There are big changes afoot in the world St. Petersburg retail. The market structure is changing against a backdrop of exploding commodity turnover. The growing strength of large retail chain operators has reduced the number of small businesses engaged in this sector to minimum. Nevertheless, analysts say the future belongs to corner shops. The chain operators, buying up suitable built-in premises in bedroom districts, are hurrying to catch the initiative in this segment.
Food Shortage
As reported by Central Real Estate Agency Ltd, the number of corner shops has decreased from 880 to 225 in the past two years. In addition, 914 bust-stop stalls have been shut down at the initiative of the city authorities. On the other hand, St. Petersburg ranks first in Russia in terms of large chains’ penetration to the city’s food retail market. According to the municipal Committee for Economic Development, Industrial Policy and Trade (CEDIPT), 486 sqm of retail space fall on 1,000 St. Petersburg residents. In the recent one year and a half this indicator has grown by 1.4 times. However the distribution of retail space is extremely non-uniform. Thus while the analysts are unanimously talking about the excess of hypermarkets in some districts – on Pulkovskoe shosse, for example – there is an acute dearth of shops offering essential commodities in the historical center as they have been crowded by boutiques and expensive stores (perfumery, mobile phones etc.) which can only afford paying exorbitant rents. “
Not a single grocery store is left on Staronevsky,” grieves plenipotentiary representative of president of the Russian Realtors Guild in St. Petersburg, Pavel Sozinov. “After the rental rates skyrocketed from $1,000 to $3,000 per sqm per year 4,000 sqm of grocery retail space remain empty on Staronevsky and people cannot buy bread anywhere.” The same can be said about other central districts, such as Petrograd, Vasilyevsky Island and Admiralty. “Corner shops, where people could buy foods on the way home from their offices, could have met this existing demand for grocery retail in the center”, says Svetlana Makhlaeva, senior consultant of the retail realty department at Colliers Int.
Classification Idiosyncrasies
”There is a ‘convenience store’ format in the Western classification – a small 250-sqm shop, which operates 24 hours a day and 7 days a week and offers a limited variety of popular goods. There can be a cafe, a restaurant, and household services in the classical convenience store. Traditionally such retail outlets are located in bedroom districts, on the lower floors of multi-family houses. The closest competitor of corner shops is the discounter. This market can be rather bulky in St. Petersburg given 40 projects of complex development underway with 1 million sqm of housing in each of them,” says Yuliya Gotovskaya, executive director at Praktis CB.
The city administration has its own view on the convenience store. According to Nikolai Arkhipov, vice chairman of CEDIPT, this is a small retail outlet (under 150 sqm) located near an apartment building or public transport stop (within 10 minutes of walking distance). The city administration intends to open about 200 such stores in 70 residential areas of St. Petersburg. A number of incentives for private entrepreneurs are proposed: premises will be leased out for 10 years and businessmen will be granted subventions from the city budget and preferential taxation schemes during the first three years.
Nevertheless the municipal program is stalling. Only two stores in St. Petersburg benefit from it – one 100-sqm outlet opened last spring in Metallostroy community and sells mainly groceries and alcohol. “The sites for such stores provided by the city have poorly developed infrastructure; moreover the municipal program bans alcohol sale, so most local retailers are not motivated enough,” explains Ms. Makhlaeva. Alexander Zorin, chairman of the Bakers Association, admits that 200 corner shops in the city is not a realistic goal. So far only 14 such outlets have opened their doors. The reasons are the prohibition to deal in alcoholic beverages and high rents.
“Rental rates vary greatly depending on location,” says head of the street retail department at Becar, Denis Vorontsov. “In the center the rates fluctuate between $300 and $1,800 per sqm per year.” “Base rents are overstated,” says Zorin, “they can only ruin convenience stores.” Another problem is that all premises interesting for retail are already occupied by other commercial firms.
