November 28, 2017 / 3:03 PM / a year ago

Finnish retailer S Group to resume Russian expansion

HELSINKI, Nov 28 (Reuters) - Finland’s biggest retailer S Group, which put its Russian growth plans on hold after the Ukraine crisis in 2014, is now back in expansion mode, a company executive said on Tuesday.

The cooperative group, which accounts for more than 40 percent of Finland’s grocery sales, operates 16 Prisma hypermarkets and stores in St Petersburg.

Several Finnish companies, including retailers Stockmann and Kesko, have pulled back from Russia in recent years following an economic slowdown there and a slide in the rouble currency.

But with the economy now picking up, S Group is planning to double its number of hypermarkets and supermarkets in St Petersburg in the next five years, possibly starting from 2018, said Executive Vice President Jorma Vehvilainen, who is in charge of the retail business.

“Our Russian operations as a whole are starting to show positive cash flow. The St Petersburg region is developing well already, it is a huge market with a lot of growth potential,” he told Reuters by phone.

“This kind of market business requires a certain critical volume to become profitable.”

S Group’s retail business in St Petersburg, which covers about 4 percent of the city’s overall market, is currently loss-making, Vehvilainen said. Prisma’s rivals there include X5 and Lenta.

Vehvilainen said the company was also looking to open smaller convenience stores, as well as new hotels on top of the three it already has in the city.

“St Petersburg is easily reachable from Finland, logistically,” he said, adding the retailer was not looking to expand elsewhere in Russia.

Moscow in 2014 imposed an embargo on products including meat and dairy from the European Union and other countries in retaliation for Western economic sanctions over Russia’s involvement in the Ukraine crisis.

S Group sees the quality of Finnish food as a major competitive advantage. However, Vehvilainen said the embargo had not affected Prisma’s selection much.

“The bigger worry has been the weak purchasing power. The consumer behaviour correlates very much to the exchange rate.”

S Group’s operations in Finland, the Baltics and Russia include groceries, hypermarkets, hotels, restaurants and a bank. Last year it had total sales of about 11 billion euros. (Reporting by Jussi Rosendahl; Editing by Mark Potter)

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