This article first appeared in The Edge Malaysia Weekly on May 27, 2024 - June 2, 2024

RUSSIA-based Svetofor Group, which operates a chain of grocers in Russia and across Europe is planning to make its entry into Malaysia, possibly its first Southeast Asian destination. The group, known for its hard discount stores/budget supermarkets, is understood to be awaiting the green light from the Ministry of Domestic Trade and Cost of Living to commence operations, sources say.

The Edge understands that Svetofor Group — founded by Sergey Shnayder — had been eyeing the Malaysian retail market for more than a year now and the plan is to open stores in Ipoh, Perak, and the Klang Valley. Typically, these hard discount stores, which are similar to Germany’s Aldi and Lidl grocers, offer goods that are 20% to 30% cheaper than those sold by the competitors. As at May 23, Sergey and his family’s net worth was an estimated US$1.4 billion, making them the 2,281st richest in the world.

Svetofor’s expansion into Southeast Asia is thought to have been prompted by the Russia-Ukraine conflict that resulted in the retailer shutting down stores in Europe — the UK, Belgium and Spain. It is worth pointing out that Malaysia has not imposed any sanctions on Russia.

According to a source, the ministry may decide on the group’s application “by the end of May”. The Edge did not receive a response to questions sent to the ministry.

Under Malaysia’s domestic rules governing foreign participation in the distribution trade, all foreign grocers are required to obtain government approval to operate. The rules also impose a minimum and maximum floor size requirement and for 30% of the products on the shelves to be sourced from bumiputera small and medium enterprises. Large format stores, such as hypermarkets, need to either have a 30% bumiputera equity partner or comply with another set of rules that includes contributing 0.1% of annual revenue to a bumiputera Retail Development Trust Fund for 10 years.

It remains unclear what store category this new foreign group plans to open in Malaysia, whether as a supermarket, superstore or speciality store, and what brand name it will use here. Apart from the brand Svetofor, which translates into traffic lights, the group also operates hypermarkets under the brand Mayak and hard discount stores under the brand name MERE in Europe. Forbes says the group operates more than 2,000 stores globally.

Based on available videos and articles online, it appears that Svetofor operates warehouse-type supermarkets. Items appear to be left in boxes/carts and are not organised on shelves. This hard discount store concept is also referred to as a budget supermarket or poor people’s supermarket.

MERE on its website, under the topic “requirement for suppliers and delivery conditions” says the price of goods, including the cost of delivery to the store should be 20% to 30% lower than in competitors’ stores. This is achieved by reducing packaging costs as they do not need colourful, eye-catching packaging.

MERE stores are typically located in large and medium-sized cities in close proximity to roads with heavy traffic. They are placed on the ground floor and allow 30 to 40 cars to park. The sales area ranges from 800 to 1,200 sq m. For comparison, a shop lot is about 150 sq m. 

A source tells The Edge that a company called Partner Retail Sdn Bhd has approached potential suppliers to deliver goods to its stores. A search on the Companies Commission of Malaysia website describes Partner Retail’s nature of business as “retail trade in a chain of supermarkets”. The shareholders of the company are Sergey Shnayder (79%), Andrey Shnayder (15%) and Iakovlev Valeriy (6%). All three are also directors of the company. There are two other directors — Korchagin Denis and a local Aizad Saman. Sergey and Andrey are siblings.

Another company registered to the Shnayder siblings and Valeriy is Trade Project Sdn Bhd, whose shareholding is divided in a similar fashion to that of Partner Retail. Aizad and Korchagin are listed as directors of the company whose nature of business is described as “supermarket, other retail sale in non-specialised stores and activities of holding companies”.

Based on Partner Retail’s company registration number, The Edge was able to find a Jobstreet advertisement placed last month for the position of category manager in Ipoh. The responsibility of the category manager, the advertisement said, would include identifying new suppliers, coordinating with suppliers on assortment, terms, price, discounts and payment terms.

Should Svetofor’s entry be approved, it would mark the entry of the first foreign grocery player since the exit of Hong Kong’s Dairy Farm International Ltd (DFI) from the grocery retail scene. Last February, DFI, which operated a chain of hypermarkets and supermarkets, including Giant, Mercato and Giant Mini brands, sold its business to a local group led by Datuk Andrew Lim Tatt Keong.

ExaStrata Solutions Sdn Bhd CEO and chief real estate consultant Adzman Shah Mohd Ariffin views the entry of Svetofor positively given the benefits from a new investment. “Naturally, having a new player in the market will bring positive indications for the country in terms of investment, employment opportunities and downstream services.”

“Svetofor carries a concept of discount supermarket format. Presently in Malaysia, supermarkets tend to be offering higher priced products in a high-end ambiance. If the prices can be lower given its discount nature, Svetofor could be giving the local chains a run for their money, especially in the current high inflation situation,” says Adzman who is also the former director of expansion for Carrefour Malaysia and ex-CEO of Hektar Property Services Sdn Bhd in charge of Hektar REIT retail portfolio management.

Etiqa Insurance and Takaful chief strategy officer Chris Eng says, “The fact that there are foreign retailers still keen on entering what others may deem a rather small and competitive market is positive for Malaysia. The country has often been tagged as a small consumer market given our smaller population in relation to that of our neighbours such as Thailand, the Philippines, Vietnam and, of course, Indonesia.”

He adds that should the retailer be aiming for the lower-income group via hard discounts, it makes its decision surprising given the closure and departure of hypermarkets from Malaysia over the last few years due to the intense competition in the market. Eng observes that while competition is tougher with players like 99 Speed Mart and KK Mart already in the field, competition is less intense outside the Klang Valley and Penang.

In another development early last week, KK Supermart Group and the government of Samarkand region in Uzbekistan signed a memorandum of understanding aimed at strengthening ties and collaboration between the two countries and to enhance trade and investment activities. Uzbekistan was a Soviet socialist republic from 1924 to 1991 and Russian is widely spoken there.

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