Dixy Group CEO da Silva talks Russian retailing
Pedro Pereira da Silva: "We see no constraints on the opening of new stores throughout Russia"
After all, the 48-year-old manager is Portuguese and only a year ago couldn't speak a word of Russian. So he made a big career gamble on an Uncle Vlad Russia hit by EU sanctions in an economic recession.
But what looks like madness has, on closer investigation, method. When the owners of Dixy, including Russian billionaire Igor Kesaev, poached da Silva from his former employers at the beginning of March, his retail credentials were sparkling. During a 16-year stint at Biedronka, he transformed the discounter into a vibrant market leader.
Success counts the world over, but nowhere more so than with the pragmatic, yet highly imaginative Russians. Now they've got him, though, where does da Silva want to take them?
Primary fascia: A Dixy Group neighbourhood store
This puts Dixy behind larger rivals Magnit, X5 and Auchan, so da Silva needs to play catch-up. But retail concentration in Mother Russia is so low in comparison with western Europe that current sales equate to a mere 3.6 per cent share of the national market – showing the huge potential for industry consolidation.
Sales also reveal a 19 per cent plus on the previous year at a constant currency level. This was essentially achieved by aggressive investment in organic growth, which took its toll on net profit, plummeting 87 per cent to a mere $10m.
A Victoria supermarket
The growth-hungry company continues to open a new shop every day. In the course of its recent history, however, Dixy has proved that it is also quite capable of making strategic acquisitions. This was clearly seen when the group doubled its store base by acquiring rival Victoria Group in 2011.
A MegaMart hypermarket
The opening up of its shareholder capital has also led to majority control (54.4 per cent) by the Mercury Group, a diversified holding owned by Igor Kesaev, since 2008.
"What a Challenge!"
Pedro Pereira da Silva
The Polish market was and is one of the most competitive retail environments in Europe. In early 2000 we faced more than 25 international retail players who all wanted to ambitiously expand their activities in addition to local companies. Even today, after a natural process of consolidation, there are still around 15 international retailers in Poland.
The Germans have a saying that "success has many fathers". Who were yours?
First and foremost, Biedronka benefited greatly from the long-term investment approach of JM Group's main shareholder, the Soares dos Santos family. They were and are fully committed to Poland and closely supported the management, whatever challenges we had to face.
Another crucial element was the creation of a unique school of mainly local retail managers who worked for us from very early on in their careers and who matured with the company.
Last but not least, we developed long-term strategic partnerships with local manufacturers and were lucky in finding some great Polish entrepreneurs who were able to keep pace with Biedronka's extremely rapid growth.
Given your success at Biedronka, why did you choose to move to Dixy?
After 25 years at Jerónimo Martins, it was the most difficult decision in my entire professional career. I had already refused a number of other offers, but one can't stand still in just one place, however good, and one should always look for new inspiration and chances to develop. It was, however, a relief to leave with the feeling of mission well-accomplished.
But why move to Russia?
There were several reasons. Firstly, the chemistry was right with the then key shareholders of Dixy, Igor Kesaev and Sergei Katsiev. When they invited me, they didn't set me the task of just fixing the business, they wanted me to develop it. They were looking for someone who would help make Dixy one of the winners on the Russian retail landscape.
They also wanted someone who would introduce the best international standards and make Dixy a benchmark in world retail. What a challenge!
"Dixy is somewhere in the middle, which isn't bad, but not good enough either"
A lot! When we first talked, the group had only a little over 2 per cent of the national market, and we still have three competitors ahead of us. Also, the whole process of retail modernization in Russia is full of challenges over the next ten years.
This would imply that your well-respected predecessor Ilya Yakubson didn't do such a good job?
He and his team most certainly did a good job. After all, Dixy has survived the consolidation in the industry to become one of the top companies in the market. But the truth is that what took Dixy to where it is today won't take us to where we want to be. Meanwhile, customers are becoming more and more demanding on a market that is undergoing rapid change.
In the current crisis some of our competitors are becoming better and others are getting weaker. Dixy is somewhere in the middle, which is not bad, but not good enough either.
Is it pure coincidence that one of your first moves was to recruit former Jerónimo Martins managers Juan Giralt Silva as commercial VP and Julia Duarte as Operations VP? Doesn't that make you look like a stalking horse for a potential takeover bid from your former employers?
Nonsense, they left the group years ago. I strongly believe in recruiting local talent, but sometimes one needs to cover temporary gaps and take shortcuts in order to quickly build specific know-how, and that's when expats are necessary.
Russia is going through an intense phase of nationalism. Are foreign managers really welcome, and can they succeed in the current environment?
Russian people are really welcoming despite what you may read in western newspapers. Of course there are some cultural differences as in every other country, but we must understand and respect them.
What would you say are the main differences between management in Russia and western Europe?
Modern Russian retailing is relatively young compared with other markets, and there is sometimes a lack of highly-skilled top managers with few from Europe. That said, the people are always ready to learn something new and quickly adapt to change.
Eastern Europe is dominated by western European retailers. Why do you think this is not the case in Russia?
During the 1990s many saw the Russian market as underdeveloped with huge distances, major cultural differences, and big regional asymmetries. Nowadays, the majority of European food retailers have other priorities or concerns than entering Russia.
"Sometimes you have to take shortcuts to quickly build specific know-how"
Local retailers were obliged to adapt their sourcing strategies and logistic capabilities. We, for instance, have developed our cooperation with other business partners in different geographies such as Egypt, Morocco, Pakistan, South Africa, Argentina and Brazil.
The sanctions also forced the agro business in Russia to develop much faster. This is great news for us as a retailer because we have many more local entrepreneurs with whom we can develop our offer within longer-term partnerships.
Has the devaluation of the rouble affected your business, for instance, regarding the direct import of fruit & veg?
Exchange rate volatility has not significantly impacted our range, but it has affected retail prices and our procurement policy. So Dixy is expanding its cooperation with domestic partners in order to be able to make reliable medium- to long-term forecasts.
Effective risk management requires that we give procurement preference to domestic manufacturers. And in the recent years we have been developing the direct purchase of imported items in order exclude intermediaries on the supply chain.
Russian GDP is in decline. When will it improve, and what is the right strategy while it recovers?
All the conversations about GDP growth are associated with oil prices forecasts. In the current situation of low oil prices and a sluggish global economy, it is unfair to expect great GDP growth from Russia. It will also obviously take time to restructure the economy.
Russia is a huge country, and its economic and social development is not uniform. I therefore strongly believe that more investment should be turned to the development of internal resources and the local market.
Russia remains high on the global list as regards corruption. How big a problem is organized crime for retailers?
Similar problems exist in many countries all over the world, and shrinkage, for instance, is not significantly higher in Russia than anywhere else. Large companies can solve the problem by taking a fundamental management decision not to participate in corruption. Our principle is zero tolerance of illegal and unethical business.
What potential do you see for organic growth?
The Russian food retail market has huge potential. According to PlanetRetail the top ten players represent less than a quarter of the Russian food retail market, while modern retailing accounts for less than half, compared to ratios of 75 to 80 per cent in western Europe.
We increased our market share from March to June from 2.3 to just over 3.5 per cent. We therefore see no constraints on the opening of new stores, save for the market share limitation of 25 per cent imposed on each region by Russian trade law. So we still have a long way to go and intend to be present throughout the country medium- to long-term.
Related article in German: Interview by Mike Dawson in Lebensmittel Zeitung, no. 37, 16.09.2016
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