WalMart Playing Russian roulette?
August 8, 2008 by Robert Barr
Filed under Rants
Moscow Market
LONDON - Two decades after the end of the Cold War, Russians could soon be filling their freezers with food from Wal-Mart Stores.
Russia has proven to be the final frontier for Wal-Mart Stores’ (nyse: WMT - news - people ) European ambitions, and now the world’s largest retailer is reported to be circling the Russian retail chain Lenta, along with a handful of other Western companies.
The Bentonville, Arkansas-based company is competing with French supermarket company Carrefour, (other-otc: CRERF - news - people ), Kesko and Agrokor Group, to buy Lenta in a deal that could be worth $2.0 billion, according to the Russian daily Vedomosti.
Lenta has 31 hypermarkets in Russia, with 14 in St. Petersburg, and the remainder in several other large Russian cities. The company’s sales after tax came in at $1.5 billion, in 2007.
Foreign investors may be wary of entering Russia, where the government has reportedly threatened retailers with tax inspections and penalties if they do not comply with occasional food price freezes.
But Gordeyeva does not think that this issue, or the new laws being drafted that could affect the regulation of market share in the retail sector and the pricing of goods, will affect foreign investment in Russia’s retail sector.
Someone from Bentonville please email me or leave a message or send a carrier pigeon if you have to to let me know if you guys have access to television and/or newspapers down there. Why? Because someone in business development isn’t keeping up on current events.
NEWS FLASH
Russia is turning into the wild west, they are seizing private industries, they are taking control of the media, and holding energy starved Europe hostage. I guess these are the attributes you look for in a partner when you are the largest retailer.
India Calling
Why move into Russia now? Why not develop India? You have 1.3 billion English speaking people who are starving for your low-cost model. You have a ton of hurdles to get over in this country but you could own this space if you played your cards right. Just look at the upside, you have built in low cost labor, a thriving economy built around the tech sector, and a hungry consumer. Seems like a no brainer to me. With costs rising in China you should be digging shovels into the ground faster than I can type this post!
In closing, forget Russia, not for ever, but for now. You WILL get your asses handed to you, so if you push on with this move be prepared to defend yourself against things you don’t talk about in Bentonville.
Don on Fri, 8th Aug 2008 3:31 pm
News Flash to you my friend. Wal-Mart already has stores developing in India. Google it! Wal-Mart Bharti Private Limited. Already has stores open Buddy. Check your facts before you fire your artillery.
Your fears about Russia are unfounded and you have ever set foot in the country (like 100’s if not 1000’s) of foreign companies you would realize that it is a warm and welcome place. Take off your “red colored” glasses and enjoy the real view.
Robert Barr on Fri, 8th Aug 2008 4:35 pm
Hi Don,
Thanks for stopping by. I appreciate the heads up on Wal-Mart in India, as I mentioned in my post “why not develop India?” I know they are already there.
Your comments about fearing Russia being unfounded, I am pretty sure they just chased BP out of the country last week….and then there is this headline today:
“Georgia ‘under attack’ as Russian tanks roll in”
But I am sure it is warm and friendly….
Don on Sun, 10th Aug 2008 6:32 am
Robert,
Don’t mean to mix politics with business but there is always more than one side of the story. There are literally thousands of foreign investors in every sector that have entered this market and have done so quite successfully (although admittedly not always easily). The BP-TNK dispute is the one that garners all the attention and it draws away from all the success stories here. I would just encourage you to look closely at the whole story on what happened with BP and what they were doing too in this deal. They weren’t as innocent as what you might think. I only ask that you do that and then draw your own conclusions. Other than that I would say that business here is quite good in most sectors. Medvedev has made the fighting of corruption at all levels his mantra and has recently announced a 4 point plan to fight it.
As far as Georgia, it is really hard to say what happened to start all of this in S.Ossetia. Both sides have different opinions, but when you hear a senior staff member of Georgia’s cabinet on BBC World news talk about how offensive it is for Putin “a low level executive in the Russian government” (his words, I’m not making that up) to be there trying to negotiate with them. I’m not saying Russia was totally right but I would hate to condemn the whole country on mitary blunders and bad decisions. (We have had our fair share of them too and I still think USA is a wonderful country and has good intentions)
Thank you for the debate. It’s okay not to see eye to eye on everything.
Robert Barr on Sun, 10th Aug 2008 10:16 am
Hey Don thanks for stopping back!
I don’t mean to say that Russia is “off limits” to foreign investment. There is a lot of free cash looking for opportunities there and most industries are enjoying huge growth. The trouble I look out for is when governments (anywhere) can come in an seize an industry for whatever reason.
In other words, markets need to work themselves out. Now, your imediate response to me should be the Federal Reserve’s bailout of the financial sector over the last few months, which I would agree with you.
But there is a difference, and that difference is the company still stands on it’s own instead of becoming a state owned property, which we have already seen doesn’t work as a corporate structure.
For what it is worth, I have done business inside Russia and the Ukraine, as well as India. I found all of them beautiful, and the people fantastic. But the governments that run them are not always representative of the people right? I mean, if I could pack George Bush’s bags for him today I would because he doesn’t represent me anymore.
In any event, I am happy you stopped back. Please keep reading and let’s talk some more!
Robert
Don on Sun, 10th Aug 2008 4:37 pm
Robert,
You are absolutely right on with your observation. I think the thing that put the oil and gas industry at risk of being nationalized in the first place was that the Yukos company was so rampant with graft and corruption that the government stepped in and took it over. The view was the national security was at risk by this kind of problem in this industry. The end result (knee jerk reaction if you will) was that and the BP-TNK issues have Russians even more convinced that oil and gas should be nationalized. Not good if you are doing a market entry in the sector. But as long as you sell watches, bubble gum and Pepsi-Cola, you will probably be safe. I think Wal-Mart is smart to try to enter the market. If they don’t someone else will. Bottom line is the Russian’s love their kids like we do and we all want to be able to afford to take care of them. Can’t do it if you are broke. I think they could use that outstanding distribution and buying strength to help the Russians afford to live better too. If an American company comes in to Russia with a goal of doing things to help each other like this I think we could all benefit. Let’s band together and create some peace on earth and good will towards men WITHOUT our politicians.
Robert Barr on Sun, 10th Aug 2008 6:46 pm
Don,
It’s funny how things are portrayed in the news. You mention Yukos. Here in the States, we feel sorry for Mikhail Khodorkovsky. He was painted a political casualty going against Putin in the early days. We all heard about the pact between the Kremlin and the Oligarchs; stay out of politics, and we will stay out of your business, but Khodorkovsky couldn’t, and therefore got arrested for it.
Maybe nationalizing the oil sector would help stabilize our prices…something to consider