Opportunities for Independent Retail Operators
There is an expansion of chain stores in Russia. At the same time, experts say that there is a niche for modern independent brands, and they could fully realize their competitive advantages. A deterring factor, perhaps, could be shortage of financially sound customers.
Last year, the presence of retail chains on the Russian market has expanded significantly, especially among food retailers, where the share of chains has been traditionally higher than the market average. According to the Federal Service of Statistics, annual growth of chain stores ranged from 1.8% to 2.8% between 2012 to 2016. However, last year it reached 3.7%.
The largest presence of chain stores is among food retailers in St. Petersburg, reaching 80.7%, in comparison to the average level in Russia of 37%. It is even lower in Moscow, averaging 29.5%, but the growth rate in the capital city is higher than the national level, averaging 9.5% annually.
Advantages and Disadvantages
The main obstacle for independent retailers is their inability to compete with the larger actors in the field of purchase prices. A solution for this situation could be participation in a procurement alliance, which would allow small stores purchase goods at discount prices from wholesale suppliers. However, winning a better purchase price may lead to a situation when independent retailers risk losing their exclusivity and unique assortment, which could be the basis of their marketing policy. Independent retailers procure from independent suppliers, based on the needs of independent consumers. It is their competitive advantage.
According to experts, other advantages that independent stores could offer include individual approach to customers, unique interior design and technical support, and higher level of customer service. Taking into account customers’ fatigue of energetic commercials and insincere service, even if polite, competition between chains and independent stores could end in a tie. “Small neighborhood stores is a wonderful thing! In the age of supermarkets, they make you believe in free enterprise, small business, and the freedom of choice for the consumer,” a discussion participant about preferences in retail wrote in a public forum on Facebook.
The Factor of a Financially Sound Customer Base
Both options are competitive, and market structure could stabilize in the existing format, especially since the number of chain stores has expanded significantly. The main obstacle for stabilizing the situation is the low level of paying ability of the population. According to research conducted by "Ramir" in June of this year, the average Russian grocery check has decreased by 1.5% from 521 to 513 rubles, in comparison to the previous month. The majority of our fellow citizens regularly buy the same set of everyday necessities. As we know, global chains are achieving the best results in this particular segment. Independent businesses have more opportunities in the areas where more affluent groups of customers reside, where they can compete based on the quality of goods and services, and not just based on the price.
Customers Support the Expansion of Chain Stores
These locations certainly exist, especially in large cities. However, the majority of the population is still not able to afford exclusive goods, thus chains continue to expand. According to research by “Platforma”, a social design center, the share of chain stores in Russia has increased from 51.1% in 2015 to 57.2% in 2017. At the same time, not only the share of traditional neighborhood stores has decreased from 28.3% to 22.9%, but the number of independent modern operators as well (from 14% to 13.2%). By the way, despite all the government efforts, the share of farmer’s markets and fairs has remained stable at 6.7%, and, so far, it was not possible to increase it.
For the sake of fairness and regardless of the support for small independent business (not franchise), we must admit that currently customers prefer chain stores. According to a recent study by the Sputnik Center, 72% of respondents prefer to buy groceries at chain stores, 33% of customers prefer neighborhood stores, and 20% shop at permanently operating farmers markets. We can see that the real market structure is moving in the direction of consumer preferences.
It is possible, but if we see more interesting options or modern independent concepts, people may like them and change their preferences.
Dmitry Manylov
