February 25, 2021

Visit to Russian discounter MERE in Poland

Super cool prices: A Siberian retailer comes to Poland   (photo: Shchipkova Elena/stock.adobe.com)
Shchipkova Elena/stock.adobe.com
From Russia with love: This Siberian retailer offers super-cool prices
When Russian hard discounter MERE opened its first store in Germany two years ago, one had to be sceptical. Despite what the media hype suggested, anyone with the slightest grasp of the German grocery market must surely have known that even a no-frills retailer is not well advised to challenge local giants Lidl or Aldi on their home turf. From Day One, the 100-plus stores MERE announced for the first year seemed like an Orwellian utopia but with much less technology...

That said, a standard store of parent company Torgservice in Russia, under the original banner Светофор (Svetofor = traffic light), can be fully equipped for only around €15,000 – complete with cash tills, high shelf racks, wire shopping baskets, and shopping trollies. In the slightly more luxurious store versions, you can even find a walk-in area for chilled food. But most locations are second and third tier, so operating costs won't cause management any sleepless nights.

Consequently, logistical efficiency doesn't seem to be a top priority at the moment, neither are store counts likely to reach critical mass any time soon. Meanwhile, Torgservis's Berlin-based operating company TS-Markt now runs a network of six shops with a distance of up to 500km between individual stores.

The taciturn owners, the Shnayder family from Krasnoyarsk in Siberia, are, however, no wannabe businessmen throwing toy money into half-baked business schemes. Their ultra-hard discount banner recently made its debut among Russia's Top 10 grocers by sales. Last year, the network comprised around 1,600 stores with estimated net revenues of nearly €2bn. At a pre-crisis exchange rate (2014), that would be closer to €4bn. Not a bad achievement at all.

As a former German retail manager who had never set foot in a Torgservis store, my curiousity got the better of me last weekend when I visited MERE's first store in Poland, in Częstochowa. There's no better way to understand a retailer's DNA than to walk down the aisles, observe how customers and employees behave, and look at what's on the shelves...

Location, location and location


This specific store opened in a former Polish furniture shop. The round 'Forte' logo depicting a yellow elephant in a white circle is still hanging on one of the walls.

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Also, the wooden panelling in the cooling chamber rather took me by surprise. Quite in contrast to the sausages that were unceremoniously dumped into mesh wire baskets. You will notice a different floor covering in the photos. This area is part of the former showroom.

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And this might be indicative of how MERE could benefit from the current pandemic and the uncertain economic outlook. Not only do consumers focus back on price, but with non-essential retailers closed down for longer periods, lease rates are also eroding.

As seems to be the case here, non-food operators will be the first to close down unprofitable locations. In addition, a former furniture store makes an ideal "handover" for a discounter. I'd estimate that the back office and warehouse space takes up less than 10 per cent of the total store space. Home furnishings are best sold from a showroom. The same with MERE's single-item pallets.


Let's have a look at the floor plan

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I'd estimate that the sales area spans around 1,000 square metres. There are more than 300 pallets on the shop floor, and more than 100 storage spaces on high racks (dark brown in the floor plan). Roughly one half of the assortment consists of food items, the other half comes from the near-food and non food ranges. Total assortment estimated at 600 SKUs.

What's in the assortment?

99 per cent of the brands MERE carries I've never seen before or remember only vaguely. Olewnik for sausages and Sante for cereals are the only well-known suppliers I could identify. Have you ever heard of detergents produced by the Polish companies Marba and Kamal? They are certainly not standard (brand) suppliers at big full-assortment operators such as Tesco, Auchan, Kaufland or Carrefour. And surely not either at the big discounters.

It would seem that MERE works largely with small & medium-sized producers like Roleski (sauces), Giżewski (sausages), Admar (sausages), Goldmak (pasta), Martik (nuts), Yabra (canned vegetables), Betex (carbonated drinks), Korkus (juices), Cymes (mineral water), and Mispol (pet food) – just to name a few of those I came across. And there are also several dozen items sourced internationally, including coffee from Spain, wine from Bulgaria, salted snacks from Lithuania or detergents from Ukraine.

Also, not one single basic item, such as flour, sugar, milk or butter, is among the dry ranges. For Aldi and Lidl these used to be a pillar of their business over forty years ago.

