OBI Is Ready To Make Offer To Urals Industrialists

11.11.2009 — Analysis

In the OBI stores' general rating the turnover of Russian retail centres has overtaken 500 of the international retailer's outlets worldwide. Andrey Kochnev, the regional purchasing manager of the Ural-Siberia-Volga region, told the RusBusinessNews correspondent about the causes of the hyper-dynamic and gave the assessment of the Russian and the Urals DIY markets.

The Russian DIY market began developing 7 to 10 years ago. Today it has large international brands represented (Leroy Merlin, Castorama), as well as federal operators (Starik Khottabych, Parket Hall). Also, local chain DIY stores are strong in the regions: StroyArsenal, Domocentr, Maxidom, Metrika.

The supply on the DIY market, however, is still inadequate to the demand and the competition is extremely low in comparison to that in Europe. The indicators of turnover and revenues per square metre of retail areas of specialized centres in Russia exceed those in Western and Eastern Europe. "According to our estimates in order to satisfy demand of a large city 7 to 9 stores of this format are needed. In the majority of Russian non-capital cities with the population exceeding a million we have at most four large players. The DIY segment is fully covered only in Saint Petersburg where there are many companies represented. Ekaterinburg, in contrast, despite having own strong companies (for instance the SuperStroy chain), can take 3-4 more centres like OBI," says Andrey Kochnev.

The demand for DIY hypermarkets in recent years has been formed mainly by the construction boom. 1.3 million square metres of housing was commissioned in the Sverdlovsk Oblast in 2006, in 2007 and 2008 - 1.7 million square metres per year. New flats in Russia, as a rule, are purchased with minimal decoration or not decorated at all. As a result the trend of the construction market development has formed the expansion plans of large international companies-players of the DIY market. Many times in official statements OBI referred to Russia as one of the most interesting countries for expansion. In 2003 when the company opened its first centre OBI declared its plans to invest many millions of Euro into opening of 30 stores across Russia.

At the moment the company has implemented 15 projects. There are 4 centres in Moscow, 5 in Saint Petersburg, 2 in Nizhniy Novgorod, and one centre in each of the following - Omsk, Kazan, Volgograd, and Ekaterinburg. By the end of 2009 it is planned to open the centre in Krasnodar, and in the third quarter of 2010 to open a second store in Ekaterinburg.

In contrast to the first few years of the development in Russia the company now is positioning itself either as an independent brand trying to develop its trade in own detached buildings. At the same time, however, the company prefers these premises to be located near other retail buyer "magnets". These include large food retail operators. The second OBI centre in Ekaterinburg will be built opposite the Carnaval retail centre that houses the Auchan hypermarket. The total area of the site will amount to about 15 thousand square metres; the store will display up to 50 thousand product items.

As well as increasing the number of stores OBI's strategic plans for the expansion in Russia include the development of regional purchasing. "Prior to the crisis the commercial policies of the company has not paid due attention to the development of relationships with local manufacturers. The company was built around the scheme when all supplies are done from Moscow to the regions. This is why the company matched regional needs in terms of both the price and the product range. Now the reduction of spending through savings on logistics is at the forefront," says Mr. Kochnev.

In particular OBI has focused its efforts on trying to establish the situation when in regional shops the products of local companies take the "first choice price" niche, when strong local brands are represented as well as not branded products. Also the retailer is prepared to increase the local purchases of those products in whose cost the transportation takes up a significant share.

At the moment the Ekaterinburg OBI store offers the dry mixes made in the Sverdlovsk Oblast, these include Brozex, Bergauf dry mixes, plasterboard Gifas. Negotiations are ongoing with 15 more Urals companies. These include manufacturers of peat fertilisers, sewerage equipment, tiles. According to the statistics the sales of locally made products are ahead of imported. "By adapting the product range for the regional market the company gets loyal customers and increases sales volumes. Moreover, having balanced the proportion of foreign, federal, and regional manufacturers we diversify our purchasing and thus stop depending on just a few large suppliers," says Mr Kochnev.

Another plus in the development of regional purchasing is in that they allow OBI to find new vendors for the entire federal store chain. For instance in September 2009 a contract was signed with the Turinsk Pulp and Paper Mill (the Sverdlovsk Oblast) on the supply of wallpaper to all Russian OBI centres.

According to the representative of the international retailer any local vendor can access the federal level. The main requirements are regular shipments, appropriate product quality, and competitive price. Companies offering products lacking in other regions have broader opportunities. Also this includes companies whose brand became well known country wide before the contact with OBI.

The fact that there are own producers of construction materials - metal profiles, plasterboard, dry mixes - in the Sverdlovsk Oblast, and presence of large distributors makes the region an independent production centre. "Intense competition in the production market allows us to hold tenders for the supply not among 1-2 companies comparing them to the federal suppliers but among 4-5 companies. This means that we can choose the suppliers most suitable in terms of price and service," Mr. Kochnev pointed out.

OBI rather likes the transport and logistics programme of the Sverdlovsk Oblast which is focused on the construction of logoparks, transportation hubs, and the development of road connections between cities and towns. Logoparks help the development of large local wholesale companies in the region. For instance there are importers which are noticeable on the nationwide level working in the Urals.

"The active participation of local authorities in the negotiation has helped the establishment of our contacts with the suppliers a lot. Ekaterinburg is the only city where we had the support of the administration. This is not the protection of our interests or the interests of our contractors, but in making the recommendations," Andrey Kochnev specifically stressed. "We were given lists of manufacturers and information on them. At the same time this work was not lobbyist in its nature, just informative."

Regional manufacturers have already managed to take up a significant share in the product range of some of OBI's groups of products. They supply 60% of dry construction mixes and board materials. Still not covered are our "first choice price" product niches, especially in the segment of rough construction, i.e. sand, cement, bloating clay. The retailer's search for suppliers is ongoing.

Yevghenia Yeryomina