Sunday, October 5, 2003

It's not like Kroger:
'Stores' make selling a challenge

By Cliff Peale
The Cincinnati Enquirer

NOVOMOSKOVSK, Russia - It's a beautiful day in Novomoskovsk ("New Moscow"), a city of 150,000 people about 94 miles south of Moscow as brilliant sunshine settles over an unusual late summer chill.

Dimitri Vaffin of P&G's sales unit wanders through the bustling booths at the town's open market. His job is to ensure that vendors are well stocked with P&G products.

Russian shopper
More like a flea- market than a superstore, the open-air market is Novomoskovsk sells food, clothing and housing goods at separate booths.
(Associated Press photo)
| ZOOM |
From clothing to jewelry to household cleansers, the booths seem to carry virtually everything. Inside a nearby building, huge slabs of meat and stacks of fresh fruit and vegetables beckon buyers. In a nation new to capitalism, the scene stands in stark contrast to Soviet-era images of Russians queued up to buy, well, just about anything.

Much like an American flea market, consumers haggle with vendors, then carry off their purchases in plastic bags. Transactions are in cash, and the only visible lines are for those boarding buses that run every few minutes on the town's main street.

Some booths carry household products, with Procter & Gamble heavily represented. At one, there are four bottles of Head & Shoulders shampoo, four tubes of Blend-a-Med or Blendax toothpaste, four bottles of Pantene, three bottles of Herbal Essence and three bottles of Fairy dishwashing liquid. The products are sold to booth operators from a van by a P&G-hired distributor who makes the rounds every couple of days. Retailers take their pick of products and the transactions are recorded into a computer on the spot.

The difference between P&G's massive U.S. distribution and sales network and the way it must get its products to the Russian consumer is striking. In fact, P&G has invested more than $40 million in the van and car fleets that enable it to cover Russia, which stretches across 12 time zones. East of the Ural Mountains toward Vladivostok on the Pacific Coast, open markets often are the only stores, Vaffin says. In that vast territory, P&G literally sells single-use bottles of shampoo out of a fleet of vans.

"The traffic is here, the consumer is here, so we have to sell here," Vaffin says. His territory is the Tula region, stretching south from Moscow. To cover it, Vaffin drives about 70,000 kilometers (about 43,750 miles) a year. His days on the road may be numbered as the Russian consumer becomes more demanding. The people are getting richer," he said. "They want service, they want nice buildings to buy in."

There are no Wal-Marts or Kroger superstores in Russia, although some large European grocery chains are moving in. But as more conventional stores open, consumers are forsaking the open markets for the under-roof aisles and shelves. The stores are hardly "big boxes." Often they are no larger than a Cincinnati convenience store.

Still, they carry a wider selection of products than the open-air markets, making them attractive to consumers and an easier marketing vehicle for Vaffin and P&G's stretched-thin, far-flung sales organization. The staff of about 150 covers a country that, at 6.6 million square miles, is nearly twice the size of the United States. By comparison, P&G stations more than 200 people in Bentonville, Ark., to service its largest customer, Wal-Mart.

At one store - the title is loosely translated "Family Saver" - there is a promotion on the aisle for Tide and Ariel, a P&G laundry brand sold only outside the United States. It's a scene familiar in any U.S. supermarket as a marketer invites shoppers to an on-the-spot demonstration.

A small box of Ariel costs 34 rubles (about $1), Tide goes for 24 rubles (about 75 cents) and Myth, a low-priced brand P&G inherited when it bought the plant in Novomoskovsk, comes in at 18 rubles (about 60 cents).

While incredibly inexpensive by U.S. standards, P&G's products are still substantially more expensive than a local brand, a generic-type package that sells for 10 rubles, or about 30 cents.

Other international companies, such as Henkel and L'Oreal, face similar competition.

"The entrepreneurs in the open market say, 'This is our brand (Shamtu, the mid-priced shampoo introduced in 2002), look at the price,' " Vaffin said. But low pricing has not extended to every P&G product. At one store in Tula, Old Spice deodorant is available for 95 rubles (about $3), pricey by Russian standards. "Yes, it is (popular)," Vaffin said. "But not many people can afford it."

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