And the merchandising?

With the exception of chilled items and liquors, and not counting different flavors, the basic principle is clear: one pallet, one SKU. Pallets and wire baskets are the favorite receptacle of choice. Only home ranges, such as batteries, baking paper and light bulbs, as well as dairy products are presented on shelves. Also, the predominant choice of price tag is an A4 sheet of paper duck-taped to the rack or pallet.

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Another thing which caught my eye was the rather large amount of big packs ('XXL' categories in the floor plan).

Lemonades, for instance, are sold in 3-liter bottles.

Frozen goods as a standard weigh 1kg.

Bulk candy and chocolates are sold exclusively in 500g bags. The same applies to dried nuts.

 

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But at what quality and price?

As part of the Russian banner's strategy is buying items with shorter shelf life dates than the usual 2/3 of expiry date, I did some spot checks. Especially for sausages, dairy but also for canned goods. Nothing unusual here.

Regarding ingredient quality, needless to say, you will not find any reference to quality labels such as organic, UTZ or Fairtrade. Neither will you be able to purchase any free-from products here. With MERE suppliers largely absent from other large retailers, quality as a base for price comparisons can provide only a vague reference. But we can check at least the promise '20% cheaper than average market price' that MERE keeps on repeating in each and every country it enters.

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MERE seems to keep its cheapest-price promise when comparing the above ten items in a spot check against own brand items at Lidl and Polish market leader Biedronka. In the front column you can see the price difference of the MERE item against the cheapest of both competitors.

Only for orange juice was the price noticeably higher. All three juices were made from 100-per-cent concentrate and the sugar content was comparable. For pasta and baking paper the MERE price was inbetween Lidl and Biedronka products. However, MERE pasta are made with four eggs per kilo, whereas competitors use only two, so their ingredient quality level is theoretically higher.

As regards soft jelly, pistachios and orange juice – which I purchased and tested in an act of bravery at home – I found that MERE products were at a noticeably lower quality level. Pistachios were smaller and the package contained more empty shells, while the soft jelly had a stronger sugar-note and seemed less consistent in structure.

However, taste is a matter of choice. I assume that if you took the necessary time, you might find other products that are produced at a different quality level than those at the discount leaders in Poland. And most customers in-store seemed to talk about the price rather than studying the list of ingredients in detail.

During the hour I spent in the store on Saturday afternoon, there must have been between 40 and 50 customers going through the cash zone. The number of items per basket seemed less than what I see at Lidl and comparable to that of Biedronka. Many customers seemed to be on foot.

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Is this a sustainable concept? It is hard to judge on the basis of just one store visit. Certainly, more traditional customers in rural areas in Poland, Romania and several other countries in Central & Eastern Europe (CEE) will see this format as a valid alternative to existing discount players.

Lidl, Biedronka, Penny Market, Aldi and Netto (Salling Group) have all gone up-market over the last few years. This evolution into the mainly unfilled niche of the supermarket segment in CEE has certainly left a space in the no-frills and bare knuckles price-entry arena.

A year ago I would have seen a window of opportunity for MERE in this region, especially as income in rural areas was accelerating. Now, in the wake of Covid-19, many consumers assess their economic future as unpredictable. The resulting back-to-basics movement might mean an even bigger chance for no-frills formats than before.

Also from the supply-side MERE apparently doesn't have as many difficulties finding merchandise as initially assumed by many experts. With grocery markets in the region consolidating, second-tier regional chains and Mom & Pop stores will inevitably be squeezed out of business. This will also put pressure on smaller and medium-sized producers whose volumes are too small to meet the requirements of the large retailers.

In Germany – mainly due to Aldi's and Lidl's strong presence – the company has just brought in Russian discount veterans from Siberia to lead their operational business. It would therefore seem that MERE is poised to stay.


Lebensmittel Zeitung print and digital (photo: LZ)
LZ
Our German retail B2B newspaper, Lebensmittel Zeitung, in print & digital
By Sebastian Rennack, central & eastern Europe correspondent of Lebensmittel Zeitung

(Editor's note: All photos by Sebastian Rennack)

#retail #mere #discounters #lidl #biedronka #aldi #lebensmittelzeitung







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