Auchan Stays with Russia

18.08.2009 — Analysis

Auchan has grandiose plans for the development in Russia. Neither the crisis in the country's economy nor bureaucratic obstacles concern the international retail operator. Anton Kuzmin, the Director of the Auchan Ekaterinburg hypermarket, gave RusBusinessNews an exclusive interview on the issue.

- Auchan started the development in Russia together with IKEA being the anchor leaseholder in the Swedish MEGA stores. Ingvar Kamprad, the founder of IKEA, speaking live on the Swedish R1 radio this summer accused Russian gas and electricity suppliers in overcharging the company and made a statement about reconsidering the company's development plans for operations in Russia. Would the IKEA's strategy change affect Auchan's plans for Russia?

- Auchan has been developing in Russia not only in tandem with IKEA in recent years. As well as stores in the retail centres of the Swedish company we do have our own sites, we also rent independent buildings. Auchan is not going to give up plans for the development in Russia. We will be using all possible options here - renting and buying property as well as building our own stores. Moreover, we still carry on with our cooperation with IKEA. Our store will open in the new MEGA retail centre in Omsk in the nearest future.

On the whole, the development in Russia is one of the strategic goals for the Auchan Group. We are planning to open al least 6 new stores here only in 2009.

- There are only two Auchan stores in the Urals at the moment, both of them in Ekaterinburg. Are you planning to expand your presence in the region?

- Yes, we are. The Urals market is of great interest to us. We want to be present in all cities larger than 300,000 inhabitants.

- Are you not deterred by the fact that this expansion is going to be happening at the time of the world financial crisis?

- Economy cataclysms have in no way affected the company's plans for the development in Russia. Now we have a new incentive - the broad discounter model is becoming more and more popular in the situation of economic instability.

Since the start of the economic downturn, particularly in the first half of 2009, Auchan has been experiencing growth in the number of shoppers and volume of sales. Of course, the spending capacity of Russians has not grown, it has rather dropped a little. However, our specialists have noted that at the time of crisis people have cut down their spending while not reducing the amount of shopping bought. Russians are making more effort now looking for best value-for-money offers.

In the photograph: Anton Kuzmin, the Director of the Auchan Ekaterinburg hypermarket

- On the whole 70% of goods sold in Russian Auchan stores are supplied by nationwide companies. In the Urals 80% of the stores' products are bought from local companies. Currently meat products are supplied to us by IE Cherkashin and OJSC Kamsnsk-Uralsky Meat Processing Plant, bakery products by OJSC Smak, chicken by Sredneuralskaya and Reftinskaya poultry farming plants, and milk by CJSC First Milk Company. We also collaborate with LLC UMMC-Agro and Ekaterinburg Fats and Oils Integrated Works OJSC.

Our suppliers do have to meet certain requirements. They have to guarantee the continuously high quality of products and to deliver the quantities needed for the hypermarket just in time; the products must be delivered on euro pallets. Producers also must have own transport to deliver products to the store and documentation for shipments conforming to Russian law. Products from Urals producers fully conform to our requirements and in terms of quality they are in no way inferior to goods supplied by federal level companies.

At the moment Auchan is interested in finding additional suppliers. For instance, so far we have failed to find sufficient quantities of food products in Russia, meat, fruit, and vegetables in particular. This is why Auchan is interested in entering into long-term contracts with new suppliers.

This spring we decided to decentralise our purchasing system. This would let the majority of producers in the regions where our stores are present to become Auchan's suppliers. Moreover, we came up with a new standard contract with simplified terms of cooperation for regional small businesses and agricultural producers. This format assumes the entire withdrawal of bonuses for joining the network.

We are prepared, however, to not only buy finished products from local companies, but also to place orders with Urals processing plants for making goods under Auchan's own brands (OBs). Taking into account consumer preferences we focused our efforts on creating and developing the first price (premier prix) product line - with the lowest market price in their category. We are going to make savings cutting packaging costs, predominantly. The products themselves will still be undergoing the same inspections as famous international brands.

More than 750 types of products - dairy, alcohol, juices, vegetable preserves - are sold under OBs in Auchan stores currently. As a rule the orders for these products are given to companies, located within the region of a store's presence. We are in negotiations with companies in the Urals since 2008, but nobody has started making branded products so far. This sort of cooperation would be profitable for both Auchan and local producers.

Yevghenia Yeryomina