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The CIS region is developing very rapidly in term of retailing, and remains attractive to foreign investors. Retailing trends in the region are being determined by difficult economic conditions, market players’ activities, and changing consumer behaviour and preferences. This briefing discusses the five strongest retailing trends in the CIS.
Modern grocery retailing development is considered to be the most significant trend in the CIS region, influencing both consumer behaviour and market players’ activities. Only in Russia and Belarus does the modern channel take the leading position in grocery retailing, with value shares of 66% and 51%, respectively, in 2015. In the neighbouring countries, the modern channel still takes the back seat, with a share of 26% in Azerbaijan, 32% in Kazakhstan and only 4% in Uzbekistan. The main reasons for the lack of modern retailing outlets is unstable legislative systems, underdeveloped infrastructure, and weak consumer education. The dominant position of traditional grocery retailers in Uzbekistan, Azerbaijan and Kazakhstan reflects a lack of investment in the sector, as well as local consumption patterns. Historically, consumers in these countries are accustomed to buying groceries at open markets, where the purchasing process is not only about the product itself but also about socialising. While major cities such as Moscow, Baku and Minsk have been affected by globalisation trends, the less developed regions remain more traditional and conservative in their shopping habits. Therefore, a standardised approach is not suitable for the whole CIS region.
Despite the difficulties faced by modern retailing formats, they are expected to gain significant share over the forecast period, and will compete strongly with traditional formats not only in Russia and Belarus, but also in Uzbekistan, Azerbaijan and Kazakhstan.
Private label started to see more active development during the 2009 financial crisis. Consumers became much more cautious in their spending, while market players started the active promotion of private label goods. The importance of private label differs significantly across the various CIS countries. For example, in Russia, private label is already noticeable, being present in the majority of fmcg categories. The share of private label in the total turnover of chains varies from 10% to 15%. For instance, for the leading Russian retailer Magnit, private label had an 11% value share of sales in 2014. Moreover, in Russia, private label has reached the second stage of development, with price segmentation taking place, thus private label is not associated only with cheap products. Market players have introduced new product lines with more sophisticated products and appropriate marketing campaigns. Among recent developments in Russia, Dixy has expanded its private label range of alcoholic drinks, Azbuka Vkusa has announced plans to introduce a diet food line, and the hypermarket chain O’key is offering a new line of traditional world cuisine. Belarus is also experiencing the growing penetration of private label. Euroopt is one of the most active players in this area in Belarus, with a wide variety of products in various price segments. In Kazakhstan, Azerbaijan and Uzbekistan, private label is only in the primary stage of evolution. Underdeveloped modern retailing is the main reason for the limited presence of private label.
From being a niche segment, internet retailing has rapidly become a more significant player in the market, holding a 4% retailing value market share in Russia in 2015, 2% in Belarus and 1% in Kazakhstan. Apart of being a shopping channel, the internet is changing consumer behaviour in the CIS region. Consumers have access to a broader variety of brands, use digital payment methods, and have the possibility to read reviews and compare prices.
International brands across all price segments have become available to local consumers. For example, Russia is one of the leading countries for the use of Aliexpress, eBay, Amazon, Asos and other international stores. There is also growing popularity for using social networks for shopping.
Tools for online ordering are also changing, having developed from traditional website stores to mobile and tablet applications, Instagram pages and Facebook groups. For example, 17% of all internet purchases were made using smartphones and tablets in 2015 in Russia.
The CIS region has a large base of consumers and a low level of modern retailing development, presenting significant opportunities for international market players. The position of international companies varies across CIS countries. For example, Russia has experienced a decline in international investment, which started in 2014 and continued in 2015. A number of international apparel brands have already left the market, such as Stockamann, New Look, River Island and Esprit. Among the brands that have stayed in the market, some have postponed their expansion plans, such as Zara and adidas. Similar developments have been seen among grocery retailers, with international players putting their investment on hold. However, neighbouring countries have experienced significant development by international players. For instance, Kazakhstan is anticipating the arrival of well-known retailers such as Carrefour, Auchan and IKEA in the forecast period. Belarus also has a number of new outlets, for example the Mart Inn chain of supermarkets, backed by investment from Baltic entrepreneurs.
Rapidly changing consumer behaviour and preferences force market players to find solutions to attract new customers. One of the ways to do this is the development of new concepts. Channels are changing in order to offer consumers more convenient shopping. For example, multichannel, which combines internet retailing and store-based retailing, is becoming more and more popular. A notable example is the Russian player Wikimart, which was originally a market place and now offers an internet website, smartphone application and store-based outlet. Another new format is showrooms for young designers, which are actively advertised using social media tools such as Instagram and Facebook. As well as on online sales, they create small stores, which the potential audience can visit.
Another notable new concept in the CIS region is farmers’ markets, which offer farm products from local small entrepreneurs. These are becoming more and more popular, in line with the growing trend for healthy lifestyles in the CIS region. One example is the Lavkalavka farmers’ market, in the well-known MEGA shopping mall, which was opened in summer 2015. This concept attracts consumers as its provides a convenient way of purchasing, in the same way as modern retailing, while also having the benefits of an open market, such as a personal approach, and a variety of fresh and local products.
In some cases, new retailing concepts remain niches, while others are gaining significant popularity in the market.