Kazakh supermarket chains stake their claims

By bne IntelliNews May 5, 2010

Clare Nuttall in Almaty -

Local supermarket chains are expanding aggressively in Kazakhstan, which so far has been largely neglected by international retailers. Together with Turkey's Ramstore and Russian Vester, local players are making a land grab in attempt to sow up the market before those international chains arrive.

Kazakhstan's newest supermarket chain, Green, was founded in July 2008, but only launched full-scale operations in November. The company has been expanding at a rapid pace, with hypermarkets now opened in Almaty and Astana, and supermarkets in Almaty, Akbove, Taraz, Shymkent and Karaganda. Despite operating only for the final two months of the year, Green generated turnover of around KZT3bn ($20m) in 2009, and today has 1,950 employees, according to general director Dimitriy Kondrashov.

Green is due to open a new hypermarket in Astana in May, as well as new outlets in Almaty and Karaganda later in the year. "In addition, we are considering several proposals on opening stores throughout Kazakhstan: in cities where we have operations as well as where we do not," says Kondrashov.

The expansion of other local chains is also continuing apace. SM Market now has 24 stores in a variety of formats - groceries, supermarkets, hypermarkets and discount retailers - and in 2009 expanded from its home market of Almaty to Astana and Shymkent. S'mall has also opened numerous new outlets.

In 2010, SM Market plans to open stores in other regional centres, according to the company's deputy commercial operating director, Hasan Gasanov. By 2011, SM Market plans to have a total of up to 40 stores. With the launch of the customs union of Kazakhstan, Russia and Belarus, SM Market is for the first time considering international expansion. "I think it is too early to go to the international level," says Gasanov. "First, we will open a larger number of stores, then raise our quality of service to international standards. The recent customs union has opened new opportunities for entering foreign markets; maybe that is why it is time to think about it."

Bazaar goings-on

Supermarkets have continued to grow in popularity during the last decade as Kazakhstan's increasingly wealthy population opt to shop in retail outlets over traditional open air bazaars. "A consumer culture is rapidly evolving in Kazakhstan - a client wants to see everything in one place, at a reasonable price, with good service. It is difficult to go to a bazaar and look for goods, and the quality of goods is questionable," says Gasanov.

Kazakhstan's retail market grew especially fast in 2005-2008 as cheap credit allowed companies to expand. While some retailers, notably Gros, got over-extended, those who saved their growth spurt for after the crisis are now doing well. "The recent development of this sector coincided, unfortunately, with the period of economic crisis. Many networks suffered badly. But we, despite the difficulties, are rapidly expanding," says Gasanov.

Overall, Kazakhstan is expected to follow a similar path to that which first Central European countries, and later Russia and Ukraine, went down: the growth of formal retail, followed by the entry of international chains and a consolidation of the sector. However, Kazakhstan's population of just 16m spread across a large territory makes this a less attractive and more challenging market to enter. Even so, Green's Kondrashov believes Kazakhstan's retail market will still attract international retailers. "The share of retail networks will double or triple due to the reduction of unorganized trade," he says. "We expect that international retail networks will come to the retail sector of Kazakhstan. The international networks that already operate in Kazakhstan will expand as well."

As yet, however, there are few international chains, leaving an empty playing field for the local players and a handful of foreign entrants. Ramstore was an early exception, setting up its first Almaty store in May 1999. The company now operates one shopping centre and 15 stores with an average floor space of 2,500 square metres.

The Turkish company's future plans are to expand both in new areas and in the four cities where it already has a presence. "Definitely like the rest of the world, we were negatively reflected by the crisis. But with 11 years of experience and with our full trust in the Kazakhstan market, we are growing and we will continue to grow," says Ramstore Kazakhstan's marketing director, Oguzhan Turkmenoglu.

Russia's Vester entered the Kazakh market in 2007, opening its first hypermarket in Karaganda and announcing ambitious expansion plans. Although these were scaled back as a result of the crisis, it has opened three more stores in Almaty and Astana. Cash & carry company Magnum entered the market in 2007. In January, the company signed an agreement on cooperation with Sberbank, which will focus in particular on the construction of two supermarkets in Almaty in 2010. Egypt-based Spinneys Group is reportedly eyeing the Kazakh market.

Wholesale changes

Another change has been on the supplier side. The entry of Germany-based Metro to the wholesale market was a big step. The company set up its first outlet in Astana in 2009. "We are satisfied with the results in Astana store," a spokesperson for the company said. "We are planning to open two stores in Almaty this year. Also we are looking for the new land plots in other regions."

Turkmenoglu says there have been many positive developments within the last decade. "Today, we have many suppliers and distributors that we can work with. It was very hard to find proper suppliers from the local market 11 years ago," he tells bne. "Local production quality is also getting better and better. As a result of that our imports are decreasing."

Among the local chains, many products are sourced within Kazakhstan. Green has a policy of actively supporting domestic producers, which account for over 50% of its products. SM Market sources basic goods such as bread, milk, sour cream and eggs locally, but imports many other goods. The company has also set up its own brand, under which it sells SM-Market water, flour and pasta. In future, it plans to add oil and other products.

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