VkusVill appeared on the international retail radar following its announcement in March 2020 that it plans to enter the Netherlands and France. The retailer has managed to grow fast, reaching the highest ranks of the Russian grocery retail market, and now has ambitions to expand internationally.
We investigate the strategies that have enabled VkusVill to sustain double or even triple-digit store openings and sales growth between 2017 and 2020.
Kept assortment natural to retain shopper trust
VkusVill’s owner, Andrey Krivenko, is committed to selling products shoppers can trust. This has seen the banner decree to sell natural, fresh products with minimal shelf life and a clean label concept. The quality of the offer was given priority over ensuring affordability and driving higher volume sales. This has helped it differentiate its offering as a fresh and natural grocer, which is an attractive proposition to Russian consumers.
Control over sourcing and assortment
To offer shoppers consistently natural products and to build their trust through transparency, it has needed close control over products’ quality assurance. This has been achieved by selling a range that consists 99% of private label. This has given it an advantage by enabling it to minimise the influence of external factors on its ranging, category management, pricing and profit margins.
Keeping store costs low
VkusVill operates small stores, at an average of 200 sq. m, and offers a comparatively limited assortment of 1,600 SKUs, which is significantly less than the smallest format stores of the leading retailers X5 and Magnit.
Source: IGD Research
The store size helps keep initial capital investment on real estate and maintenance costs low. It manages overheads such as labour costs by employing a limited number of staff in each store. It also focuses investment on maintaining current stores more than on opening new ones, to help maintain the in-store shopper experience and shoppers’ frequency of visits.
Ranging and marketing costs kept low
By having an almost pure private label range VkusVill has only one brand to promote and manage. This has helped it centralise the cost of production and enabled it to benefit from the economies of scale by sourcing at volume from a small pool of private label producers.
Furthermore, it also means that 99% of products are made in Russia, which translates into lower transportation costs. It further supports its low-cost model by not spending on external advertising and using digital customer engagement in-store and online.
Source: IGD Research
Short turnaround for new stores and focus on maintenance
VkusVill acquires ready built locations, which means it can open a store on average in one month of signing the property lease. The cost of new store openings is limited to between US$80,000 (RUB6.0m) and US$95,000 (RUB7.1m). It has said it manages to derive a return on its investment in three to six weeks of the store opening.
The retailer has increased the pace of its store openings from around 50 in 2017 to over 500 in 2019. This does beg the question of whether this pace of network growth is sustainable as it plans to open over 400 stores annually in 2020 and 2021.
Effective IT infrastructure to manage inventory
To maximise its inventory management and on-shelf availability, VkusVill developed its own IT stock management system. The system must handle the management of stock where 75% of the assortment is made of fresh and short shelf life products.
Using data to forecast demand and a supplier ranking system, the retailer can order stock with a minimum impact on on-shelf availability and food waste, which it currently reports the latter to be less than 1%.
Reaching more shoppers by launching into new formats…
VkusVill is always looking to innovate it formats and trial new ones, so it can remain on-trend with the market and to attract new shoppers. Its approach to format innovation is a long-standing strength of the retailer.
Having started as a small store, of around 80 sq. m, that sold only dairy products, it now operates through seven formats, which includes shop-in-shops in Billa supermarkets, in-office vending with VkusVill Micromarket (installed in over 160 Moscow offices) and food-to-go-focused formats, such as VkusVill Café and VkusVill Go.
…and new channels
VkusVill is also developing its online presence to establish its own omnichannel ecosystem around the shopper and maximise its share of their retail spend. It does so with its own delivery service, via several third-party services and placing its private label range on competing retailers’ marketplaces, such as Perekrestok.ru.
VkusVill’s ambitions are to go international
While it is investing in developing its reach in Russia, VkusVill has its eyes on the wider European market. In March 2020, the retailer announced plans to open a store in the Netherlands in 2020 and later in France.
The retailer would not be offering something significantly unique in these two markets, as we see the likes of Ekoplaza in the Netherlands and Carrefour Bio in France. However, it would be different as it offers scale, something the two previous examples do not have yet. Also, if VkusVill were to roll out the range of formats it operates in Russia, then that would help it differentiate in both countries.
Subscribers wanting to find out more about developments in Russia’s grocery retail market can look here.