OREANDA-NEWS. December 18, 2009. As expected, the Russian Duma approved the Retail Law in its second reading. This version of the law contains three key negative provisions for food retailers, reported the press-centre of OTKRITIE FC: 

It places limits on payment terms to suppliers according to product category
(10 days for rapidly perishable goods; 30 days for perishable goods; 45 days for other food products, including Russian-produced alcohol),

It preserves the maximum restriction on the market share for a city or town at 25% of the that market, 

It maintains the restriction on bonuses at 10% of the total amount of the supplied goods.  The law sets the definition of a ‘Retail Chain’ as “two or more stores under common management and one brand,” which implies that a chain with the same owner but which operates under different brands could be treated as different chains under the “Retail Law.” Peterochka and Perekreostok of X5 are such examples.

View: We believe the news is negative for food retail stocks, which will be weak. Magnit will be the worst affected, followed by X5 and Dixy. We see the limits on “accounts payable terms” and the restrictions on bonuses as having the most substantial short-term impact on retailers’ financials, while the geographical limitations on market share will have longer-term implications.

Action: We believe market will react negatively to the news and advise taking profits and selling retail stocks.