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Retail in Russia - 2011: The Focus on Quality and Value
December 16, 2011 14:58


A Customer Feedback

A lion's share of success in Retail Industry depends on a user experience. Even if we still have not learnt to measure it, along with loyalty, one fact is true: it matters. To pull a well-organised one-day business event in the centre of Moscow is no small feat. Vedomosti, Russia's oldest business tabloid, has been organising its conference, Retail in Russia, for 7 years in a row. As a sophisticated media “customer” who attended several other business events this year, I happily single out Vedomosti as the best host.

The purpose of Retail in Russia-2011 was to draw the conclusions about the past twelve months; to outline the difficulties and opportunities of the industry in Russia; and to offer a few case studies that shed the light on how best to respond to challenges and identify the opportunities.

Held at Swissotel Krassnye Kholmy in Moscow city centre, the conference attracted attention of Russian and international leading business publications, Government ministers, retailers, suppliers, and entrepreneurs. After a wild ride through the 1990s, Russian Retail Industry has recognised the importance of quality and relationships in business and customer relations. The e-commerce is developing fast, and the offline retail has acquired several major players who tend to dominate, if not inadvertently monopolise their respective sector. There are also medium and small retailers who are handicapped by the lack of government support, certain economic and non-economic factors, and are threatened by the bigger potency of major players.

2011: The Preliminary Results


Despite economic, social, and political obstacles, Russian Retail Industry has shown the tendency to steady growth in 2011. The sales of non-food products have peaked at 53,2%, while the general share of Retail in the Russian GDP made up 6,5% (15.3 trillion rubles). The e-commerce brought in 320bln RUB ($10bln), not including discount coupons and B2B sales. The latter could increase the figure by 40-60bln RUB. The offline has yet remained the main sector, increasing its market share to 88,4%. An important role here belongs to the retail networks, similar Tesco, ASDA, etc. There are three main players in this field in Russia: X5 Retail Group, Magnet (Magnit), and Dixy.

Perhaps, the biggest realisation of 2011 that will continue to impact the industry is the role of a customer, and the difference there is between 'customer' and 'consumer'. Interestingly, big and smaller players have almost simultaneously begun to understand the importance of quality control, shopper marketing, branding, and added value for the process of finding customers, establishing relationships, and turning customers into brand advocates. Although many of these terms have been used seldom, it is clear that, as elsewhere, the businesses in Russia will start exploring and using the magic of human relations in building and keeping their customer base.

What People Do When They Do Not Have Sex

Advertising and Marketing gurus have long called a customer 'she', accentuating the emotional component in making a purchase. Ten months in direct, face-to-face sales taught me that male customers can be no less 'female' in their consumer behaviour. It rarely depends on their sexual orientation, but it entirely depends on a marketer's ability to evoke such feelings, as attachment, fear, care, greed, and involvement.

So we should not wonder when men and their other halves enthusiastically respond to a computer game themed advertising of Gillette Fusion. Campaigns like this (orchestrated by Saatchi & Saatchi X) are only making their first appearances in Russian Retail Industry. What has not yet been adopted is a wider use of 'sex appeal' in marketing. The reservations, if not inhibitions, have obviously to do with the notorious “there is no sex in the USSR”. The Russian population figures may prove the opposite, but the culture of nudity, eroticism, and enticement is by and large non-existent. And while the first two may be unnecessary for a successful advertising campaign, the appeal and enticement are decisive factors in marketing. The strategies, let alone tactics, are even now very rudimentary and “in your face”. There is no subtlety of M&S adverts, when you know that “this is not just food”.

This was the point Sergey Yushin, Chairman of the Executive Committee, National Meat Association, made at the plenary session. He underlined the pleasure factor: “people enjoy food and sex. As they grow older and cannot have sex, they should indulge in food”. A provocative statement, it addressed the major problem of Russian manufacturers and retailers. Not only does little passion go into production, even less is spared on packaging, shelving, and presentation (the latter is fixed in Russia under the term of 'merchandising'). This is disappointing, considering that shopping has long been just another 'sexy' leisure activity, along with food and sex per se.

