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TRANSASIA, Ltd. A successful Russian regional FMCG distribution company. Boston , МА October 29, 2003. Retail Business in Russia. The Past, 1993-1998. “Wild Times”…. How we started our business. Time: 1994 Location: Krasnodar
TRANSASIA, Ltd. A successful Russian regional FMCG distribution company Boston, МА October 29, 2003
Retail Business in Russia. The Past, 1993-1998 “Wild Times”…
How we started our business • Time: 1994 • Location: Krasnodar • Core business: Wholesale Distribution of FMCG (fast moving consumer goods) • Partners: Western Manufacturers • Johnson & Johnson, L’Oreal, Procter & Gamble
What was the market Retail market – total chaos! • Death of old Soviet system • Empty counters in the state stores • Outside kiosks & tables (open-air), flea markets • Flood of low quality or fake goods • Chaotic pricing • Quick (several days) money turnover
What were Transasia’s differences Start of creation a Western distribution system according to common business practices! • First distribution company in the city • Quality goods and products • Western brands • Advertising support • High quality customer service • Credit lines for retail outlets
Current Business Environment 1998 - 2003 Grow Market Share as fast as Possible Hyper Growth Period
The present period started in 1998… Economic crisis in Russia – August 1998 • Consumer purchasing power decreased 3-4 times • Some Western companies left Russian marketplace • Russian manufacturers began to gain market share • Many banks and distributors went bankrupt
TRANSASIA – Facts • Covers Southern Russia – 12 million people (8% of the total Russian population) • 1 HQ + 8 regional branches • Over 1,000 employees • 141 delivery vans and trucks • 95 automobiles used by sales representatives
TRANSASIA’s Suppliers • Total number of suppliers 46 • “Procter & Gamble” • “Kraft Foods” • “Nestle” • “Mars” • “Wrigley” • “Chupa Chups”, “Bic”, “Cadbury” • Numerous leading Russian manufacturers
TRANSASIA – Operations • Our key business – distribution of fast-moving consumer goods (FMCG) to open markets and small shops (50 to 100 sq. m.) • Sales representatives get orders from clients • All orders are delivered in 24 hours • Our clients are spread all over the region, both in urban and rural areas • Revenues come mostly in cash
TRANSASIA – Logistics • During the daytime sales representatives visit our clients to get new orders (use handheld computers) • In the evening these orders are processed and sent through Internet to main office • At night time orders are loaded into the big trucks in the distribution center and shipped to the branch offices • In the morning our vans deliver the goods to the clients
TRANSASIA – P&G experience • P&G products comprise 60% of total revenues • During the period between 1996-98, P&G corporate loaned Transasia $4 million dollars for capital expenditure purchases (e.g. vans, autos, machinery, etc.). Transasia paid back the capital to P&G in 4 years. • Working together Transasia and P&G have enabled P&G’s products to capture leading market share positions in the Russian marketplace.
P&G’s competitors in Russia • All main P&G competitors work in Russia: “Henkel”, “Unilever”, Kimberly Clark”, “Johnson & Johnson”, “Colgate”, “L’Oreal” • Low investments into distributors’ development resulted into smaller market share, sales inefficiency, and lack of brand recognition
Conclusions on Current Marketplace • Markets will continue to grow • Small players will disappear and others consolidate • Retail chains are here to stay, their market share will continue growing quickly • Western retail companies have just recently come to Russia, mostly to Moscow and St-Petersburg • Open-air markets and small shops still have 70% market share inthe regions • Many opportunities still exist for manufacturers, distributors, and retailers in the Russian retail marketplace. Capital investment is critical.
The Future for Retail Business in Russia. 90% of Russia’s population lives outside Moscow & St. Petersburg. Wal-Mart started in the “region” of Arkansas while Target started in the “region” of Minnesota
Future of Retail in Russia – what we start from • The large territory of Russia and scattered population significantly increases the importance of logistics for retail, especially in the regions • Although competition currently among distribution companies is fierce, only those companies with technological focus and investment will survive • Although the opportunities in Russia are huge, it’s critical for Western manufacturers to have local partners to help them navigate the “risks” of Russia.
What will happen in Russia’s regions? • Purchasing power will increase • Sales volume in each category will grow annually • Rapid growth of the civilized retail channels: shopping malls, hypermarkets, etc. • Barriers to entry to late players will increase. All the good locations will be taken.
Additional important information • Middle class in Russian provinces – ready consumers for your products • Russian consumer market – moneymaker for number of multinationals (a new ones to come to Russia) • Krasnodar region – safe, stable and dynamic = “Russian California” • My other business ventures – how I diversified • Leisure business: “Strike” and “Orange Fitness” = great success. Payback period less than 3 years.