Ukrainian supermarket chain Furshet plans to refurbish all its supermarkets, after a Kiev pilot store was successfully tested earlier this year. As the Ukrainian Retailer Association (RAU) disclosed, the new store concept focuses on increased fresh ranges and a larger selection of own-produced, bakery and delicatessen items. At the same time, fittings, fixtures and equipment will be upgraded and the stores will feature muted colours and wooden elements, an upgrade from the previous dark orange.
Already in the past year market leader ATB has started adapting its newly opened stores to a more upmarket design. This facilitated stepping into posher neighbourhoods, edging closer towards the supermarket segment, which to date has been occupied by national players Silpo (Fozzy Group), Velika Kishenya (Retail Group) and Furshet as well as Rewe Group’s Billa. As a reaction to ATB’s advances and falling consumer spending, Silpo stores have been converted into newly-founded Thrash markets, and Retail Group has operated the low-price Velmart banner since 2015. Both launches were accompanied by intense marketing efforts to position the new banners as discount chains, aimed at brushing up the price image for both retailers.
Furshet is losing ground. Its unique selling proposition focusing on premium national and international ranges and extensive in-store service has been compromised by the hryvnia currency devaluation and changing competitor offer. International assortment has shrunk and prices skyrocketed, whilst other market players have ramped up their service levels. Innovation leader Silpo's stores offer in-store restaurants and bistros, a dedicated section for regional organic products, together with a sophisticated loyalty card scheme and services such as its own mobile phone tariff.
Discount market leader ATB, when entering more affluent residential districts, is modernising store interiors to cater for the demands of wealthier customers. In times of sinking consumption, banners such as the luxury offshoot Furshet Gurman have not helped the retailer establish a favourable price image. Whereas all other supermarket players repositioned themselves a year or more ago towards the economy segment, Furshet has been keeping astonishingly quiet about steps taken to adapt to the drastically changing market conditions. This especially in the light of decreasing store numbers and legal disputes with suppliers. So where is the retailer going?
We believe that Furshet has only now recognised its precarious situation and is making efforts to catch up to its peers. Initiating changes this late, however, has decreased its strategic leeway. With a presumably low level of financial reserves, neither price investments nor store refurbishments appear to be valid alternatives for the retailer at this point. With curbed FMCG competence, existing production facilities seem to provide the only option to increase footfall while supporting the bottom line with higher margins.
Considering that most of Furshet's stores are located in major cities, where the loss of buying power is felt least, the chosen strategy seems valid. However, we are also convinced that this approach is a double-edged sword. The operational costs of adding own-produced items to the range are many times higher than expanding the FMCG assortment, with revenue increase marginal. Although expanding the geographical coverage of Furshet’s online banner Efurshet and adding B2B and catering services build on existing know-how, this appears to offer only a niche solution. Consequently, unless economic conditions improve, we expect the retailer to lose market share against the likes of ATB, Fozzy and Auchan.