Interception Plan
For all that, none of the experts doubt that now as the market of big-format retail has been saturated further development of urban retail has to embark on the path of return to corner shops. A mature and robust market calls for both large and small formats. “The main advantage of big formats is a wide variety of commodities at one place while their main problem is logistics. Big cities are stifled in traffic gems and accessibility of such stores is waning. Therefore every courtyard should have its own convenience store. Future belongs to local specialized stores,” forecasts Mr. Sozinov.
The data of the Market Medium Research Center shows that people are prone to buy daily goods at stores located near their homes. Ilya Kuznetsov, helming the department of retail real estate at Magazin Magazinov, also assumes that corner shops could be a very effective business, if only their location and positioning are carefully thought out.
Now Kaliningrad-based Kvartal retail chain owned by Victoria Group, as well as some local chains, operate in the “corner-shop” format. Thus Prodovolstvennaya birzha develops the Polushka chain of round-the-clock self-service stores (35 shops with sales area ranging from 200 to 700 sqm). Mini Polushka shops with space ranging from 80 to 150 sqm are also planned. The trading house Intertorg, a subsidiary of Interbusiness, develops the SemYa chain in St. Petersburg (35 self-service stores covering 350 sqm).Central Bakeries rebuilt its largest properties into Gastronomy811 chain stores (from 150 sqm). The company positions them as “regular shopping outlets” with assortment counting up to 3,000 brands. Dieta-18 also develops a chain of convenience stores with space ranging from 200 to 800 sqm. In the opinion of the marketing director for the Okay hypermarket chain, Sergey Pavlov, the demand for small-format stores in St. Petersburg is very high. “We intend to rapidly develop stores of this format under the Okay-ex
press brand in parallel with the hypermarket format. We are planning to open at least 40 corner shops in St. Petersburg,” says Mr. Pavlov.
X5 Retail Group N.V., Russia’s largest grocery retail company operating under Pyaterochka and Perekriostok brands, also announced the launching of a new corner shop franchising program. In October it signed an agreement on a joint venture with a group of private investors including chairman of the board of directors of the Jack Pot chain of gambling clubs, German Goglichidze, and owner of the franchising retail chain in the Perekriostok-Mini format, Valery Tarkanov. The franchising stores will reportedly operate under Pyaterochka-Express and Perekriostok-Express brands and range from 50 sqm to 200 sqm in space. Commenting on the agreement, CEO X% Retail Group N.V., Lev Khasis, declared: “We announce our first project having indisputable social significance and hope that it will be part of the programs realized by the St. Petersburg and Moscow governments aimed at the development of convenience stores and corner shops.”
Not so long ago media reported on the launching of another project of the corner shops chain in detached buildings, in St. Petersburg bedroom districts (the sales area of each varies from 200 to 400 sqm and the variety reaches 2,000 brands). It is talking about St. Petersburg-based Norma affiliated with the founders of the retail chain Lenta according to some information. The St. Petersburg government and Unimarket Northwest Ltd. promulgated the program of socially oriented corner shops within easy reach in urban quarters unattractive for investors. The list of properties to be handed over to the investor now includes 10 sites.
Hidden Resources
Conversion of the first floors in the housing stock from the residential to the non-residential status could somehow take the strain off the situation. “A municipal program of resettling the residents of the first floor in the center is needed. This is done exclusively by private business,” opines Pavel Sozinov.
Suppliers of quickly erected buildings are willing to make their contribution to the solution of retail space shortage problem. “For a month or so our company is capable to erect 1,000 sqm at the price of 300-400 euros per sqm,” says Vladislav Agzamov, commercial director of House Concept. He states that the Okay chain has already used their services. However the problem of using cheap, fast-erected buildings is complicated by the fact that it is rather difficult to obtain development land, so housing builders remain the main source of premises for convenience stores as they usually include some commercial space in their projects. “In my opinion corner shops account for more than 50% of the entire market of built-in and attached retail premises in the city. The dearth of such premises in bedroom and central districts is self-evident and the demand for such properties is high,” points out Becar’s Mr. Vorontsov. The cost of 1 sqm in such built-in and attached premises starts from $3,000. The payback period is f ive years for owned shops, and three years for the rented shop, say the experts.