyana Prokina, an analyst at VTB Capital.

Underscoring the potential of the Russian retail market, French retail giant Carrefour opened its first Russian store in western Moscow last month with an investment of 8 million euros ($11.1 million). The top European retailer is planning to open two more stores, in Krasnodar and Lipetsk, by the end of the year.

Wal-Mart has made an offer to buy retailer Kopeika, Kommersant reported this week.