Retailers are still investing heavily in key economic and urban areas like Moscow and St Petersburg and Kiev, but greater competition in these areas is prompting more retailers to look further afield, says a new report by Planet Retail.
"Previously dominated by domestic retailers, Russian cities such as Rostov-on-Don, Nizhny Novgorod or Yekaterinburg are facing rising competition from overseas players," it says.
The report's author, Boris Planer, said Russian retailer Pyaterochka was still number one in Eastern Europe, thanks to its 500 supermarkets based mainly in St Petersburg and Moscow.
Yet, he said that others were catching up. "The company faces losing its leadership to Metro Group, which is rapidly expanding its cash & carry network and has recently launched its first hypermarket in Russia.
"Further competition is emerging from Auchan which, in addition to its existing hypermarket network, is set to open its first supermarkets in Moscow this autumn."
The report says that the strongest retail growth is still likely to come from the supermarket sector, with sales forecast to expand by 150 per cent to just under €9bn for the leading players by 2009.
The threat from discounters is seen as less in Eastern Europe, compared to the West.
But, this may change as all major international food retailers take a greater interest in Eastern Europe. German discount chain Lidl opened its first stores in Hungary and Slovakia in 2004, and a report by retail research group IDG said the firm was planning to expand further in the region.
Lidl, whose retail prices are around 20 per cent lower than the EU average, obviously has great potential in these new markets to repeat its existing success in Western Europe, especially as consumers' disposable incomes are generally lower in the new EU states.
Average gross domestic product (GDP) per head across the 10 new EU countries is only 46 per cent of that across the older 15.
Meanwhile, the big food retail players have become more interested as their Western food retail markets have matured.
Tesco, world number three, has already announced an expansion of its stores on the region during 2005, while world number one Wal-Mart has also stated its interest in expanding across Eastern Europe.
IGD said in its own recent report that Russia was set to become Europe's biggest grocery market by 2020.