Russian businesses have been cut off from Western markets by sanctions, but one of Russia’s leading discount retailers has snuck in under the radar and continues to roll out stores in the EU, The Bell reported on June 16.

Successful hard discounter Svetofor (Traffic Light) based in the Siberian city of Krasnoyarsk rode the wave of the rapid rise of discount stores in Russia over the last few years to become one of Russia’s five biggest retail chains, and was already displacing the leading international brands before the war caused many of the multinationals to freeze operations or pull out of Russia altogether.

At the same time, the most successful operators were beginning to expand into Europe, using their large revenue base, generated from catering to by far the largest consumer market in Europe, to expand into the “near abroad” and the EU proper. Since the war in Ukraine started most of those plans have been curtailed, but not for Svetofor, The Bell special correspondent Irina Pankratova reports.

In 2020, Svetofor entered the top ten largest Russian grocery retailers with a revenue of RUB200bn ($2.4bn). Over the past two years, the company's business has doubled, making it one of the five biggest players in Russia’s burgeoning retail sector. Although the economy has been hit by multiple shocks in recent years, retail is one of the sectors that is doing well and the outlook is improving as the Russian economy returns to growth and both nominal and real incomes start to rise thanks to an extremely tight labour market.

Discounters have emerged in Russia over the last decade, boosted by the crises that began in about 2014 and the annexation of Ukraine. The economy then went into a four-year-long recession that saw incomes fall and got another fillip during the coronavirus (Covid-19) pandemic, when everyone was forced to stay at home and cooked more.

Svetofor’s business model is a no-frills offering where its stores look more like warehouses and it strives to offer a 20%-30% discount on all its goods. No-name brands of popular durable goods are simply laid out on wooden pallets and offered in “family-size” packets to bring costs down as much as possible.

With revenues pouring in, like many of its peers Svetofor started to roll out stores in the rest of Europe in 2017, but has kept its operations low-key and low-profile, operating under the brand Mere in Europe.

Instead of targeting one country and rolling out a high-profile chain with the associated marketing, the company has targeted all the EU countries, but opened small chains in each with no more than a dozen stores in any one country, The Bell reports. However, taken together the European network has become significant with approximately a hundred Mere stores in Europe, according to The Bell's calculations. And the war and sanctions have not halted this expansion, with more than 20 Mere stores opened in Europe since the war started, The Bell estimates.

The total revenue of Mere is estimated at around €50mn, which is only approximately 1% of Svetofor's total Russian revenue. That makes it a minnow in comparison to Europe’s leading discount stores. Germany’s Aldi is the largest European discounter and generates revenue of around €80bn in the European market.

However, the company is using the same model that worked so well in Russia: founded in a remote Russian region, it quietly built up a regional network focusing on poorer local markets and kept opening low-profile stores that generated a solid turnover, growing the network up slowly.

Svetofor is owned by the enigmatic Schneider brothers, The Bell reports, that have managed to evade sanctions so far, as they are reportedly not supporters of Putin’s war. A key part of their low-budget strategy is to spend nothing on marketing, and the brothers have never talked to the press during the entire three decades of the company’s existence.

Nevertheless, the Russian roots of Mere have not gone unnoticed. Mere’s stores have been targeted by protestors in several countries. For example, local media in Latvia have accused the chain of selling Russian goods, which local retailers refused to carry on principle. In Czechia, protesters have called for a boycott of the chain. In Belgium, protests by Promote Ukraine activists led to the denial of permits for store openings. The only store that managed to open in France closed after just four months, partially due to economic reasons but also due to the mayor's statement that hosting a Russian economic player would contradict their efforts to support Ukrainian refugees, The Bell reports.

While the ongoing war and sanctions play a role in Mere's slower development in Europe than initially planned, insiders and experts interviewed by The Bell believe that the main challenge lies in adapting the model tested in Russia to the European market. Nevertheless, experts suggest that Svetofor’s format may find demand in European regions where people's incomes are not keeping up with inflation and mandatory payments.