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RBCC St. Petersburg Retail Forum, February 20th 2007, Grand Hotel Europe

With a population of just under 4.7 million people, St. Petersburg is Europe's third largest city. It is to be expected that the consumer retail sector in such a populous territory would be in good health, but the rate of growth in this area over the past few years has outstripped even the most optimistic predictions. As both Russian and international companies compete for the consumer rouble in the region, what are the main factors driving this expansion, and how can retailers look to achieve maximum success in such a dynamic market? RBCC St. Petersburg organised a special forum at the Grand Hotel Europe to examine these very questions.
William Elliott, UK Consul General in St. Petersburg, opened the plenary session with his observations on the power of the British “brand” as a key advantage for UK companies working in Russia: the successful launches of such companies as Marks and Spencer, the Body Shop, NEXT and Austin Reed point to the opportunities in this area. One of the best known UK retailers now active in Russia is of course Kingfisher, operating through its French brand Castorama, and Peter Partma, the company's Country Manager, was also on the panel to give his insight into how a company of this size, with 700 stores worldwide, has found success in Russia.
Mr. Partma commented that one of the main factors in his company's success was its ability to adapt to local conditions, and that it did not attempt to impose a “one size fits all” strategy to Russia. When asked whether such factors as land availability had a limiting effect on Castorama's expansion in the North West, Partma was unequivocal: the principal factor restricting growth for his company (and doubtless, many others) was the lack of qualified, trained personnel – he would build stores wherever he could fit them, what was needed was the people to staff them. But the general outlook was positive: in fact, St. Petersburg could even lay claim to being the true retail “capital” of Russia, now Europe's third largest market in this sector.
Hypermarkets and big-box retail is perhaps the most visible manifestation of the development of this sector in Russia, but rapid growth is also under way on the high streets and shopping malls of St. Petersburg. Filipp Kapchits, General Director of SELA Corporation in St. Petersburg, commented on the expansion of his company's network, and advised UK companies looking at Russia to waste no time in entering the market, else they find that they have missed the wave of expansion sweeping the country.
Daniil Somov, Managing Partner of Retailer Group, commented that one of the indicators of the increasing sophistication of the retail sector in St. Petersburg was the growing interest among retailers in finding new formats for their outlets, to maximise profitability and enhance the customer experience.
Following the plenary session, the first main seminar was devoted to the effective creation of a successful store. Once the question of when to enter the market has been decided, the next question is of course: “where?” – Evgeniya Vasilieva of ASTERA Group took the audience through the various factors affecting the selection of the ideal retail premises, from transport infrastructure to synergies with other stores – in a market that is developing so rapidly, it is vital that companies find the right place in which to trade, both at the time that the store opens and into the future. St. Petersburg is undergoing far-reaching changes in terms of the transport links in the city, and the smart retailers will do well to bear this in mind. Once the location has been found, the next question is how best to fill the store to optimise ease-of-use for the customer, and therefore profitability. Elena Lunina, Purchasing Director at Lenta, one of St. Petersburg's (indeed, Russia's) most successful hypermarkets, gave an insight into Lenta's use of category management. As with all the best ideas, the concept is simple: merely placing compatible goods in physical proximity to one another has a marked effect on the sales of all categories – a typical example is the standard practice of putting tea and sugar into the same aisle or section. At a company such as Lenta, with thousands of product lines, this process has reached levels of impressive sophistication, and is a key element of the company's sales strategy.
But it is not enough, of course, just to have the products well-arranged: they will not jump into the shopping basket by themselves. Dmitry Levitsky, General Director of training company Serviceman TC, gave an entertaining presentation on the importance of making sure that the floor-staff in any store are realising the full sales-potential of their department – again, the solutions are simple, and the results of a little investment in staff-training are clear.
With franchising becoming increasingly prevalent in Russia, the importance of maintaining corporate identity is also not to be underestimated, and Filipp Kapchits of SELA was again on hand to share with the audience his company's strategy: given that SELA's network now stretches from China to Poland, with over 600 stores, this strategy is clearly an effective one.
