Tesco makes plans for Russia

Tesco Plc, Britain's largest supermarket chain, which makes more than 25% of its sales outside the UK, and owns stores in emerging markets from Turkey to Malaysia, plans to open its first Russian stores. Tesco is looking for ways to enter the market, said Jeff Kershaw, senior director at the Moscow office of CB Richard Ellis Group Inc., the world's biggest commercial real-estate company. The British retailer has considered entering Russia since at least 2005, is only now studying possible store sites.

The Russian food-retail market is worth €121 billion, and grew 32% last year. Supermarkets and superstores are expected to account for 45% of Russian food sales by the end of 2009, up from less than a third in 2006. Russia’s economy grew 8.1% last year, and retail sales grew 15.2%.

Chris Gower, an analyst at MF Global in London expects that once Tesco enters the Russian market it will introduce big cash-and-carry stores along the lines of their Chinese outlets, or else open shops that don't sell food. The company would be competing with X5 Retail Group NV, Russia's largest supermarket owner, Germany's Metro AG and France's Carrefour SA. However, X5 has said it would potentially cooperate with Tesco as a franchise partner.

Tesco is taking its time to enter Russia because the population is concentrated in cities which are very spread apart, which is particularly difficult for a food retailer in terms of distribution. Gower also commented: "Metro, X5's closest rival in Russia, has taken a long time to establish itself because of the bureaucratic difficulties.'' Most likely, Tesco will face the same challenge.

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