Valartis Takes on Holland in Bet on Home-Grown Russia Roses

Alexander Nikolaev, with a decade behind him at Valartis Group AG, initially didn’t take the idea of investing in flowers seriously.

“When someone mentioned flowers to me for the first time, I said: ‘What are you talking about?’” Nikolaev, managing director of Valartis’s Russia and Commonwealth of Independent States operations, said in an interview in Moscow. “But then I did some research and realized that first of all, it’s beautiful, not to mention that it’s not a bad business.”

In a country where subway stations are often surrounded by florists offering bouquets for occasions from weddings to school examinations, demand stands to outstrip economic growth “several times over,” said the 38-year-old Nikolaev. The banking group invested about $10 million this year for 50 percent of the retail side of Rosovyy Sad, or Rose Garden, which grows flowers locally to tip the balance away from imports that account for more than 85 percent of supplies.

As Russia grapples with the slowest growth since 2009 at 1.2 percent, the World Bank urged the government in September to focus on supporting startup companies to help steer the economy away from commodities. Rose Garden, which has about 30 retail outlets, is based in the Kaluga region neighboring Moscow and grows plants to European standards, Nikolaev said. The Netherlands is the world’s biggest flower and plant exporter.

Branching Out

Russia’s retail sales grew 3.5 percent from a year earlier in October and real wages jumped 4.1 percent, Federal Statistics Service data showed.

Valartis is also considering Russian organic food businesses and invested about $150 million in an eight-story high luxury office and residential property in central Moscow that’s due for completion in June, Nikolaev said.

The group, which manages more than $8 billion in assets and traces its roots to Vienna in 1890, is targeting an annual investment return of as much as 20 percent in Rose Garden and is discussing taking a share in the production side of the business, according to Nikolaev. While imports will remain a large part of the industry because of the climate, local flower output may increase to 50 percent “over the next few years,” he said by phone yesterday.

Russians’ spending on fresh flowers almost doubled this year to an average 1,000 rubles ($30.35) per person, according to data from the Credinform agency. The value of the nation’s flower market will rise from 3 percent to 6 percent annually, the information service said by e-mail.

Last year, 5 percent of Russians gave flowers as presents for the New Year holiday, according to the Russian Public Opinion Research Center. A total of 50 percent of men said they would give flowers as gifts to mark International Women’s Day on March 8, a study by the Levada-Center showed.

“Consumer demand is shifting toward local produce,” Nikolaev said. “If you can offer a product that’s the same as an import but 1 1/2 times cheaper, then you clearly have potential.”

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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