Home Grown Retail Giant
- Dec. 10 2014 00:00
Magnit is Russia's largest retailer, a ranking that Sergei Galitsky, founder and CEO of Magnit, has achieved through organic growth. Magnit is the winner in the CEO of the Year Large Company category, for combined performance, and growth, investment and operating performance.
You are often compared to Sam Walton, the man who successfully changed American retailing because he understood shoppers in mid-sized towns, not just in the big cities. Do you have a similar understanding of Russian consumers?
I think that the word "understood" does not fully explain the success of the Walmart business. "Understand" is a very general verb. Still, if we use this term, probably, we understand provincial shoppers better than the urban ones. But today our stores are in great demand in cities as well. I can't say whether we have a similar understanding or not. Though I'm compared to Sam Walton, frankly speaking, I am not very much familiar with his business. Yes, I know that it's the largest chain in the world and that it works in a big store format, but that is all I know. We try to focus more on ourselves, rather than look around.
Many big real estate developers have been slow to expand into Russia's regions. Is this holding back the development of the regions?
Every region has its own real estate developers that are strong. I don't think that Moscow's big developers determine the growth of regions. It depends on other things, like the number of people in a region and the conditions for running a business. These things constitute the basis, rather than where big developers move.
You are from Krasnodar, which historically was a center of Russian agriculture. How is it developing now and will Magnit play a role?
I hope that we contribute to the city's development by paying taxes to the local budget. We are undoubtedly interested in development as citizens; I carry out some of my projects, and I hope we make our contribution, which I plan to increase in the future. We have a program for the city's development but considering the fact that Krasnodar once used to be a Cossack village, a lot should be done to alter the architecture. Now the city is evolving in the right direction. We can see changes but everything takes time and patience, which we sometimes lack. The transport network is troublesome, our city suffers some of the biggest traffic jams in the country. We should handle the problem.
One of your first businesses dealt in perfumes and personal care products and this is still a fast developing segment. Why do you think Russian consumers want to try many different brands rather than to pick one favored brand and stick with it?
Well, this can be simply explained. The thing is that prior to 1985, and up to the nineties, we had a single brand for everything. Now as a way of exercising their choice, buyers prefer to try everything. "Under-consumption", as we used to have, still exerts its influence. I often say that it's easier to compete with Russian entrepreneurs than with foreign ones. Our businessmen want to get money quickly and then only to consume. Evidently our "hungry childhood" still shows through. With the passage of time, things will evolve as they have in other European countries. But for the time being Russian buyers will go on changing brands rather actively, and this factor will remain.
Does the fickleness of customers create challenges for retailers and how should retailers respond?
The changing of brands is not a sign of the buyer's fickleness. Our procurement system works to supply them with the goods they need. Fickleness reveals itself only if we don't meet this demand, and then the buyer shifts to other stores. This is our business: to keep consumers. It does not depend on whether they are loyal to certain brands or not.
Information technology is a part of Magnit's success; the ability to keep stores supplied in good time. Will Magnit introduce online-shopping and is customer pick up or home delivery a future possibility?
I respond to this question quite often. With the existing system of logistics I don't see the future for Internet trade in foodstuff en mass. Will there be a segment for this business? Probably, yes. Let's say for "white collar" professionals, who are financially able to order goods. For the rest of population, in my opinion, it would be an unaffordable service for at least the next 10 to 15 years.
Would you say that logistics is the most important aspect of retailing? You have Russia's biggest transport fleet so you must know better than most the challenges of road and rail. To take one example, the road between Krasnodar and Armavir has just one lane in each direction. What would be the quickest way to overcome transport problems, especially in food producing regions?
We can't say that logistics is the most important aspect, because our business is multifactorial. Price forming, trade cost price and assortment policy are also of importance. But, undoubtedly, logistics is one of the most crucial blocks. How do we overcome transport problems? There is only one way: to invest in the construction of roads. There are no other ready-made solutions.
Russia is self sufficient in poultry and is increasing its beef livestock. From the point of view of a retailer, what would be the best products to produce locally and what should be imported?
I see several segments in the Russian economy that are underinvested due to various factors. These include the production of milk, cheese, cattle, vegetable and fruit growing. These are the main spheres that require investments and whose imports should be replaced. Over the course of time the menu of our citizens has changed. At present the production of cheap fruit, vegetables and dairy products are the important tasks. Cheap fruit includes, for example, apples, and cheap vegetables means tomatoes and cucumbers. Dairy products play a key role in the diet of the buyer. That is why if we speak about foodstuff security, though I don't like the word "security", efforts should be put in these directions.
You have grown Magnit organically, without takeovers, and you are applying the same approach to football, with your soccer academy and soccer schools. How long will it take to produce a UEFA-level team in this way?
There is no such term as "UEFA-level". Teams can be of a top level, strong, mid-tier or weak. Now we play in the UEFA Europa League. It is sports. Some seasons you play, others not. When it comes to our Academy, I've said it a lot of times already, I would like to have 11 graduates playing. Unfortunately, money is of huge importance in modern football and the place where your team plays frequently depends on the club's budget.