First Russian retailer entered the Crimean market, but the peninsula won’t cope without Ukrainian goods

Photo: Konstantin Melnitskiy

Russian retailers are beginning to develop the market in Crimea. Rostov’s food chain Assorti-Produkt opened six stores of the “shop nearby” format in Simferopol, Chief of Trade and Services Department of the local city council Inna Shevchenko told Capital. The chain is planning to open one more outlet by the end of the month. “The new chain opened in stores earlier owned by the food chain Svityaz,” said Shevchenko. Svityaz is a local chain that included a dozen of food stores with the area from 200 sq m to 1,000 sq m.

Capital was unable to obtain commentary from the representatives of Assorti-Produkt as nobody answered the phone calls in their office. Manager of the Assorti-Produkt chain Boris Shapoval, who was quoted by the Crimean press, earlier said that the company planned to invest RUR 20 mn (around UAH 7 mn) into development by the end of the year. All premises will be leased. He said these outlets account for 40% of the Crimean plans of the company over the next several years. “We aim at bringing in Russian goods as much as possible. Meanwhile, it is still very difficult to deliver the products from the mainland due to lines on the Kerch Passage. There have been no other problems: there are no problems in finding premises in Crimea as there are plenty of vacant ones,” he said. Assorti-Produkt is owned by Rostov businessman Petr Bogodukhov.

At the moment, Ukrainian food chains ATB, Novus, Silpo, Furshet, Eko-market and local retailers Vezunchik and Yabloko operate on the Crimean market. Co-owner of the Furshet chain Ihor Balenko says the biggest problem of operating in Crimea is the absence of a common legal field. “Some work by Russian legislation, some by local and some by Ukrainian law. It is impossible to even conclude a lease agreement in Crimea as there are no cadastres yet,” he says.

A new player will have a difficult time ensuring supplies to the chain, believes Managing Partner at Retainet Consulting Company Oleksandr Lanetskiy. “There are objective problems with logistics in Crimea. The passage on the peninsula is too weak and too expensive in order to supply stores with Russians goods in a normal mode,” he explains, adding that the situation will become even more complicated when the storms start this fall.

Russian goods are 25% more expensive than Ukrainian products, adds Balenko. Retailers also won’t be able to ensure demand at the expense of Crimean manufacturers due to extremely low supply. Meanwhile, it is quite problematic to import goods from the mainland Ukraine. “The local authorities continuously prohibit import of different goods from Ukraine. However, reserves must be formed as they have an impact on price formation,” says one of the managers of the Ukrainian national food chain on condition of anonymity.

Russian controlling bodies have repeatedly introduced prohibitions for supplies of Ukrainian products, as Capital wrote earlier. At the end of April and beginning of May, RosSelkhoznadzor (Federal Service for Veterinary and Phytosanitary Monitoring) and Rospotrebnadzor (Russian Federal Service for Monitoring of Consumer Rights Protection) prohibited supplies of Ukrainian foods. The sanctions were applied against cheese products, Roshen confectionery and animal products. However, due to the logistics problems Russian manufacturers failed to supply Crimea with their products, which resulted in food shortages on the peninsula.

On May 22, the ban was lifted until July 1 for all categories of products except for pork manufacturers. On August 19, RosSelkhoznadzor again lifted its bans on the import of Ukrainian products to the occupied territory of Crimea until January 1, 2015. After annexation of Crimea, food prices on the peninsula increased by 25%.