One of the largest retail and wholesale traders in the world laid the cornerstone for a new store in Ukraine’s eastern city of Luhansk - its ninth
Germany’s METRO Group, one of the largest retail and wholesale traders in the world, laid the cornerstone for a new store in Ukraine’s eastern city of Luhansk on March 3, for what will be the supermarket giant’s ninth store in the country.
METRO Cash & Carry Ukraine, the group’s local subsidiary, has expanded fast since 2003, when it opened its first Ukrainian store in Kyiv. In less than four years, the membership-based trader has established itself as the second largest supermarket-based retail wholesale group in the country.
METRO has invested more than 170 million euros into Ukraine during this period, opening up a total of three stores in Kyiv, and stores in other Ukrainian cities including Donetsk, Dnipropetrovsk, Kharkiv, Lviv and Odessa. Metro is planning to break ground soon on a store in Kryvy Rih, Dnipropetrovsk oblast.
METRO plans to invest more than 20 million euros into the Luhansk store, which will be 12,000 square meters in area, including 7,500 square meters of wholesale space, when finished, and will employ 350 local residents when it opens later this spring. The store is located on a 4.2-hectare land plot, for which METRO has a 49-year lease with an option to buy it after the store opens.
With the addition of the new store, METRO will employ a total of 3,750 people, including 230 people in their head office in Kyiv.
Red tape
While METRO has expanded fast in Ukraine, it has faced numerous barriers, like others entering the market. Plans for a store in Zaporizhya have stalled due to a land dispute, a complication the group has faced during the development stage of many of its Ukraine-based stores.
“The main difficulties are related to the whole process of acquiring land,” Axel Hluchy, the managing director of METRO Cash & Carry Ukraine, told the Post.
“Every store opening requires that we go through a complex procedure encompassing initial negotiations on land, numerous approvals by local city authorities and state authorities and various permits, but it is basically not until we get the state commissioning act that we are allowed to open the store,” Hluchy said.
As with many businesses trying to operate in Ukraine, the bureaucracy that METRO still faces, particularly when it comes to acquiring land plots for its stores, can sometimes be daunting.
But Hluchy is hopeful that the situation is changing for the better.
“Something that we experienced in Lviv, and that is happening now in more and more cities, is that the [city] administration tends to allot land plots through auctions,” Hluchy said.
“I think this [method] is transparent. It gives all interested parties an equal chance, and brings the city maximum income. We hope that most cities will begin doing this instead of providing land to investors through decisions made at city council sessions. In most cities this takes no less than half a year and prolongs the term of the whole investment project,” he said.
Big business
METRO’s efforts have not been in vain. Hluchy said his company generated 113 million euros in sales from four Ukrainian stores in 2004.
Employing around 250,000 staff at more than 2,100 locations in 30 countries worldwide, METRO, which manages a portfolio of retail and wholesale trade brands, including the Cash & Carry brand, is currently the world’s third largest retailer, according to METRO Group’s website.
The group generated more than 56.4 billion euros in sales in 2004, a 5.3 percent increase compared with the year before, and plans to continue its international expansion, which it says is concentrated mainly in Eastern Europe and Asia.
Growth in the retail sector has been quite high. A.T. Kearny, a consultancy that studies world retail trends, reported that the sector grew in Ukraine by 21.5 percent in the first six months of 2005 and considers the sector to be investment-attractive.
A.T. Kearny currently ranks Ukraine the third retail opportunity market in the world after India and Russia.
The expansion of METRO, which follows the wholesale club model developed in the United States in the mid-70s, is testament to the sector’s growth, with other foreign players eyeing expansion on the Ukrainian market.
One foreign investor, Russia’s Perekryostok, acquired stores in Ukraine last spring originally built by the Ukrainian retailer SPAR.
Svitlana Dryhush, a research analyst with the Kyiv office of the U.S.-based investment firm Foyil Securities, said the deal, which was worth around $15 million, allowed Perekryostok to avoid the problem of finding appropriate land plots and obtaining construction permits, which so often reduce entry options for newcomers.
Nevertheless, A.T. Kearny reported that “retailers such as German Lidl, Portuguese Geronimo Martins and Turkish Migros Turk also have plans to enter the [Ukrainian] market” this year.
Like their foreign counterparts, domestic firms are also poised for rapid expansion on the Ukrainian market. According to a report by Dragon Capital, a Kyiv-based investment firm, Ukrainian retailer Velyka Kyshenya plans to open 11 stores throughout the county in 2006 and 15 stores annually starting in 2007.