When the business tries to combine sex appeal with quality and presentation, you get something like LavkaLavka.ru. This e-tailer connects farmers with customers. You want your chicken fresh and healthy, just from a local farm – there you go, here's your neighbouring farmer who cannot wait to deliver to you their produce. Things look bright: an unexpectedly successful online business, 10K Facebook followers after 15 months, practically no competition, and budding plans for global development. This is not just food, this is food as a social act, in the name of healthy eating, Russian farmers, and customers. The only drawback is price. Imagine paying for your eggs nearly 6 times more than you do in your local Tesco. Even Waitrose and Sainsbury's customers would unlikely splash the sum 4 times more than what they normally spend on eggs. Of course, the reason the prices are high is because the entire price creation system is transparent: the business owners make no secret of how much the money is distributed between them and farmers. Overall, LavkaLavka has played the exclusivity and organic food card so well that the prices remained high, in spite of crisis and recession.

Unexpectedly or not, it was only Nikolay Pryanishnikov from Microsoft Russia who addressed the importance of user experience in customer acquisition and retention, and in building brand loyalty. Tesco's entering the Korean market via the underground (literally!) has increased their online sales by 76%. Tesco went straight to the customers and offered them the best, easiest, and trendiest way to shop for groceries, while being pre-occupied with other things.

Of course, as one of the strongest monopolists in Retail, Tesco (who plans to expand to Eastern Europe) possesses the experience and resources, including money, to go after a customer like only few Russian retailers can do. The oldest seller of children goods and toys, Detskiy Mir, to this day has almost no competition and is an ideal partner for global brands, like Disney and Lego. Little pressure from such factors as retail and price competition allows Detskiy Mir to concentrate on providing the added value for customers.  The importance of the latter is underestimated; however, along with food and sex, this is just another factor that keeps people coming back. The added value goes beyond the act of purchase and often includes unmeasurable 'ingredients', like aftertaste, the lasting pleasure, desire for more, trendiness, etc.


2012: Issues and Prospects


Arguably, jumping on a bandwagon is no good. Yet the choice is always there: you can be the first, the best, or just be different. In the words of Ilya Yakubson, the President of the Dixy Group of Companies, Russia starts later but does things better. It is hard to disagree: so many case studies and solutions are available that with a bit of creative thinking it is possible to make fewer mistakes. Still, in some areas Russian retailers will have to follow the trial and error method, and these are legislation, quality control, and self-regulation of the industry.

Legislation
The 2007 Federal Trade Law has so far only slightly influenced the relationships between retailers, suppliers, and distributors. In many cases the conditions for suppliers became harsher, while administrative expenses increased due to changes in trading agreements and supplier inspections. Certain legal juggling of the recent years led to the lack of clarity in anti-monopoly legislation in Russia: some measures are allowed, some not, whereas both categories should be expressly prohibited.

In spite of this, Head of the Department for Control over Social Sphere and Trade, Federal Antimonopoly Service, Timofey Nizhegorodtsev stated that the Federal Trade Law has received international recognition and is currently copied in the CIS countries. In his view, the economic growth should be the result of competition, and not monopoly. This is the area where retailers, regardless of size and ambitions, should co-operate.

Quality control and self-regulation
2011 has shown a hitherto almost unknown tendency to peacefully resolve disputes and conflicts in the sector. Be it the problem of product quality or the style of business correspondence, 2011 has revealed the ability of the Russian business to address the problem without a recourse to the court of law. This is a welcoming departure from the 1990s gangster-style in teaching your competition how to behave.

