Russian government goes full circle on allowing kiosks to sell goods

Russian government goes full circle on allowing kiosks to sell goods
The Russian government spent years closing down kiosks but now is encouraging them to support SMEs
By Ben Aris in Berlin February 12, 2019

In the first years following the collapse of the Soviet Union, kiosks sprouted up in cities across Russia like mushrooms after the rain. With most of the big Soviet stores bankrupt the kiosk became the main conduit of retail, stocked by the “suitcase traders”, individuals that flew abroad and filled their suitcase with hard-to-find products in Russia that they sold through a kiosk.

However, as pavements became ever more crowded by unregulated kiosks that of course never paid a penny in tax eventually the authorities turned on them. Mayor Yuri Luzhkov took the first swipe at kiosks in the 90s and even the new mayor Sergey Sobyanin was still bulldozing kiosks only last year.

However, on February 11 Russia’s Deputy Minister of Production and Trade Victor Evtukhov made upbeat comments on the rollout of smaller retail formats as part of the government drive to encourage the growth of small and medium-sized enterprises (SMEs). It seems that the kiosk is back.

The government is hoping making it easier to get into retail by easing the restrictions on kiosks will increase retail trade turnover, lead to a diversification of distribution channels for suppliers, an increase in taxes, and could create up to 250,000 new jobs, Evtukhov said.

“Smaller retail formats have been under pressure in the last five years, seeing bans on the sales of beer and tobacco from 2013-14 and issues with real estate rights in Moscow. As a result, the number of smaller outlets has gone down 9% to 237,000 in the last five years, according to Euromonitor. Prior to that, the channel accounted for up to 20% of beer and tobacco sales, according to the respective production unions,” Maria Kolbina of VTB Capital (VTBC) said in a note.

“If the state’s approach to smaller formats becomes friendlier and their rollout accelerates, it could put pressure on traffic to modern trade formats from a relatively lower base. Among the most supportive measures to kiosks could be the return of sales of alcoholic drinks and tobacco, as well as favourable operating conditions (such as tax breaks). In terms of a greater impact, we highlight the convenience format in large cities. We note the vague implementation outlook on the acceleration in kiosk rollout and anticipate amendments to the law on traditional and mobile trade,” Kolbina  added.

The expansion of the kiosks would be a continuation of the increasingly diverse distribution channels for retail, which have reached maturity.

The explosive growth of Russia’s supermarket chains has come to an end as organised retail starts to run up against structural constraints. The leading chains have switched from expansion to grab more market share to improving profitability and have even begun to close some of their more unprofitable stores.

The mega-malls that were so popular in the 90s are giving away to smaller and more sophisticated stores where being local is increasingly enjoying a premium over being big. The rise of ecommerce is also playing a role, cutting in to traditional organised retail turnover as can be seen by the slowly sinking Watcom Shopping index that measures foot traffic in the biggest stores and has fallen for four years in a row.