REFILE-Retailer S Group puts Russia store expansion on hold -CEO

Mon Sep 1, 2014 10:07am EDT

(Adds dropped words "and hotels" in penultimate paragraph)

HELSINKI, Sept 1 (Reuters) - Finland's biggest retailer S Group is putting plans on hold to establish more hypermarkets in Russia due to the Ukraine crisis, its chief executive said on Monday.

Cooperative S Group, which controls more than 40 percent of Finland's grocery sales, operates 17 Prisma hypermarkets and stores in St Petersburg. It had been targeting a total of about 30 outlets as it sought growth.

But the Ukraine crisis and Russia's economic slowdown have prompted the retailer to re-evaluate its expansion plans.

S Group CEO Taavi Heikkila said it had two new stores in the process of opening in the city this year but that would be all for now.

"If it were not for the problems stemming from the Ukraine crisis, I believe we would keep on establishing about three new stores per year in St Petersburg," he told Reuters in an interview.

"Of course we are looking for possible store locations, but no decisions on new stores will be made before the situation clears up."

The hold-up follows a similar announcement from the CEO of Stockmann, who told Reuters in April the firm was freezing its plans to open more department stores in Russian cities.

S Group's Heikkila said Prisma sales in St Petersburg were still growing even in euro-denominated terms. He estimated Russian sales would grow this year to 280 million euros ($368 million) from 250 million in 2013, helped by increased demand and an expanded store chain.

"Like-for-like sales will also be up, some 16 percent in roubles and a few percent when translated to euros," Heikkila said.

He showed pictures he had taken of grocery shelves at Prisma's St Petersburg markets and said he was surprised at how little Moscow's embargo on Western food imports had affected selection so far.

Moscow last month imposed a one-year embargo on meat, fish, dairy, fruit and vegetables from the European Union and other countries in retaliation for Western economic sanctions over Russia's involvement in the Ukraine crisis.

Heikkila said Prisma's suppliers' stockpiles of previously imported goods had held up so far but that it was now seeking replacements. Prisma imports some 30 percent of the products at its Russian stores from Finland and sees the quality of Finnish food quality as a major competitive advantage.

"There is a risk that the products that replace the banned ones will not be of same quality, and it could be that prices will be higher," he said.

"But the biggest impact has come from Russia's weak economy and the devaluation of the rouble. Consumers are cautious as their purchasing power has weakened."

Heikkila said the company continued to target sales of 1 billion euros from stores and hotels in Russia and the Baltic countries by 2016.

S Group's operations in Finland, the Baltics and Russia include groceries, hypermarkets, hotels, restaurants and a bank, and last year it had total sales of about 11 billion euros. (1 US dollar = 0.7613 euro) (Reporting By Jussi Rosendahl; editing by Jane Baird)

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