You will surely be very surprised but in Russia distribution as a business dies out steadily each year. Perhaps the reason for this is embargo which has been placed on Russia for the last 4 years. All clients, all good clients (and you are looking only for them) prefer to work directly with manufacturers.
Pros and cons of a Russian distributor.
Most requests I get are about finding clients in Russia begin with the phrase “we need a distributor”. All over the world it is obvious that when you enter a new market, at the beginning you are look for a distributor. For the Russian food market this rule does not work. In Russia, buyers do not respect distributors. In Russia, everyone tries to work directly with a manufacturer or exporter to get better prices and better conditions. Russians are very good at counting money. So, food distributors in Russia are intermediaries, that is why there is a negative attitude towards them as compared to manufacturers or importers.
Food distribution was popular in Russia 20-25 years ago when there were no major federal grocery food chains. By nowadays consumer preferences have changed. If everyone used to go to a grocery store near their homes on the way home from work, now it is normal that Russians spend their day off on a trip to a hypermarket like Auchan or Metro. In cities where there are no such stores, people go shopping to federal grocery stores like Magnit or Pyaterochka. These federal networks are so large and powerful that they can buy food products at such a discount that no other store can negotiate. Therefore, in a federal food chain store, food products are always cheaper and of the same quality as in a regular shop.
Even if a distributor approaches such a food federal network, in most cases they will refuse to work with it provided it is possible to sign a contract directly with a manufacturer. Besides price and quality, stable food deliveries are very important for federal food chains, and this availability of goods in stock is best provided only by a manufacturer. If you work through a distributor, it tells your clients that you are such a huge company that your products can be found in all Russian cities. In this case, to save on logistics it is better to attract a distributor. You can count such huge companies in the food industry of Russia on the fingers of one hand. I once managed such a company.
If you are not Coca Cola or Mars, then working through a distributor in Russia will be perceived by your potential Russian clients as a weakness of your company and management. That will mean that either you do not know how to do business in Russia or do not want to develop your food products on the Russian food market. This tells your buyers that you yourself do not respect your food product since you trust another company to sell it in Russia. All major global companies realized that long time ago and have got an official office or an official representative in Russia to sell their products directly to their clients.
However, it is worth saying that even among distributors there are exceptions. There are very strong Russian distributors, but they include only products that are comparable to Unilever, Mars or Heinz into their product range.
Why is there so much time and why is such preparation necessary? The answer is very simple – no one knows your company in Russia, your food product is not known to anyone in Russia, why did you decide that distributors in Russia are interested in your food products and why should they invest their money in your food product? If you sell, for example, olive oil, tea, oranges or chocolate, then your food product is not the first on the Russian food market, why do distributors in Russia buy your food product if the Russian market already has similar food products with a successful history and excellent reputation?
That is precisely for this purpose that we need the correct preliminary informational preparation of your company and your food products before entering the food market in Russia. This is the main mistake of all foreign companies, about which I often repeat in my book “Your first 50 Right Steps to Enter the Russian Food Market” , that all foreign companies think that their food product is unique and Russians will immediately want to buy it, but this is not so. The food market in Russia has changed for a long time ago and now buyers have begun to very carefully choose on which food product to spend their money.
Some companies that contact me write that they are looking for only one distributor. Do you really think that one distributor can sell all over Russia? The territory of Russia is very large, you will need to fly 11 hours continuously to cross it from the west to the east. Russia has 9 time zones. When a working day begins in Moscow, in Kamchatka it is already ending. There are 85 regions and 1,113 cities in Russia. One company just cannot handle it.
Even Russian distributor monsters attract smaller distributors for partnership in the most distant regions of Russia. They certainly will never tell you about it not to lose face, but you will be very surprised when you see products of your company on shelves of small Russian stores at a price 5-6 times higher than you sell them to your Russian distributor.
Types of Russian distributors.
In Russia, distributors are divided into those that work:
1) with small retail (individual shops, family stores, stalls);
2) with large retail (there are large stores, for example, in shopping centers where food selling is not the main business, or the food segment occupies a very small share in sales. These stores can work with a distributor so that it can immediately supply a large assortment);
3) with HoReCa (the margin in this segment is 300-600%, so they can afford to work with distributors. Moreover, not every manufacturer can supply every day and in small batches, which is the main need of HoReCa),
4) as wholesale companies (these are companies that do not sell in retail, but in small wholesale volumes).
Basically, each distributor in Russia has its own segment and its own client type. In rare cases, two options are combined. For example, orientation on small retail and HoReCa.
Tips on working with a distributor.
1. If you are still planning to start working with a distributor in Russia, first select which market segment in Russia is the most interesting for you, then look for partners (distributors) in this segment.
2. It is reasonable to work with a distributor when you have a perishable product and you need to supply it to buyers as soon as possible. For example, you have fresh fruit or berries with a short shelf life.
3. Most importantly, do not think that someone in Russia will sell your food products better than you. No single distributor will do better than you. Even if you do not know the Russian language, in negotiations with Russian companies this will only be your advantage since it is very important for Russians to work with manufacturers, especially foreign ones. This will always guarantee a stable quality and the best price.
4. If you are already working with a distributor in Russia or just planning to start, agree on the rules of full control over their work. You should receive sales reports at the end of each week. It is very good to have personal video calls with sales representatives to receive feedback from customers every week and to know how your product development is progressing.
Only full control from your side will ensure that your Russian distributor works with good quality and in your interests. Use your distributor only as your extra “legs and arms”. Leave all decisions on tactics and strategies of sales development for yourself. If you do not know what strategy to choose, hire an independent adviser from the Russian food industry who will work for you and in your interests.
Otherwise, you will get the same bad experience of so many foreign companies that are writing to me with this: “Alexander, we have been supplying our products to Russia for several years, but the sales are not growing. We cannot understand why?” There is only one reason – lack of control over the sales processes carried out by your Russian partners.
Business Adviser on the Russian Food Market
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