The Russian Federal Law on Trade came into force on February 1, 2010. The Law is aimed at creating transparent conditions of cooperation between suppliers and retailers and boosting competition in the retail sector.
THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY
USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT
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GAIN Report Number: RSATO1002
Post: Moscow ATO
Russian Trade Law Equals Transparency?
Retail Food Sector
Deanna Ayala, ATO Director
Olga Kolchevnikova, Marketing Specialist
The Russian Federal Law on Trade came into force on February 1, 2010. The Law is aimed at creating
transparent conditions of cooperation between suppliers and retailers and boosting competition in the
retail sector. The Law contains strict antimonopoly regulations, such as capping store openings once a
retailer reaches a 25 percent market share threshold within a city or municipal region, a 10 percent limit
on retailers' bonuses paid by suppliers, and payment terms regulating how fast a retailer has to pay for
goods with a certain shelf life, among others. The Law stipulates that the terms and conditions of food
product supply contracts shall be brought into accord with requirements of the Law within one hundred
eighty days from the effective date. Russian retailers repeatedly expressed worries about overregulation
of commerce, pointing to the risk of a hike in prices and a sharp decrease in the assortment of foodstuffs
At the end of 2009 the Russian Parliament approved a Federal Law on Trade which it hopes will make
pricing more predictable and transparent, boost competition in the retail sector and make relations
between retailers and suppliers more transparent. The law, which has been five years in the making,
came into force on February 1, 2010. An English translation of the text of the Federal Law on Trade
may be found in Attachment 1 to this report. The Russian text of the Law is on the site:
The Law contains strict norms on antimonopoly regulation. It stipulates that chains with a market share
of 25 percent or more within the boundaries of a municipality or a city district and also the cities of
federal importance (Moscow and St. Petersburg) would be prevented from opening new stores in that
area. This part of the law was phased in from February to July and as of July 1, 2010 and is now fully in
Many see this as a barrier for big retailers like X5 and Magnit to opening new stores, especially in small
towns, as a retailer can breach the threshold by opening a single store (hypermarket). Sergey Galitsky
CEO of Magnit Retail Group is among those, he said, ?It?s an anti-market measure. We are ready to
submit to new conditions in order to open a store, but we are not ready for a total ban on new shops.?
(Source: www.rt.com, 12/12/2009)
Pursuant to the Law, the definition of a trade chain is two or more stores under common control or
common business name. It means that the stores owned by, for example, X5 operating under different
brands such as Pyaterochka and Perekrestok represent the different chains.
According to Planet Retail estimates, the share of modern retail in Russia is 30 percent, versus an
average of 80 percent in developed countries. The top ten Russian retailers have an aggregate market
share of 13 percent. Assuming that the food retail industry grows at a 13 percent Combined Annual
Growth Rate (CAGR) in 2008-14 (with the top ten retailers averaging a 20 percent CAGR over the same
period), that would transfer into an aggregate market share of 19 percent in 2014.
Figure 1: Estimated market share of listed Russian retailers, 2008
Implications for retail development in small towns are difficult to quantify given the fact that there is no
data on how to calculate turnover and a big share of market activity is conducted on the grey economy.
On a federal level, there are no implications for the food retailers that do not breach these criteria, while
limitations on X5 Retail Group to grow its market share in St. Petersburg where it already controls some
30 percent (including Paterson) do exist. According to Vedomosti and Kommersant, the Federal
Antimonopoly Service (FAS) proposes that retailers' market share for purposes of the antimonopoly
provision of the retail law be calculated annually using data gathered by Rosstat. Retail sales turnover
for purposes of the antimonopoly provision will account only for food items. The methodology proposed
by the FAS must be approved by the Ministry of Economic development and the Government.
Another topic of the Law is the entry fee which suppliers pay to retailers to get their products on shelves.
The Law limits the so-called "bonuses" that suppliers are asked to pay to retailers to a maximum of 10
percent of sales.
Currently the so-called bonus to retailers can be as much as USD 5000 for a product. The new law will
put a stop to the practice but according to Lev Khasis, President of X5 Group, Russia?s largest retailer,
customers will ultimately pay more. ?The intention of this law is to increase the profitability of suppliers
and to increase the level of operational expenses of chains. Who will pay for this? I know only one
source ? wallets of customers.? (Source: www.rt.com, 12/12/2009)
?Of course, the supply contracts for 2010 will not include illegal bonuses - for example, for a place on
the shelf or for a listing (the output of the new brand), but nothing prevents the retail chain to include
these fees into individual contracts for services?, a Head of major Russian distributor of alcohol
products said. ?If the supplier pays a retail chain more than the allowed bonus, e.g. 15 percent, then the
retailer can specify the 10 percent bonus in the supply contract, while the remaining 5 percent will take
the form of discount on the purchase price.? (Source: www.rt.com, 12/12/2009)
Suppliers are not worried - they say the big popular brands will boost their share in the shops,
stimulating demand through advertising. But smaller producers will not be able to compete and may
have to sell their products under a chain?s private labels. Musheg Mamikonyan, President of the
Russian Meat Union welcomes proposals to boost the power of suppliers: ?Only those who abused their
power will lose out. There are a number of big retailers who had been taking advantage of their position
to make excessive profits at the expense of the suppliers. This law will make it harder for that to
happen.? (Source: www.rt.com, 12/12/2009)
The Law fixes terms of payment for delivered goods, with restricted payment delays. Payment must be
made to suppliers within a maximum of 10, 30 or 45 days, depending on the shelf life of the product.
Retailers should also pay for domestic alcohol products within 45 days.
Analysts suggest that there is a limited downside risk from the proposed regulation on public listed
retailers? working capital as days payable in these categories fall into the proposed limits (the average
days payable for listed retail companies is 62 calendar days, or 45 banking days). However, experts
consider that any deterioration in payment terms would be offset by price increases. Figure 2 shows the
average days payable for listed Russian food retailers.
Figure 2: Average days payable for listed Russian food retailers, 2008
X5 Retail Group?s management estimated that the main effect of the payment terms would come from
fresh products (which account for about 30 percent of the company?s turnover and have an average 15
days payable). The overall effect on working capital, though, would be marginal.
Pursuant to the Law the Russian Government can impose regulatory measures for essential goods,
including food staples, for not more than 90 days, if there has been more than a 30 percent price increase
in the last 30 days. Currently, there is an export ban on grain in effect due to an expected crop shortfall
(please see Gain Report RS1039 http://gain.fas.usda.gov/Recent%20GAIN%
such declarations in Russia?s recent history include Premier Viktor Zubkov?s in 2008 before the
presidential election, but attempts to freeze prices, particularly for milk, have failed.
The Law stipulates that the terms and conditions of food product supply contracts shall be brought into
accord with requirements of the Law within one hundred eighty days from the effective date.
Retailers repeatedly expressed worries about over-regulation of commerce. The Russian ACORT
Retailers Association pointed to the risk of a hike in prices and a sharp decrease in the assortment of
foodstuffs in Russia. Experts also warned that restrictions on payment delays would make retailers more
dependent on banking loans and increase expenses on the payment of interest.
Currently retail chains are gradually adapting their activities according to the Law. And although there
has been no noticeable effect yet, some retailers are starting to change their assortment strategy, for
example, cutting out duplications in some categories as well as slow moving goods. As a result, the
number of suppliers also is being refined and reduced, sometimes in favor of big brands, sometimes in
favor of local suppliers. At this time it?s difficult to predict who will be most affected. We will likely see
more effects of the Law on the market in the close future, when all retail activities are brought into
accordance with the Law.