“In the current crisis conditions, the small chain of shops Metro Cash & Carry is freezing its prices on basic essentials, including milk, bread, groats and macaroni”. “The marketing chain Dixie has fixed its prices for buckwheat, rice, millet, macaroni products, sunflower oil, butter, flour, pelmeni and frozen fish”. These are official messages from retailers sent out by their press services to the media today.
Such actions by vendors can be described by the happy word combination “social responsibility”, or “concern for customers”. The PR departments of the firms supply this information in this guise. But it is actually about something else, about the retail chains themselves trying to survive in the conditions of the current economic crisis, accompanied by high inflation and the devaluation of the Russian national currency. This is what is forcing retailers to remember such terms as “direct costing” and “cash flow”, and to go over from their old-fashioned financial planning methods based exclusively on accountancy profit statistics to more modern and effective ones, starting from return and prime cost. For example, direct costing means determining the point of no loss by dividing all the company’s costs into variable and constant. If you remove from the goods sold by the retailer those which are sold at a price lower than that at which they were bought from the wholesaler, the profit of the whole enterprise falls. After all, that component of prime cost which was covered by returns from the sale of “loss-making” products would have to be transferred by more marginal ones. This means that it can turn out that it becomes necessary to give up selling all the rest, turning the business from a large supermarket into a delicatessen. In conditions of falling consumer demand, such a development of events could be more than likely.
Furthermore, the fall in sales is taking place against a background of an increase in the share of their incomes that domestic consumers spend on food products. According to the forecasts of the analysts of VTB-Kapital, by the end of the year, inflation and the reduction in the incomes of Russians will lead to spending on food rising to 55 percent of their incomes.
But like any crisis, the current situation in Russian retail opens up opportunities for new players, including foreign ones, to enter the market. That is, of course, if they are in a position to arrange a more flexible and less costly sales system and choose a different sort of relationship with their suppliers. Another not unimportant condition must be a different attitude to the customer, not the one taken in the Russian market now.
The Russian customer has become more discerning. When buying milk, she doesn’t go by its “Use by” date but by the date it was unpacked. She has got used to looking at the lower shelves with the cheaper goods, not at the middle shelves with the more expensive ones. And she prefers to take a list of her essential requirements to the shop so as not to buy anything she doesn’t need. In this respect, Russians are becoming very like the Swiss and Germans, who have an inborn habit of economizing.
And this means that the formats of shops offering food in the capital must become like those of Swiss and German ones. They may be small shops with a limited and exclusive selection of goods produced on the premises: bakery products, confectionery products, butcher’s shops with a constant range and a constant clientele of customers. The age of the big supermarket chains, especially those within the city, is coming to an end. We are entering the age of small family businesses with family values. And in this format, there is plenty of scope for small businesses, particularly Western ones, offering the European consumer and business culture. Particularly considering that the cost of entering the market, since the devaluation of the rouble, is little more than half what it used to be for Europeans.