According to research, Russian retail shows stable growth from year to year (+ 4-5% annually). The food retail sector is particularly dynamic, with its annual turnover exceeding USD 26 billion.
Eventually most manufacturers need to expand their market presence and open new distribution channels. To win a place on the shelf of a federal retail chain is the dream of any FMCG manufacturer, but this dream often breaks down on the harsh reality. In our today's article, we will raise the main questions that you should answer before deciding whether to enter Russian retail.
Is my company able to cover the required supplies volume?
This is one of the key questions. It is important to understand that working with large chains presupposes an appropriate supplies volume.
Many suppliers cannot work with large retail chains precisely because of the lack of sufficient production capacity. Trying to please the buyer, the pursuit of volume begins, which affects the quality of the products + the supplier shifts its focus exclusively to the retailer, losing the sales channels already built up earlier. In addition, you should not exclude force majeure circumstances, for example, a breakdown of the machine - the supplier will not wait until you re-establish production, he needs the goods right here. Ultimately, this chase will end in disaster for you - the retailer will terminate the contract, and re-entering it will become an overwhelming task.
It is also worth making sure that you have enough staff to interact with the retail chain (logisticians, sales managers, marketers, advertisers).
Have I assessed the competitiveness and prospects of my product?
We are used to thinking that our products are the best and most beautiful in the world, out of reach - this is normal. But when you are entering a highly competitive environment, where the products of brand giants are already presented, it is worth conducting a much more detailed analysis and assessing the real prospects.
The main criterion here will be the analysis of the ratio "price-quality" among your main product category competitors. Will you be able to keep an adequate price tag (when the retailer earns about 60-100% of the purchase product price)?
Do I have enough logistics capabilities?
Retailers wait for products shipment at their distribution centers down to the minute. At the same time, the consignment of goods must retain its appearance during transportation, this is especially important for perishable products (the percentage of permissible rejects is extremely small). Otherwise, you face fines.
Am I willing to pay for shelf space?
Buying shelf space is a normal practice in Russian retail, and there are several reasons for this:
- Firstly, there is high competition and a shortage of retail space, which does not allow the products of all manufacturers to be displayed at once, so the retailer sets an additional fee
- Secondly, the buyer does not have 100% guarantees for high sales of your product, therefore he insures himself and sets a fee for the shelf space
Is a deferred payment acceptable to me?
It's not a secret for anyone that the chains do not pay for the consignment upon receipt, much less prepay for it. As a rule, the retail chains operate on the terms of deferred payment, or deferred payment by factoring for about 40 days. Evaluate whether your company has sufficient working capital and reserves to operate on such terms.
Will I be able to participate in promotions?
Retail chains often hold promotions in their stores, make thematic selections of products, announce weeks of discounts for certain categories, and use other marketing tools to increase sales. These promotions are voluntary, but if the network is not satisfied with the your product sales, they will become mandatory for you. It is important to think over the pricing in advance; when participating in promotions, do not work at a loss.
Entering Russian retail is not a quick process, especially if you are doing it for the first time and in an unfamiliar market. In the first months, you will have to communicate with retailers, make any mistakes, analyze your strengths and weaknesses, make promotions. Anyway you will pay for all mistakes yourself.
If you do not want to waste your time and money, seek professional help. For more than 10 years the RAUIE has been helping foreign companies to enter the Russian market, including through retail chains and electronic marketplaces. To get a free consultation, leave a request through the feedback form on the website ("Ask a question" on the right side of the page) or through the contacts below:
Maxim Kuznetsov - vice-president of the RAUIE
investment@raspp.ru
WeChat: maximkuznetsov
