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German investment in Ukraine. From kiosks to hypermarkets: the retail revolution continues
25 May 2011
After passing through what proved to be a substantial turndown in 2009, the Ukrainian retail market began its recovery in 2010. However, the increase in turnover witnessed in 2010 was largely driven by rather high inflation. At present Ukraine still has a relatively high level of non-chain retail outlets, which creates an environment with significant future growth potential for all national and regional players already present on the Ukrainian retail market. According to a recent consumer survey conducted by GfK Ukraine, 68% of Ukrainians cited supermarkets, hypermarkets and small shops as their main source of food purchases. Nevertheless, 22% of respondents said they still visit more traditional markets to meet their everyday consumer needs. Respondents cited convenience of location (near to home or work), reasonable prices and a wide range of products as the main factors that influence their decision-making when choosing where to purchase their consumer goods. This scale of priorities is largely driven by the low ratio of cars to population in the country.

Consumer choice penetrating Ukraine’s towns and villages

In the near future we can expect to see supermarkets maintain their current hold on the leading retail positions across the country, while hypermarkets will become more popular in the Ukraine’s bigger cities. In the meantime small-sized shops will continue their expansion throughout the country. For example, METRO Cash & Carry recently diversified its business portfolio by launching a new store format - METRO Baza - with the help of which the company has been able to enter new markets in smaller Ukrainian towns. The format of these new stores is designed exclusively for the need of wholesale customers and offers mainly food products targeted at the core product range of the average convenience store.

The rise of retail chain ‘own brand’ products

Another substantial trend on Ukrainian retail market is the revision of assortment and introduction of ‘own brand’ product lines. The share of domestic goods and store’s own brands within total assortments is currently on the rise while the market share of imported goods is declining, largely as a result of the country’s unstable exchange rate. The development of in-house brands has fast become a popular solution to the problem facing Ukrainian retailers of assortment optimization. New frugal tendencies amongst shoppers have ignited demand for own brand produce, while improvements in quality and marketing, coupled with SKU rationalisation efforts, have succeeded in carving out more shelf space for these items. Key own brand trends in Europe such as the rise of the ‘super premium class’, together with greater supplier transparency and the emergence of niche sub-brands, will soon become more and more evident in all developing PL regions, to which Ukraine also belongs. In response to this trend, brand manufacturers must learn to co-exist with these emerging own brand product lines by adopting new brand-building strategies while also working collaboratively with retailers when possible in the form of joint promotions and planning. For an increasing number of Ukrainian retailers, own brand produce is fast becoming a generic alternative to more traditionally popular FMCG (fast-moving consumer goods) brands. Meanwhile, the extension of the own brand concept into the provision of services and into other key consumer retail areas will continue to strengthen the brand equity of individual Ukrainian retailers and also drive shopper loyalty. For example, METRO Cash & Carry Ukraine currently offers 1,800 articles under 6 core in-house brands which made up 10% of the chain’s total turnover in 2010.

Growing importance of discount schemes and targeted promotions

As the domestic retail market continues to mature Ukrainian consumers remain very much price driven in their thinking, forcing growing numbers of competing retailers to offer ever-greater enticements and incentives. This is the main reason why retailers are not only changing their assortments to increase the proportion of low and medium priced segments, but additionally introducing an ever-wider range of new discount programmes and promotions. Retail suppliers have also become involved in the process and are increasingly conducting their own discount promotions with the support of retailers. Experts predict that the end result will be a redistribution of customer flows between the chains and the emergence of a more strategic approach to discount programmes among Ukrainian consumers in general. For instance, METRO offers its trader customers an individual discount programme wherein the scale of discount depends on the volume of goods purchased. At the same time, every two weeks on the pages of the chain’s catalogues all customers are offered goods at special prices. However, every customer group receives its own targeted catalogue, so the owner of a trade store, the chef of a restaurant and an office manager will all receive their own specialised edition complete with targeted offers relevant to their specific needs. In the near future customer service will be personalised even further as retailers seek to develop ties with consumers and boost retail brand loyalty.

Logistical solutions and outsourcing

Meanwhile, the optimization of operational costs is still a major issue for all Ukrainian retailers. Many supermarket chains are trying to optimize their logistics expenses by creating their own logistics schemes or outsourcing. Other retailers cooperate with professional logistics companies, outsourcing their logistical needs to the best experts on the market. This enables retail companies to ensure that their customers find all the products they require on the shelves in the necessary quantity and of the expected quality at all times.

Source: Business Ukraine

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