If self-regulation may be a matter of common sense (“treat others like you want to be treated”), quality control is a more complex issue. First, there is neither code of practice, not existing set of regulations. LavkaLavka, for instance, has developed their own regulations to determine the quality of the farmers' produce and its suitability for their customers. In 2011 retailers have realised the importance quality plays in customer retention. Along with any added value, ensuring the good quality (i.e. value for money) promises to be one of the main factors that Russian Retail Industry will look to explore, strengthen, and turn to the sector's benefit in the coming years.

The following will become characteristic of the development of Russian Retail Industry in 2012:

1)Regional development
    Currently they mostly buy clothes and footwear in the regions, usually online and often – from a Moscow-based Internet-store. Price does not matter as much as the assortment; however, either logistics, or quality keep disappointing, thus diminishing the value for money. This is a paramount problem, as quality is the main factor in building the brand loyalty among regional customers.

2)Building a positive image of Retail Industry
    Historically, traders in many countries often assumed that they would not be able to sell without cheating the customer. The 1990s legacy continues to affect many Russian industries, including Retail, and, unlike quality, the role a customer's trust plays in sales seems yet to be appreciated. As more and more people shop at the malls and online stores, it becomes increasingly important to promote a positive image of a retailer who is honest, trustworthy, reliable, eager to please, and provides quality products.

3)Industry self-regulation

4)Quality control


5)A review of the industry standards, including the terminology


6)An investigation into the workforce requirements in Retail Industry in Russia

7)Further development of retail networks

8)Further development of legislation concerning Retail Industry, and anti-monopoly measures


9)A strategic framework for domestic retail development, including programs for retail sector in the regions

10)Multichannel approach
    The growth of the Internet sales and the unprecedented popularity of discount coupons a-la Groupon (they now have a Russian office, too) have led some to wonder, how offline and online retail are going to co-exist. Most analysts and practitioners correctly point out to the case with Tesco, e.g., when we have multiple selling channels united under a single brand. Evidently, Russia should be no different here.

The final note


The future looks bright for Russian Retail, even if it only slowly catches up with global trends. Review sites have long been allowing citizens to air their opinions of the venues, events, and producers. As my discussion with DataInsight's Fyodor Virin has demonstrated, the businesses mostly rely on the free version of Google Analytics to tell them how their brand is doing online, and by experience, even this free version is often not used to its full potential. The corporate solutions, like Omniture, is presently used by 6 retailers, and it sounds like Radian6 and the like that help chart the visitor's sentiment remain largely unknown. Again, by experience, this is no different from the UK retailers in 2009 when the purpose of using, tracking and measuring the effect of online conversations was almost inexplicable.

The well-organised conference, attended by people genuinely, if not emotionally, involved in their business was an inspiration. To write this text, I went into a new Italian cafe Pesto across the road from the conference hall. It was a cosy but very busy place, with large windows, Italian music, good menu, and lovely interior: imagine timber beams, lamps, no heavy smell of oil or garlic, and comfy couches. Of all places I'd ever visited in Russia and the UK, this was above any competition, and here is why.

I was met at the door by a smiling waitress and taken to a non-smoking table, then came the waitress who attended on me, and the first thing she did was introducing herself to me. This never happened before! I am sure they have no way of knowing the customer's identity, but the girl and I turned out to be namesakes. My tiramisu was a proper Italian desert, and together with a large pot of tea it cost me less than I normally pay for this combination in other Moscow cafes. The quality was right, the emotional component worked very well, and on top it turned out that the manager's name was the same as my mother's. Tell me about coincidences.

The point, though, is this is the case of an owner getting things right from the moment of a client's entering the door. Relationship is established, the quality is ensured, your opinion is counted, and the added value is the atmosphere in which you can either relax, or like me, reap the benefits of concentration and creative thinking.

The earlier Russian retailers begin to talk to customers, build relationships, and treat a customer like a friend, the quicker the industry will see the progress it has not yet imagined.

Julie Delvaux


Author: Julia Shuvalova

Tags: Russian business Retail in Russia 2011 Moscow events   

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