Russia’s second-largest market is fertile ground for the retail sector.

Moscow-based and foreign retailers have begun their expansion into the St. Petersburg market. But local retailers have not been sitting idly by. According to the city’s Committee on Economic Policy, there are more than 160 retail chains in St. Petersburg today uniting 1,200 companies.

The first sign that competition in the St. Petersburg retail market was heating up came when Moscow retail chain Paterson opened its first Petersburg supermarket in July 2002. The 5,700 sq.-meter supermarket, which opened in one of the city’s outlying suburbs, is planned as the first in a chain of 10 stores.

Following on the heels of Paterson, the Perekryostok chain opened its first store in the city, and Sedmoi Kontinent plans to open its first store this spring. Both chains are also from Moscow. Dmitry Nikonov, development manager for Perekryostok, said the company plans to invest more than $20 million in expanding its activities in St. Petersburg. "Some of this investment will come from the European Bank for Reconstruction and Development, while the rest will come from the company’s own funds," he said. "The company plans to cover 30 percent of the Petersburg retail-chain market."

German company Metro Cash & Carry held lengthy negotiations with the Petersburg administration before finally getting approval for a site for its first store last autumn. The company’s hypermarket opened as planned in Primorsky District at the end of April. Metro PR manager Marina Kid said the company invested $25 million in the project and plans to invest a similar amount in a second store.

St. Petersburg’s largest retail chains:

Agrotorg (St. Petersburg): Operates the Pyatyorochka chain of supermarkets in St. Petersburg and Moscow. More than 100 stores.

Uniland (St. Petersburg): Owns the Dixie chain of grocery stores. Eight stores and five Megamart home handyman stores.

Adamant (St. Petersburg): Six shopping centers.

At the end of February, Moscow company M.video opened two stores in Petersburg, with 1,500 sq. meters and 2,500 sq. meters of space, respectively. The company invested $4 million in this project and plans to open another two stores by the end of the year.

But even without the arrival of big fish from Moscow and abroad, small Petersburg retailers were already finding themselves squeezed out of the pond by bigger local companies.

The best-known local chain is the Pyatyorochka discount stores owned by Agrotorg. As well as building new stores and reconstructing existing ones, the chain’s directors recently acquired the smaller retail chain Ayaks. Pyatyorochka now has more than 100 stores in Petersburg and Moscow.

The Okay chain of hypermarkets owned by Liat-Dixie is also actively expanding on the Petersburg market. The chain opened its first 10,000 sq.-meter store a year ago, and others are under construction. The company hopes to have 12 percent of the market within the next three years. Over the next seven years, it plans to build seven hypermarkets, each one more than 10,000 sq. meters in area. A total of $8 million was invested in the first store. The investment funds come from Luxembourgois company Dorinda Holding.

The St. Petersburg market also has a number of other fairly large companies that have been developing their businesses over recent years. Uniland, for example, has two chains in Petersburg – Dixie (eight stores of up to 700 sq. meters in area) and Megamart (five stores of more than 1,000 sq. meters). This company is currently working on setting up a chain of independent supermarkets, Unisam. Also active on the market is Lenta Cash & Carry, which owns four cash-and-carry stores and has a fifth currently under construction.

Companies with big plans:

Ramenka(Turkey): Owns the Ramstore shopping centers and supermarkets in Moscow. Is building its hypermarket and plans to open another two stores. Total investment is $65 million.

Metro Cash & Carry (Germany): Opened a hypermarket in April and construction of a second is in process. Investment is $25 million.

Liat-Dixie (St. Petersburg with Luxembourgois company Dorinda Holding as investor): Is working on one hypermarket and is already planning a second one. Total investment is from $8 million.

Patterson (Moscow): Has opened one store with space of 5,700 sq. meters and plans to build another 10.

Perekryostok Trading House (Moscow): Opened a supermarket on the outskirts of St. Petersburg in autumn and has selected a site on Sennaya Pl. for its second store. Total investment is $20 million.

St. Petersburg retail companies say the market is large enough for everyone. "The amount of retail space per person in St. Petersburg is still much lower than in most European countries," said Igor Makarov, general director of the Liat-Dixie chain of stores. "And there are really only a few supermarkets that meet modern demands."

Sergei Lepokvich, director of the Pyatyorochka chain, agreed. "We don’t have enough civilized retail outlets here," he said. "In any case, the market is large enough that it definitely won’t reach saturation point over the next two years, even if new shopping centers keep opening at the rate they are today."

Big retail chains back this up in press releases issued to mark the opening of their Petersburg stores, which stress the idea that the city does not yet have stores of their format, and that they have come to fill an empty niche.

But not all is rosy on the Petersburg retail scene. The main problem is that renting premises is not profitable, while buying them is complicated. The big chains end up having to build their own stores or track down existing ones that have not yet been incorporated into a retail chain. Before privatization, St. Petersburg had around 60 supermarket-sized stores. Some of these have already been taken over by chains like Pyatyorochka and Perekryostok, but others have been overlooked so far, and it is they that are now attracting retailers’ interest.

Overall, city officials have proved willing to help with large projects, but this help does not extend to assisting chains in obtaining premises for their stores in central Petersburg. The city’s urban development plans focus on encouraging retail development in the outer districts rather than in the central area. "No provisions have been made for finding space for supermarkets and hypermarkets in the center," said Yury Petrov, the head of the city administration’s consumer-market department.

Retailers find their own ways around this problem. Liat-Dixie, for example, has announced plans to build a new Okay store in empty premises at the factory Elektrosila.

Elektrosila is not the only enterprise to have facilities virtually in the heart of the city that it is not using. A couple of years ago, the Plateau supermarket opened on central Ligovsky Prosp. on the site of the Ligovsky Textiles Factory, and the Adamant chain got the go-ahead to transform the former Warsaw railway-station building into a shopping and entertainment center.

Perekryostok took a different approach and reserved for itself the ground floor of the Peak shopping and entertainment center currently under construction on Petersburg’s centrally-located Sennaya Pl. Perekryostok plans to open a 3,800 sq.-meter supermarket in the space and has already signed a preliminary tenancy agreement with the builders and owner of the future center, Sovetnik.