October 12, 2012

Tengelmann resurrects in Russia

Plus (photo: Jörg Konrad)
Phoenix from the ashes: A "Plus" store in Germany before its sale in 2008 to rival Edeka
Given its vast contraction in bricks & mortar, you could have knocked Lebensmittel Zeitung down with a feather when Tengelmann confirmed this week that it plans to open "Plus" stores in Russia.

Up until the 90s, Tengelmann was one of the big boys in German and international retailing. But the family-run company then gradually imploded, leaving, for instance, A&P smashed by the wayside in the US. It also sold soft discounter "Plus" in Germany and eight other European countries in 2008.

Today Tengelmann Group is only a regional supermarket player in Germany with holdings in DIY operator "Obi", textiles discounter "Kik", and Edeka Group discount subsidiary "Netto". It has also become an imaginative investor in numerous online start-up operations including Zalando.

But why now Russia?!

JV with RosEvro Group

Apparently, the company intends to open around 150 outlets medium-term in Russia. According to the Russian business newspaper "Kommersant", a joint-venture (Plus Development) has already been created with local consortium RosEvro Group.

Russian media are touting a total investment figure of around €500m and claim to know of plans to achieve annual revenues of around €1bn by 2020. A company spokeswoman confirms negotiations regarding sites in Moscow, Tula, Twer, Rjasan and Novgorod.

Tengelmann explains this new development by pointing to the innate "attractiveness of the Russian market". Clearly there is the megalopolis of Moscow and 13 cities with several million inhabitants each.

The country is also now a WTO member, the rouble-euro exchange rate is relatively stable, and average inflation of 7 per cent this year is reasonable, at least by local standards.

Presumably, Tengelmann is familiar with the country via the 20 "Obi" DIY stores it has opened in Russia over the last ten years.

No strong Russian discounter

Its scouts may have reported back to German head-office in Mülheim that Russian retail lacks a convincing discount format.

There would clearly be a huge market opening for discount stores in the numerous satellite towns and cities where the inhabitants of innumerable tenement blocks are often only served by Mom & Pop stores.

Meanwhile, German hypermarket operator Globus plans to increase its store network in Russia from five to eight outlets, and Rewe Group subsidiary Billa has opened 85 supermarkets since 2004 despite former local partner Marta filing for insolvency. 

The intended move still represents, however, a strange new bud on the old Tengelmann root. It is more than telling that internationally expansive German discounters Lidl and Aldi haven't cared to enter the market yet. Meanwhile, troubled Metro Group hypermarket subsidiary "real,-" is looking for a buyer.

Surely it is also legitimate to ask why French retail giant Carrefour jacked it in after only a few months in Russia and why Walmart hastily withdrew its expansion team under David Cheesewright?

Reasons to stay at home

If one ignores murderous traffic on a precarious transport infrastructure, blatant corruption, heavy customs duties on imported brands, and payment terms of up to half a year, the main problem for western retailers in Russia is the bureaucracy regarding sites.

Apparently, the difficulty lies not so much in their purchase, but in obtaining national and local government permission to run them. Ullrich Uman of Germany Trade & Invest GmbH says that this can often take one to two years. Also, what may work in Moscow most certainly doesn't have to work in St. Petersburg.

Meanwhile, 50 ring binders of documentation per site can be required before the electricity is connected, approach roads are built, or the refuse is collected.

Dear Tengelmann, to misuse the famous Frank Sinatra song: "If you can make it there, you can make it anywhere." Surprise us!

 
Related articles in German: Lebensmittel Zeitung, no.s 40 & 41, 05.10.2012 viz. 12.10.2012, by Annette C. Müller, Christiane Ronke & Mathias Vogel


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