But what of the more technical aspects of creating, maintaining and expanding a retail business? First to address this topic was Oleg Weinberg, IT Director of KEY computer stores. Oleg spoke on the vexed question of how best to use a corporate IT system to maximise a company's profitability, and managed to commentate on what is a potentially highly technical subject in a mercifully un-technical way, reminding the audience that an IT system should always be more the means to an end, never the end itself. This theme was continued by Murad Sofizade, General Director of IP Net, who gave an absorbing presentation on the possibilities of using satellite technology as a facilitator for regional expansion.
The second seminar of the day was devoted to finding the best ways to market your store. Elena Botvinnik of PricewaterhouseCoopers, main sponsors of the event, began the session with a presentation on corporate marketing, in particular corporate “maturity”, which has a beneficial effect for the company in terms both of market position and attractiveness to potential investors. How stores and companies are perceived was a subject taken up by Maria Arestova of Workline Reseach, who gave a thorough rundown of how different store chains are characterized in the mind of the consumer.
One of the best examples of a store making an image for itself is the Bukvoed chain of bookstores in St. Petersburg, and we were delighted to have Denis Kotov, General Director of the chain, to share his thoughts on how his company has carved out its position. Denis's vision is for his stores to cease being simply places where books are sold, and to become cultural centres: to this end Bukvoed runs a packed programme of events, unique in St. Petersburg.
Elena Novokreshenova, Business Unit Director of IMS Retail, dedicated her presentation to the various marketing techniques which can be adopted by retailers to increase sales, and commented on some of the strategies used by international companies to this end. The key thing to attain was a happy customer, for the simple reason that a happy customer will spend more time (and therefore probably more money) in your store. This topic was taken up by Natalia Korchagina, General Director of Brands Division, who gave case histories of a range of campaigns, and the effect that they had on a consumer's perception of a product.
The final session of the day was devoted to retail expansion strategies, and was begun by Sergey Nikolaev, Managing Director of Untsia, a unique chain of tea-shops which is spreading rapidly across St. Petersburg and beyond. Sergey continued the theme of franchising as a way to “shorten the distance” to expansion, and the success of his company in what is a very specific market niche points to the importance of formulating an effective corporate strategy. At the other end of the scale, Pyaterochka's Regional Concessions Director, Sergey Ledyaev, commented on the continuing successful expansion of his company (which now has over 1,100 outlets in Russia, Ukraine and Kazakhstan), while Dmitry Faivinov, Corporate Sales Manager of Globus Gourmet, returned to the theme of maintaining corporate identity in an expanding network.
The session was rounded off by senior representatives of two of the most active international banks in Russia: Bruno Balvanera, Head of the EBRD in St. Petersburg (and, as it turned out, a loyal customer of Untsia..), emphasised the importance placed by the EBRD on investment in retail in Russia, as demonstrated by the bank's recent equity investment into Lenta. Retail would continue to be a key part of the EBRD's strategy, and as the bank is planning to double its investment into Russia in the coming years, it is clear that the EBRD is making a firm commitment to the sector. On the side of retail finance, and its importance to the continuing growth of the retail market as a whole, Tatyana Savina, Head of Retail banking at Raiffeisen Bank in St. Petersburg, gave her thoughts on the future of this growing sector, and her bank's intention to remain active in this important area.
The RBCC St. Petersburg Retail Forum is the first in a series of one-day forums which the Chamber will be running through 2007 in Russia's second city. As characterizes Chamber events, it was a day for learning new information and making new contacts. Further details on the individual presentations can be obtained by contacting RBCC St. Petersburg. Our sincere thanks go to the sponsors of the event: PricewaterhouseCoopers, Astera Group, IP Net, Workline Research, Serviceman Training, Iron Mountain and OSG Records Management, and also to our information partners – The St. Petersburg Times, Vedomosti, Torgovye Resheniya and Staffwell Recruitment. Thank you also to our speakers, chairmen and delegates, and to Retailer Group for their support and advice in preparing for this event.
Chris Gilbert, RBCC St. Petersburg Director