Given that the Belarusian economic landscape is still dominated by state companies, and that, under president Alexander Lukashenko’s rule, the country has been operating in isolation from the rest of Europe for the best part of the past 20 years, it is not common to see a Belarusian company with international ambitions. In the case of Eurotorg, a Minsk-headquartered retail chain, such ambition manifested itself early through the company's choice of name, and was recently realised when the company embarked upon an international expansion strategy.
Eurotorg was established in 1993 and, to begin with, it expanded relatively slowly, with only 16 stores opened by 2010. In the next two years, however, it grew rapidly, with its store count ballooning to 120 by 2012. In the same year, the company also made its first foreign venture, entering the Russian market.
Such rapid expansion had as much to do with tapping into sources of financing – from institutions such as the European Bank for Reconstruction and Development and Sberbank, Russia’s largest bank – as it did with taking advantage of the potential of markets in central and eastern Europe (CEE), according to Andrey Zubkov, Eurotorg’s chairman. “We face limitations to our domestic growth, imposed by the country's anti-monopoly committee, but we have ambitions to grow. It is not easy for a Belarusian company to venture abroad, as not many companies here have experience in that. But we believe that there is a lot of potential in the region and we are willing to expand,” he says.
Since 2012, Eurotorg has opened 26 stores in Russia, predominantly around Bryansk, Kaluga and Smolensk, cities located relatively close to the border with Belarus. “Russia seemed like a natural next step, though we did face some challenges. Our countries are similar, but not the same,” says Mr Zubkov. In 2013, the company made its first move into the EU, entering Lithuania. Currently, it operates 26 stores there, under the Fresh Market brand.
Asked where the company is planning to expand next, Mr Zubkov says: “It is fair to say that our focus will mostly be on Russia.” The Russian market is attractive to Eurotorg and, according to the company’s executives, the feeling is mutual among Russian consumers. “Since Soviet Union times, Belarusian goods are perceived as good-quality products, and we see that consumers in Russia still feel this way. Plus, we have many products that we manufacture ourselves. This is not something you find in the stores of our Russian competitors,” says Andrei Matsiavin, Eurotorg’s investment officer.
Yet, appeal and growth potential notwithstanding, both the Russian ruble and customer confidence have been contracting sharply in recent months, as a consequence of the country's ongoing involvement in the conflict in Ukraine and the drop in oil prices. Mr Zubkov admits that Eurotorg’s expansion plans have had to be adjusted accordingly. “This is not a question of whether and if we should go to Russia, but it is a question of the speed of expansion,” he says.
Experts claim, however, that the conflict might actually help retailers operating in Russia. “You might say that the timing [for expansions] is not the best, but if you look at the major [retail] players, they have actually increased their store openings in Russia. After all, a bad economy means cheap real estate,” says Derya Yildiz, a retail analyst specialising in Turkey and the CEE at retail industry intelligence provider Planet Retail.
Bartosz Bolecki, a retail analyst at CEE-focused market intelligence firm PMR, is similarly optimistic. “Current conditions might not be the best for the customers, but they are good for those who sell goods, as their prices go up,” he says. Even the tense relations between Russia and the EU could work to Eurotorg’s advantage, as the company might be able to import products that its Russian competitors cannot. “Russia introduced an embargo on certain goods imported from the EU. But there is a way around it. Take Polish fruit and vegetable growers. They still sell to Russia, but via Belarus and Kazakhstan. I would not be surprised if I went into Eurotorg’s produce section and saw Polish products there,” says Mr Bolecki.
Apart from expanding in Russia, Eurotorg’s executives are also focusing on growing the company’s online grocery sales. In 2014, it started offering an online service in Belarus, now it also offers the service in Lithuania and Russia. “Online grocery sales are different from traditional retail and we had to quickly develop a whole new set of competences. Our operational model, communication with the market, everything is different,” says Mr Zubkov. “But, so far, our experience has been good. In Lithuania, after just six months we outperformed Maxima Group, the market leader with five years of experience in online retail, in terms of sales."
Mr Matsiavin adds: "We had plenty of challenges to overcome, but we found creative ways to deal with them." He cites the example of the company using "a modern version of tuk-tuk”, a three-wheeled vehicle, used mostly in developing countries, to deliver groceries in Russia.
Currently, Eurotorg is also looking to add another country to its online marketplace portfolio, however Mr Zubkov would not disclose which one.
According to Ms Yildiz, however, CEE retail companies should be cautious of investing too much time or capital in online services. “Online grocery sales are not currently a profit-generating channel in CEE. Even experienced players, such as [UK retailer] Tesco, have problems making a profit out of it there. For now, it should be a supporting part of a company's operations, rather than the focus of its strategy,” he says.
As Eurotorg gears up for its initial public offering – the company will most likely be listed on the London Stock Exchange, according to Mr Zubkov – its strategy will no doubt come under close scrutiny from potential investors. If its recent rapid growth is anything to go by, it will no doubt stand up to this latest test.