Organised retail is growing fast in Uzbekistan, catering to the demands of a growing middle class for convenience and upmarket goods, but it remains in the early stages of development.

The Korzinka supermarket chain is a market leader and has just raised $110mn of investment from UzOman sovereign fund of Oman and the Abu Dhabi Investment Fund to rapidly roll out new stores and expand its market share as the supermarket business starts to take off in this country of some 40mn people – by far the most populous in the region and one of the fastest growing populations in Eurasia.

Most people continue to shop at the open-air bazaars that have been operating for literally millennia, but and emerging middle class is fuelling a shift to Western style supermarkets that offer a broader range of goods and are more convenient coupled with online delivery.

The government attitude to retail has also changed. With a burgeoning population where 70% of the people are under the age of 30, the state is aggressively promoting sectors that can provide jobs.

Zafar Khashimov, the founder and chairman of retail chain Korzinka, told bne IntelliNews in an interview on the side lines of the Tashkent International Investment Forum (TIIF) that the underlying mentality has changed and that this has been reflected in a simplified tax retail regime introduced in 2019. “I would say the whole relationship towards trade and service industries has changed as it presents the biggest source of future employment and growth; before only industry was praised as “real” business; now we have seen great shift in this relationship.” 

In Uzbekistan even the biggest chains have no more than around two hundred outlets, but that number is doubling about every two years on average. The biggest chains are Uzbekistan are discount supermarket chain Havas and the more upmarket Korzinka, with 340 and 150 stores respectively.

“We have a total of 156 stores or which 89 are large format,” says Khashimov at the signing ceremony on June 10 in the Uzbek capital. “But the ambition is to have 1,000 stores by 2028.”

The multi-industry conglomerate Orient Group has also launched the Makro supermarket chain in 2010, which it typically includes as one of the anchor stores in its shopping mall developments, and now has an approximately 20% market share. And Xalq Retail is the upstart challenger, founded by a group of private investors that cut their teeth in investing in the discount segment of the Russian retail sector. One of the investors is the current chairman, Ilya Yakubson, and the former chairman of Russian supermarket chain Dixy.

Korzinka has been growing fast and the new investment will allow it to jump ahead of its nearest competitors. It also just overcame one of the major bottlenecks to further expansion, building its own distribution centre in the Tashkent region to service its burgeoning network of stores. 

Currently the firm focuses on the large format, but it already has 25 smaller local format stores that are serviced by two “dark stores”, and the expansion plans include opening more smaller format stores and dark stores to service them that are linked to the Uzbek “mahallas” – a uniquely Uzbek strategy. 

The government has tapped into this ancient system of local government, which dates back to the time of Alexander the Great, where a local council based on communities in cities or villages is set up and is responsible for the well-being of its members. The government authorities meet regularly with these councils, giving the local population the opportunity to ask for help with local issues – everything from fixing a road, opening a new kindergarten or support for a family that has fallen on hard times. It is an immediate form of interactive democracy that the Uzbek government has put at the heart of its interaction with its citizens. Korzinka’s strategy is to play to the strength of these local communities by opening stores selling staples in the midst of these mahalla councils.

Competitive market, local quirks

Uzbek retail has a bright future, as the population is already second in size to Russia in the Commonwealth of Independent States (CIS) and more populous than Ukraine if the pre-war economic migrants and war refugees are taken into account. With one of the highest fertility rates in Eurasia, where most of the other countries are in decline, Uzbekistan’s population is set to overtake Poland in the next three years before hitting 70mn by 2050.

Other international retail companies have also been attracted by Uzbekistan’s attractive demographics, but have found the market harder to breach than they first assumed, due to local cultural quirks, says Khashimov. Russians shop in the universal “produkti” corner stores, whereas Uzbeks have been shopping in the bazaar for centuries.

“There are cultural differences here that make the market different from places like Russia. The households are larger and the person that makes the decision on what to buy is not always the same as the one that does the shopping,” says Khashimov.

The economy has been growing at some 6% per year for almost a decade, so more people in a household are employed and have less time to visit the bazaar to buy staples, making convenience a more important factor. With higher disposable income, the demand for more sophisticated goods has also gone up but at the same time food safety concerns play a role; buying raw unrefrigerated meat in the open market is less preferable to packaged meat from a cooled supermarket counter.

UEA investor Majid Al Futtaim launched the French retail franchise Carrefour in Tashkent in December 2020, but closed its one hyperstore after a year and half later due to strong local competition. Likewise, Russian discounter Fix Price also came and went quickly, as local cultural differences mean it takes longer to gain momentum in the Uzbek market and gives the local companies the advantage over the international entries, retail professionals in Tashkent told bne IntelliNews.

Despite the rapid growth, other aspects of the business like an online e-grocery business, launched in 2022, are still in their infancy. The young tech-savvy population is increasingly making use of internet services, but shopping for staples remains underdeveloped.

“We offer online orders, but it remains a small part of the business for now,” Rud Peterson, Korzinka’s CEO and former CFO for the major Russian online retailer Lenta, told bne IntelliNews at the signing ceremony. “But at the same time, we are definitely leapfrogging entire stages of development in the Uzbek market. We have no cross-border plans yet, as there is still too much to do in the Uzbek market.”