Step №24 – “Who are your potential clients in Russia?”

“Your first 50 right steps to enter the Russian food market”.

Step № 24 – “Who are your potential clients in Russia?

Today I will share with you who will be your potential clients and buyers in Russia. We will look at their positive and negative sides and their payment terms. You will be able to decide for yourself what types of clients are the best to work with on the Russian food market.
Distributors.
I guess the first type of clients that immediately came to your mind is distributors. Most of the requests I get from foreign companies relate to working with distributors. I have written about this in details in a separate article. Not to distract you now, I will give the link immediately under this article. Personally, I do not like working with food distributors. I always tried not to work with distributors throughout my 16 years of work as a top manager in Russian food industry.In my other articles I have already mentioned that when Russian companies want to enter some foreign market, they do everything themselves and try to sell directly.
Whereas almost all foreign companies believe that it is necessary to work only with distributors in Russia. Of course, there are good distributors in Russia, but they are very, very few. Food distribution in Russia is gradually dying because food retailers have greatly expand their network throughout Russia and they work with manufactures only. If you seriously consider a distributor option for your food products, do have a look at that separate article on distributors in Russia.

Wholesale companies.
After distributors you will most probably think about wholesale companies. They can be both importers and companies that simply buy in bulk on the domestic market of Russia. This category is valued most in Russia as wholesalers always buy in bulk and a lot. The most important difference between them and distributors is that wholesale companies pay in advance or with a very, very small delay. Russian distributors usually ask you as a manufacturer for a discount of 25-30% on your regular price and a delay of payment for 30-40 days.

Wholesale companies always pay in advance or with a delay of up to one week.Starting to work with such a company is a difficult task because this company must believe in your product. Your food product should be interesting otherwise they will not invest their money and pay forward. These companies expect that your product will be interesting for many customers in Russia.

To start working with such companies you need a little bit of good marketing of your products and a little bit of preparatory work to make the Russian speaking Internet aware of your product.

Food supermarkets & Hypermarkets.
The third category of clients is supermarkets and hypermarkets. They are the most popular food stores in Russia. About 80% of all people go there for food shopping. There are almost in each Russian city.

To work with this type of clients you need to know two main things. Firstly, these clients pay the worst, usually this is a delay of payment for 40-50 banking days (60-70 calendar days). Secondly, you have to pay an “entrance” fee. This is an official listing payment for each new supplier. On average, this is 3,000,000 rubles (about $50,000) for one category of goods — for example, only tea or only coffee. Negotiations to enter a food retail network usually last from 6 to 9 months. So, this is rather slow and costly process.

Food retail chains are of two types – federal and regional. Federal food chains are the largest food chains in Russia, they have stores all over Russia.

For example, these are some brands:
Pyaterochka
Perekryostok
Magnit
Svetofor
Krasnoe I Beloe
Auchan
Lenta
Okey
Metro Cash & Carry
Monetka

Getting on the shelves of these stores is the most difficult and expensive task. But they have the most of the customers and they have a reputation of providing good range for a good price.

Regional retail chains are networks of food stores located in the same region of Russia. There are 85 regions and 1,112 cities in Russia. I will not give the name of these stores, they will not mean anything for you. The advantages of work with such regional networks are that negotiations last for 1-2 months, sometimes even faster, and their “entrance” fee is either lower or there is no “entrance” fee at all. Delay of payment is on average for 15 banking days (approximately 20 calendar days), which is half shorter than in federal chains.

When launching a new product on the market I used to always start with regional food chains. I recommend to do the same to my current clients in Russia. This strategy is safer too because most of federal chains fine manufactures for different reasons (shortage of goods supplied, broken packaging and so on) whereas there are practically no such fines in regional chains.

Supplying to Russian food retail chains.
Almost all Russian food chains buy goods only from Russian sellers and do not import any food products. So you will either need to open a legal entity in Russia or to cooperate with Russian companies that provide import/export and logistics services. I have a separate article about that and the link to this article will also immediately under this post. There are only a few food retail chains that import goods themselves. These are mostly fruits and vegetables, but there are some other food categories too.

The largest food retail chains in Russia that have the biggest number of stores are Magnit and x5. The hardest thing is to get on the shelves of Russian Auchan since they have the highest requirements for food product quality and safety, as well as accompanying documents. But if there is Auchan in a city, it will always have the highest traffic. Russians love this brand very much for a good range of products, low prices and good quality of food.

Small (family) food stores.
Finally, the fourth category of your potential clients is small (family) food store. This is a separate food store which is usually located within walking distance from residential blocks of flats. This is a “dying” type of clients since federal and regional networks are more interesting for customers.

In one of episodes of animated TV series Simpsons, Apu says that small (family) retail stores are the best clients to supply his products but that is not the case in Russia. Such small retail stores buy in small volumes because they have few customers and low traffic. They normally pay from delivery to delivery. The number of such stores is gradually decreasing every year.

However, there are regions in Russia where regional and federal chains do not have a large network. So, in such regions it makes sense to work with small retail in order to start selling and making profits.

Online shopping for food.
Of course, online shopping is very well developed in Russia. Many companies that I have listed have their own online stores. To learn more details about e-commerce in Russia you can read in step №48.

In this post I have discussed only main categories of potential clients for a food manufacture. There are certainly more of them such as governmental institutions, the army, social institutions (schools, hospitals), HoReCa and so on. But not all food products are suitable for such clients. If you are interested in any specific group of clients, do not hesitate to contact me and I can provide you with more information.

Yours faithfully,

Alexander Sinyanskiy

Business Adviser on Russian Food Market

www.alexandersinyanskiy.ru  

Please read the same my other steps:

Step № 2 – “Look at you products and website by the eyes of a Russian”

Step № 3 – “Do not offer commission!”

Step № 4 – “Learn and research about your future competitors”

Step № 5 – “Assess potential obstacles”

Step № 6 – “The most critical MUST-DO: localize and translate your food business into the Russian language”

Step № 9 – “Do everything only according to the law”

Step № 10 – “Corruption and crime”

Step № 12 – “We are looking for a food distributor in Russia! Just one exclusive distributor!”

Step № 19 – “Always collect all the information about your Russian partners”

Step№ 21 – “GMO food, organic food and food additives”

Step № 26 Russian social networks

Step № 32 – “Opening a Russian legal entity (LLC and JSC)”

Step № 33 – “Open a joint venture or buy a stake in a Russian business”

Step № 34 – “Opening a branch or a representative office of your company in Russia”

Step № 41 – “Are you thinking of selling your franchise to Russia? Good idea!”

Step № 46 – “How to find a distributor or buyer for FREE in the food market of Russia”

Step № 47 – “Holidays and days off in Russia. What for? Of course for business”

Step № 48 -“E-commerce in Russia”

Step № 49 – “Start your food business in Russia remotely and manage all processes without problems”

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