Shop and save the Siberian way – Russian discounter Torgservis plans German entry
From Russia with love: German consumers could soon enjoy super cool prices
TS Markt is already advertising online for Category and Business Development Managers on its German website ts-markt.de.
At first blush this looks very much like carrying coals to Newcastle. After all, Germany is the international home of discounting. You can find discount stores on any local High Street, trade research company LZ Retailytics counts nearly 16,100 of them. Working on the basis that "poor people must save, rich ones like to", powerful giants such as Aldi and Lidl have carried their no-frills, low-price message with invariable success to nearly 50 countries world-wide over the last 60-odd years.
So have the Russians gone suicidal or mad? Or do they know something we don't know?
A Torgservis store in Russia
Torgservis was founded in 2009 by Valentina Shnayder, who still owns more than 60 per cent of the company, and minority investors including Andrey Veykulaynen. It is little known in western Europe because most of its "Svetofor" (traffic light) and "Mayak" (lighthouse) stores are in rural conurbations of around 15,000 inhabitants east of the Urals.
A minimalist concept
Rough, but apparently ready for Germany
The assortment carries 1,500 to 2,000 SKUs, including food and non-food, nearly all of which (90-95 per cent) are own label. The main USP seems to be average prices which are 5 to 20 per cent lower than those of local competitors.
More warehouse than store
Very unusually for a discounter, Torgservis is believed to operate a franchise model where each outlet is a unique legal identity. This has helped to fuel the rapid expansion of the store base.
The economic crisis in Russia since 2014 has also been a blessing for the company because there are many more customers who now appreciate low prices.
Predominantly own label, but German brands are already stocked on Siberian shelves
Back to the roots
But this impressive growth still doesn't explain why Torgservis feels that it is strong enough to survive on the German market of all places. Those who claim to know the company say that there is at least method to this apparent madness. The Russians are clearly aware that Germany's largest discounters (Lidl, Aldi South, Aldi North) have undergone a big trading-up over the last five years or so. Torgservis therefore seems to believe that this has created a growing niche in which a no-frills, no-nonsense concept like their own could thrive.
If this is indeed the thinking behind the venture, then it would seem to be very similar to that of Sir Stelios Haji-Ioannou at EasyFood in the UK. There is more than a grain of truth in this. Whatever Aldi and Lidl may say to the contrary, better stores and increasingly demanding assortments, which even include organic food, have increased both complexity and cost. Despite all their advertising, the average customer ticket has increased in price, if only because more expensive lines are on offer, which were never there to tempt thrifty shoppers before.
Lack of store orientation and signage. Clearly the low prices must speak for themselves
But this logic is surely still flawed for a number of reasons. Torgservis will quickly find that costs from sites to staff are far higher in Germany. Legislative demands on food quality are also extremely exacting and presumably considerably more so than in Siberia. Torgservis will also be up against the most efficient discounters in the world who can buy locally in massive volume and who rigorously check food quality along the whole food chain.
A hard act to follow: Top discounters in Germany ranked by gross annual revenues and store count
In this context it is worth recalling the fate of Metro hypermarket subsidiary "real,-" when it undercut Aldi and Lidl on a number of commodity items. The company only succeeded in crippling its margins and dismally failed to wow customers. Discount "made in Germany" is obviously a lot sexier than many people seem to think...
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Read in German: "Russischer Discounter will in Deutschland landen" by Mike Dawson & Sebastian Rennack on page 10 & "Angriff von unten" by Hans Jürgen Schulz on page 2 of Lebensmittel Zeitung, no. 40, 05.10.2018. LZnet online version: "Torgservis plant Markteintritt in Deutschland" (paywall).