Reports that Russian retail chain Paterson intends to enter the Ukrainian market by acquiring the Silpo chain of supermarkets seem to have been part of a black PR campaign by the Russian retailer.
“Paterson has entered into a preliminary agreement with Fozzy Group to acquire the Silpo chain of supermarkets,” UNIAN news agency reported May 20.
On May 21 Paterson, which is opening its first Ukrainian store on Druzhby Narodiv Square in Obolon, denied the report, but said that “the company’s strategy is aimed at expansion of their operations in neighboring countries, particularly Ukraine.”
Paterson plans to hold a press conference in Kyiv on May 27.
Fozzy’s General Director Volodymyr Kostelman told the Post May 24 that the rumors appear to have been a strategy to attract media attention, increasing the company’s profile. He added that he thought that this strategy was particularly aimed at wholesalers, explaining that Paterson would be keen to create the impression that it was a major player in order to increase its bargaining power with potential suppliers for its new store.
“We are not currently in discussions with anyone regarding an acquisition of our Silpo chain,” Kostelman said, adding that, far from selling assets, Fozzy Group – which is the biggest domestic retail and wholesale company in terms of both number of outlets and turnover – is planning to expand its business.
“We’ve made steady progress in boosting our financial performance over the last two years. On the contrary, we have acquired Dnipryanka grocery stores in Kyiv in the past and we are currently in the process of buying out other supermarket chains,” he said.
Kostelman would not name the company’s targets, but said the shares should be bought in a few months.
Fozzy Group, which began operations in 1997, forecasts that its turnover will grow from $180 million in 2003 to as much as $250 million in 2004.
Today the group owns two wholesale hypermarkets, near Kyiv and Odessa; 42 Silpo stores; 5 Fora discount shops; 38 Dnipryanka grocery stores in Kyiv; and seven Bud Zdorov drug stores.
Analysts, basing their calculations on Silpo’s net profits last year, said Silpo is probably worth between $60 million and $80 million.
Founded in 1998, Paterson, which reported 2003 revenues of $140 million, owns 30 supermarkets – 19 in Moscow and 11 in the regions, including St. Petersburg, Tver, Ufa, Samara, Kazan and Penza. Paterson plans to open 60 supermarkets across Russia by the end of 2005, spending $100 million.
Paterson has recently signed a lease agreement with developer of Metropolis, a $35 million shopping mall planned to go up near the Obolon metro station.
Inna Buyanova, head of the leasing department of Kureny, developer of Metropolis, said that Paterson will have a trading area of 3,000 square meters.
According to management consulting firm A.T. Kearney’s 2003 Global Retail Development Index (GRDI), Ukraine is an attractive investment opportunity for food and general merchandise retailers seeking to expand internationally.
The index ranks 30 emerging countries in four categories: economic and political risk; modern retail space (hypermarkets, supermarkets and cash and carry stores) per 1,000 inhabitants; number of international retailers in the country; and the difference between GDP growth and the growth in retail area in the country.
According to data from Colliers International, Ukraine’s $1.8 billion retail trade market grew by 48 percent last year.
Growing grocers
Kostelman said he doubted that international giants like France’s Auchan or Tesco of the United Kingdom will enter the market this year. However, some international players are already entering the market, and Paterson is not the only Russian supermarket chain that is expanding.
Moscow-based Perekryostok, which is 80 percent-owned by Alfa Bank, plans to spend $85 million this year, to add at least 20 supermarkets to its current 67 stores, Interfax reported April 23.
Perekryostok, which is one of the four largest supermarket chains in Russia, expects sales to rise by more than half to $614 million this year as it opens more stores outside Moscow.
Kostelman said that he did not think that Perekryostok would opt to buy an existing Ukrainian chain.
The company has already bought a plot of land for its first store in Kyiv. The land is near the Okruzhna road, where Billa and Furshet supermarkets are already located.
As a rule, Perekryostok’s stores have an area of between 3,000 and 5,000 square meters.
Local retailers are preparing themselves for new competition.
Velyka Kyshenya, a supermarket chain owned by Kviza Trade, recently acquired rival chain Begemot as a part of its expansion plans.
Kyiv consumers are loyal to local producers, and local prices, and imported goods are not on their shopping lists.
Analysts say that if Paterson wants to establish itself in the Ukrainian market, the company should clarify its seemingly vague plans
.Kostelman said that Velyka Kyshenya has a much stronger concept, if compared to Paterson, and continues to make progress.
Paterson may also have to work on customer service. Some customers have claimed that staff members are not clean, while several mothers have complained that they were not allowed into Paterson shops with baby strollers, The St. Petersburg Times reported April 23.
