Page 51 - bneMag Dec22

bne December 2022 Special Report I 51
to point out that the Uzbek market is very different, and highlights Fix Price’s failure as an example.
“The culture here is very different. In Russia you can sign a lease contract in an hour. Here you have to go to the landlord and drink tea, discuss your business plans, and they want to talk with decisions-makers – equals. It takes at least a week or longer,” says Zaitsev. “You want to
go fast, but you can’t be aggressive, as you need to earn the respect.”
Finding and training staff to run the stores is another bottleneck. And the limited access to cash or investment funds also slows the pace, says Zaitsev.
However, maybe the biggest challenge is the cultural difference in the way people shop. In the Eastern European countries to the north, it is a relatively short step from shopping in the ubiquitous “produckti”, or corner stores, that can be found in every former Soviet city, to changing to a modern urban supermarket. However, in Central
Asia people have been shopping in the bazaar for centuries and, moreover, often go to the marketing only once a month to stock up in bulk on staples. Changing to a convenience store when you buy what you need for the next few days is a big shift in mentality.
“This is also a small market. You can't build a business in the same way as
the Russian businesses were built.
I head an anecdote of a couple that went into one of the newbuilds, all shiny and posh. The couple were awe struck by the glitz, but then turned to each other and said: “Enough of the museum show; now let's go and buy something,” and left the shop. You have to take these cultural differences into account,” Zaitsev relates, emphasising the store build-out needs to go slowly as the local population get used to
the idea of convenience shopping.
Dixy experience
Xalq’s chairman Yakubson is one of the most experienced retail managers in the Former Soviet Union (FSU).
He scored some notable successes
in his six years heading Dixy in Russia, which was owned by multi- industry retail group Mercury.
In an exclusive interview with bne IntelliNews in November 2015, after
the EU sanctioned Russia for the annexation of Crimea, Yakubson said he opened more stores in the first nine months of that year than in all of 2014, bringing the total to more than 2,600. But Dixy was in fierce competition with Russia’s two market leaders – X5 and Magnit – that both saw revenues grow faster over the same period, albeit more slowly than expected due to the economic downturn at the time.
Dixy had a troubled history in
the hyper-competitive Russian
retail market. Having built up an impressive business during the boom years, pitching itself slightly down market from the leading players,
it struggled to compete effectively and eventual sold to Magnit in
2021 in a $1.3bn takeover deal.
Russia’s competitive supermarket business has matured and is now in the process of consolidating into a handful of leading brands that have increasingly been snapping up their smaller rivals
in a series of very large M&A deals.
Dixy fought back with its own merger with leading alcohol retailer Bristol
more stores than your rivals so as
to capture as much market share as possible while it was still up for grabs. By the second decade of this millennia the focus had changed to increasing profitability and the leading players began to close down their smaller stores as the sector consolidated.
And more recently the incumbents were facing increasing competition from the discounters, led by Fix Price, as real income began to
fall thanks to President Vladimir Putin's focus on building up his Fiscal Fortress and ignoring Russia’s need for fixed investment.
Fix Price has burst onto the Russian market in the last few years, CFO Anton Makhnev told bne IntelliNews in an exclusive interview in June 2021, forcing the incumbents to respond by setting up their own discount chains after Fix Price began to seriously eat into their revenues.
Fix Price also launched an aggressive campaign to break into the Uzbek market, entering with 42 stores in the last year. With a per capita income one tenth of Russia’s, Uzbekistan should have become a fertile field
for the sophisticated discount chain that models itself on the leading US discounters, but it miscalculated badly, by ignoring the cultural differences.
“It is good to be connected in Uzbekistan, but it is not good to be corrupted”
and Red & White to become the third largest supermarket chain in Russia in 2019 and also tied up with Russian e-commerce major Ozon to launch online sales a year later in an effort to revive flagging sales that had plagued the company for years during the four-year long recession that followed the 2014 oil and annexations crisis.
For most of the previous two decades the organised retail business had simply become a straight race to open
A year later there are now only eight branches left, all run by franchisers, and the company officials counts
its own Uzbek outlets at zero.
“Customers are shy. They are price sensitive. They like the format, but you can’t rush the stores out. Our competitors assume the market is the same as it is in Russia or Belarus, but it isn’t,” says Alibekov.
www.bne.eu