Hypermarkets have had their heyday in Russia and are facing increasing competition from local convenience stores that are offering them more and more competition.

French retailer Auchan is changing its strategy in Russia by giving up the discounter hypermarket formats and moving upmarket with more premium products in its retail mix, the director in of the retailer François Remy told Vedomosti daily on May 10.

Russia's highly competitive retail market is following the global trend and shifting from “dinosaur” of the hypermarket format to the more nimble local convenience store format. The falling popularity of hypermarkets is already clear from the steady decline of traffic in large Moscow malls, measured by the Watcom Shopping index.

Auchan plans to boost the number of quality choices in its product basket and increase the traffic, which is estimated by Infoline at 2.2% in 2017. The market share declined from 2.9%, attributed to the loss of the middle class shopper turned down by large proportion of cheapest products on Auchan shelves.

Analysts surveyed by Vedomosti confirm the trend market of shrinking the trade floor and improving the product proposal, currently followed by both market leader X5 and its rivals Lenta and O'Key.

At the same time the retailers will have to figure out what to do will all the space in hypermarkets to lure consumers into lengthy shopping trips. Possible solutions include catering, entertainment, in-house consultation and tastings, amongst other things.

Nevertheless, Russian food retailers are better positioned than some western European retailers to adjust to consumers' increasing preference for shopping at smaller convenience stores rather than at hypermarkets, Fitch Ratings argued in a special report in November 2017.  

Fitch sees consumer interest in hypermarkets continuing to decline globally as shoppers put more of a priority on speed and convenience. The consumers are increasing their demands for fresh produce, which is leading to more frequent shopping trips favouring smaller convenience store format as well as online grocery shopping.

The agency noted that the trend has been particularly strong in much of western Europe, leaving large food retailers such as Carrefour, Tesco and Sainsbury's with excess capacity, facing store closures and need for new strategies to fill space, such as introducing third-party concessions.

In Russia in particular, the hypermarkets have been pressured by weak consumer spending over the past two years. "This means that hypermarket footfall in Russia could still grow as consumer sentiment improves," Fitch believes. 

In addition, Russian hypermarkets "tend to be smaller and closer to urban areas than those in western Europe, with a lower proportion of space assigned to non-food," making the any new adjustment less disruptive, the agency noted.

Even those hypermarket operators continuing to open new ones are expected to operate more compact stores, which should reduce the size of the average Russian hypermarket by around 300 square metres to 4,200 square metres over the medium term, according to Fitch.

"The hard discounter model is also starting to emerge in the country but its sustainability in the Russian market is not yet proven," Fitch adds. Online competition remains negligible and the agency does not expect significant growth in food e-commerce in the medium term.