Retail business will develop rapidly in Russia
Selgros Group is an international retail chain that has been operating on the Russian market since 2008. The company sells goods to firms, institutions, individual entrepreneurs, as well as to private customers. Selgros is owned by Transgourmet Holding AG, which in turn is part of the Swiss trading company COOP-Group. Over the past 10 years spent on the Russian market, the company has shown good results and is expanding according to plan. Michael Zipfel, who has been the CEO of Selgros Cash & Carry Russia, talked to Capital Ideas about his time in Russia.
You moved to Russia with your family five years ago. What was your first impression?
I’m still horrified by how different reality was from what I had pictured in my head about Russia. Moscow is a wonderful city. Though it can also be incredibly exhausting. Russia is a very big, diverse, and complex country… People here are welcoming and proud. Right now, I’m happy I came to this country and was able to form my own impression of it.
What advice would you give to your compatriots and other expats moving to a different country for work?
When you make the decision to work abroad, you need to be prepared to encounter that other country’s culture. And of course, knowing foreign languages is an advantage in international food trade. Speaking from personal experience, I can recommend getting some experience living abroad when you’re younger – go to another country to study or do an internship, and just take an interest in other cultures.
In your opinion, how is Russia different from other countries you’ve worked in when it comes to doing business?
First, there is a giant market here, which consists of over 140 million consumers. Because of the size of the country, consumer behavior varies by region. This is very interesting to work with, and is a real challenge for any business in terms of determining product range.
But there is still a lot of bureaucracy here. It’s still very much in effect, and manifests differently in different regions in Russia. There are a lot of challenges in day-to-day life as well that are a problem primarily for small and medium-sized businesses.
How would you describe the Russian style of doing business?
Personal relationships are the biggest deciding factor when it comes to doing business with Russian partners. In order to establish a good relationship with Russian business partners, you have to be ready to learn about their intentions. This often takes up a lot of time. Herein lies the difference between us – the way we organize people, our living space, and social relationships.
What challenges did you run into when developing Selgros?
People in modern society want to derive pleasure from the process of consumption, which is good for retailers – that’s how we get the opportunity to come out ahead in the price war. Today, the atmosphere of shopping is acquiring a special significance. Formats that target “experience shopping” try to surprise their clients. They’re dynamic and entail a combination or rest and active leisure.
For professional clients, delivery service is becoming key. And this already something bigger than just delivering groceries. You need to develop completely new business models. Starting from the first contact with a client through an operator or an answering machine, the right product range, and logistics. Here, Selgros Russia is offering something completely different with its multichannel approach.
It’s great to have the opportunity to take part in this. The Russian market is open to new things and isn’t limited by structures shaped by history that have been in place for many years.
What is competition like in your market segment? What is the main competitive advantage of Selgros?
Retail has always been a fast-paced industry, and it will continue to develop quickly in the future. The change in consumer behavior accounts for the scale here. Consumer power is growing, and market participants have to pay for every mistake immediately. Because competition is constantly growing, we, as a commercial enterprise, cannot forget about this within the scope of our traditional stationary trade formats or when it comes to creating new sales strategies. The concentration will increase both in trade and in terms of producers. There are no alternatives to digitalization.
Selgros Russia is part of TransGourmet, which is the second largest cash & carry enterprise in Europe. As a subsidiary company operating on the Russian market, we have relative freedom and can make a lot of strategic decisions about our activities in Russia on our own. This gives us flexibility and room to take risks. By opening a new prototype in September, we’re establishing new standards in Russia for working with professional clients in terms of both stationary trade and delivery services. Flexible solutions for clients on the spot and the security that comes with a big company, and our experience in various European countries give us a significant competitive advantage.
How has business changed over the past few years in terms of trade turnover?
Like all retailers, Selgros is suffering from low end user purchasing power, as well as the situation with professional clients, primarily from the HoReCa segment. Of course, this impacts trade turnover before anything else. We’re not seeing growth that’s as strong as it was a few years ago.
Have the sanctions and the political climate impacted Selgros and the segment overall?
For western companies, Russia was a promising market just a few years ago. Today, the Russian market is among one of the most unstable markets in the world. Of course we’re feeling the impact of the political climate on our business, just like all of our competitors.
What can you tell us about your buyer?
10 years ago, when Selgros started working in Russia, we were very surprised that the end user adopted the cash & carry model, which was initially geared toward professional clients. It was also interesting to watch how the end user changed over these years, developing new requirements for our product range. Today, the end user even dictates their own trade format. This is the challenge a lot of retail enterprises are running into.
Have you noticed a change in consumer behavior over the last few years?
The economic crisis has been going on for several years, so people’s personal savings have been significantly depleted. Moreover, half of the population is paying off one or more bank loans. Additionally, many people have stopped stocking up on things ahead of time, since nobody is expecting such sharp price increases anymore. Overall, Russian consumers have become more frugal in their spending. As a retail market participant, we’re seeing an increase in consumer demand for cheap products, which appeared as the result of a drop in the population’s real income. Today, a Russian consumer is willing to go to several stores to find what they need at a better price. The price has become a key factor when it comes to making a decision about a purchase. A lot of Russians go online to compare prices, then select the best offer. Over the past few years, online shopping in Russia has become easier. Delivery is often free. But there is reason to have hope. Many Russians say that they are a bit better off financially in 2018 than there were in 2017, and are making purchases they’ve been putting off. People use credit a lot. Still, price remains the deciding factor.
Do you plan to open an online store?
Yes. We’re working on building an online store for professional clients. But it’s not enough to open an online store. Aside from everything else, you need good logistics. Also, as a commercial enterprise, we want to make money. And we don’t see this with a lot of our competitors who have opened online stores. We want our online store to work well and meet the needs of our clients. So we’re giving ourselves a bit more time to prepare.
What are your development plans for the next few years?
We have a strong position on the market, and our team has accomplished a lot over the past few years. But we have a lot of challenges ahead as well: competitive displacement, an increase in costs at every level, a switch from analog to digital formats. This isn’t just about online shopping, because restaurant food delivery services are also our competitors. When someone orders food there, they’re not going to buy it from Selgros. We want to remain a reliable partner for both professional clients and end users. We’re going to continue developing and improving our delivery services, and also expand our shopping center chain. The Russian market has a lot of potential for us in this sense.
About a year ago, Selgros Russia acquired Global Foods, which specializes in supplying products to hotels and restaurants. How is this integration coming along?
The integration of Global Foods into Selgros Russia is going according to plan, but Global Foods was already managing fine before us. There is no need to change something that has been working well, so Global Foods operations are going to have a significant level of independence. However, in areas where we can obtain synergy, like with joint purchases, we’ll be doing so.
Do you have a work motto?
“If you’re a gnome, do things giants can’t do” – this is a quote from Niki Lauda. I mean to say that we may not be the biggest player on the Russian retail market, we might not have as much weight to throw around, but we’re different from others because we know our clients well and can offer products and services that are the perfect fit for them. This is equally true for our meat shops in terms of hygiene and product quality that meet German standards, and for individually tailored delivery solutions.
We’ve had a lot of success with this motto in the past and I’m sure it won’t let us down in the future.