A basic agreement was drawn up between the two groups at last week's German-Russian summit, held in Moscow and attended by Russian President Vladimir Putin and German Chancellor Gerhard Schröder. Signed by Rewe Group CEO Dr Dieter Berninghaus and Marta Holding president Georgy Trefiloy, it binds both companies to invest $500 million (€404m). The investment will be implemented over the next three to five years, with Rewe taking a 75 per cent stake and Marta Holding securing 25 per cent of the venture.
The joint company will develop a Russian division of the Billa supermarket chain, which Rewe has already established in Central European countries such as the Czech Republic and Slovakia. Under the agreement, supermarkets currently operated by Marta under the Spar franchise will be converted to the Billa brand. The aim is that by the end of this year, at least 20 Billa supermarkets will be converted and re-opened in the Moscow area.
The supermarkets will offer a full range of food products in up to 2,500 square metres of shop space. With growing competition between operating formats and national, as well as international, competitors, Rewe and Marta say they see particularly good chances for the quality neighbourhood store format in the future Russian market.
"Entry into the Russian market is a logical step for Rewe," said Berninghaus. "Through our successful activities in eight eastern European countries, we are exceptionally well-prepared. Russia has been a focus for the company for some time. With growth rates of approximately seven per cent, the Russian economy, together with that of China, is at the top worldwide. No other European country offers retailers comparable growth potential.".
Rewe, which is currently the second largest food retailer in Germany with total sales of approximately €40 billion, is entering the Russian market at a time when many other leading international retail groups are already well established there. Currently Auchan, Edeka and Migros Türk are developing the hypermarket sector, while rival German group Metro is developing the cash & carry sector, whilst also eyeing entry into the hypermarket sector.
According to M+M Planet Retail Rewe has been eyeing the Russian market for some years and has been in negotiations with Marta since February. However, Berninghaus had decided that the time was now right for entry into the Russian supermarket sector. He added that because Rewe is investing in an already established supermarket chain the group is gaining an advantage of three to five years if the project were to be started from scratch.
Although development of the food retail sector has concentrated on larger format stores, M+M Planet Retail says that the supermarket sector in Russia is still highly competitive, highlighting companies such as Pyaterochka, Sedmoi Kontinent, Perekriostok, Kopeika and Paterson, or Turkish multiple Ramstore (Migros Türk), which are rapidly growing and modernising their store networks both in Moscow and St Petersburg.
However, as retail pressure grows in every sector of Russia's two main metropolitan areas, so too does the spread of geographical coverage. Increasingly the big food retailers are finding themselves pushing out into regional capitals and other smaller cities in an effort to expand. However, as Billa is an upmarket brand, M+M Planet Retail points out that the format is still likely to meet with success amongst the growing middle class population in Moscow and St Petersburg.