Kitabı oku: «Diving Into the Red Ocean. How to Break the Rules of Retail and Come Out on Top»
Alpina
4th Magistralnaya 5, bld. 1
Office 159-169
123007, Moscow, Russia
Managing Editor: Marina Krasavina
Project Editor: Natalia Pepelina
Translator: Andrew Freeburg
Copyeditor: Jennifer Eremeeva
Proofreaders: Beth Dymond, Anna Brown
Cover design: Yuri Buga
All rights reserved. No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review.
Copyright © 2021 by Evgeny Shchepin
© Electronic edition. Alpina, 2022
* * *
FOREWORD
Thanks for choosing to read this book about VkusVill!
Zhenya (Evgeny) Shchepin decided to write it a long time ago. I was not fond of the idea then, and I cannot say I am now. After all, a book is like a photo: it only captures a single moment. A company, however, is a living organism: it is constantly changing, learning, and reacting to changes in its surrounding environment. Before we even submitted the book to the publishing house, we had already produced several new development strategies and ideas.
I hope this book will speak to anyone who would like to start a company or tackle an ambitious project that the most important thing is to focus on your customer. The customer's interests should always be more important than profit and the interests of your investors. After all, a company that keeps its customers truly satisfied is never weak, particularly financially.
Andrey Krivenko, founder of Izbyonka and VkusVill
RULE 0
OR AN UNUSUAL INTRODUCTION
This book could have come out two years ago; or it could have never come out at all. And this is VkusVill in a nutshell.
Greetings! My name is Evgeny Shchepin, and I am the author of this book. As a reader, I do not really like introductions. More often than not, they are far too pompous or academic. By the end of the first paragraph, I want to yawn, if not put the book down entirely. So, I face a challenging task: to tell you why we authored this book, while also not veering into excessive nerdiness or business theories that will send you off to sleep.
My initial dream was that Andrey Krivenko, founder of Izbyonka and VkusVill, would write it. After all, who understands all the nuances and subtleties of his business better than Andrey? However, you need to know Andrey personally to imagine the look on his face when I mentioned that idea. He even asked again, just in case, to make sure he did not mishear me: "Me? Write a book?" Then he raised his eyebrows as high as they would go.
Andrey has a phenomenal character: hundreds of entrepreneurs from all over the country dream of meeting him, believing that half an hour of face-to-face conversation with him might, at least, unlock some new knowledge; at most, lead to total enlightenment and a feeling of eternal harmony.
In fact, neither of these will happen. Andrey's response to questions such as "What was it like?" is that he no longer remembers. And at questions such as "What will happen?" he shrugs, explaining that nobody can know the future, so making any plans is pointless.
But do not get him wrong! Andrey is not in the least snobbish: he is cheerful, clever, creative, and has good manners. You can talk with Andrey for hours about anything. He just honestly does not understand what is so special about his business achievements, and why people are prepared to fly seven hours from the other side of the country for a thirty-minute meeting with him. After all, when a graduate of the Moscow Institute of Physics and Technology does not understand something, he does not make excuses for himself.
That is more or less how I became the author of this book about VkusVill and Izbyonka. I took matters into my own hands and introduced the world to the processes behind the inception, launch, and stable growth of the company we know today. I was born and grew up in the tiny city of Glazov, where I fell in love with creating text at a local teen newspaper, Avos-KA – which translates roughly as "Tote Bag." In 2010, I graduated with a journalism degree from the Ural State University, and by 2011 fate brought me to Izbyonka, which was just getting going and desperately in need of engagement with the outside world. Instantly, I became a member of the family in what was still a small company, where we burned with a similar passion for what we were doing.
Even then, I think I knew I would author this book. There is no other explanation for why I jotted down so many things over the course of eight years. I kept vivid memories in mind, observed and analyzed, and tried to regard the day-to-day life of our company through the lens of history and the search for cause-effect relationships.
The success of our company excites people. How do you start from a tiny dairy stand and build a major grocery chain with a thousand stores? How can you not take out a single loan in the process and develop a business using only your own money? How do you manage a company with over 12,000 employees without strict orders, regulations, KPI, or a budget? And most importantly, how do you grow twice every year but not lose the passion of a start-up? This book will answer all the questions above and reveal the secrets behind VkusVill's success.
Do not look for instructions here. This book is about something else. Here we will share our experiences and failures; uncovering our thoughts and concerns. In these pages you will find many examples of sincerity and humanity.
Above all, I did not want this book to be a neat, well-packaged business story, built on the successes and achievements of the company. If I had been an outside author, it might have turned out exactly like that, but I was privileged to be both an eyewitness and a participant in the processes I am writing about. The book uncovers a lot of behind-the-scenes details and some home truths that are tough to face. You may read about our mistakes and think, "What on earth were they thinking?" But we are not ashamed of our history: each mistake helped us to move forward.
The thought of another business book appearing in Russia thrills me to the core – a book about a Russian company! We all love reading about American, European, and Japanese businesses and yet know so little about what is happening at home.
I hope this story about VkusVill will be a breath of fresh air for you and inspire you to leap in a new direction.
RULE 1
Even amid the fiercest battles for preeminence in the market, there are always moments of peace. Learn this rule – it will come in handy!
On 31 December 2008, Andrey Krivenko quit his job as the chief financial officer (CFO) of Agama Trade, a major seafood distributor. This was the moment that the story of Izbyonka (which translates as "log cabin") and VkusVill (which translates as "tasty town") began.
After five years of working at Agama, Andrey had grown weary of corporate life and decided to change fields. By then, he had already realized that the time had come for meaningful changes; big businesses could no longer stew in their own juices but needed to focus on the customer.
Andrey posted his CV online, searching for an opening for a CEO. He described himself as a top manager who prided himself on his customer-focused attitude, and he waited for interview requests to come in. In the meantime, he devoured book after book.
Andrey's proposal attracted the interest of precisely zero companies – not one call for the entire duration of his search! Companies were looking for CEOs who would increase their efficiency and please investors. But a top manager who studied customers' problems and tried to solve them? Heaven forbid! Who on earth needed someone like that?
Having failed to attract potential employers, Andrey decided to create his own company. With a million rubles ($13,700) of personal savings, Andrey began the steep trek up Mount Entrepreneurship. His head was brimming with ideas, but most of them were unsustainable.
Andrey rejected the idea of opening a patient-friendly dental clinic because of the narrow specialization needed in the field. Outlets selling unpasteurized "live" beer – which in Moscow were springing up like mushrooms – appealed to him, with their promise of minimal outlay and a quick return on investment, but they failed to inspire him with their ideology. An auto repair shop required too much start-up capital, and that industry was not creating a fire in his belly.
The idea of selling natural dairy products came to him as he looked at a shop window full of milk and yogurt, which was due to expire in a month's time. He could not bring himself to buy such rubbish for his young children. Farmers' markets provided an alternative source where it was possible to purchase food that did not feature an entire periodic table in their ingredient lists from private producers of the market, but they failed to inspire complete trust.
Andrey recalls: "One day, I was coming back from the market and realized that I really liked the taste of the dairy products I bought from farmers, but every time I bought them with apprehension: I did not understand how and who made it, and where and how long they stored it. The hygiene question stressed me out more than anything: a merchant would cut off a piece of cheese, then count his money without even washing his hands, over and over, all day long. That thought kept turning over in my mind as I walked home from the market."
And as Andrey reflected on it, a vision of his dream store became clearer. On the one hand, natural products with short shelf lives; on the other hand, producers with organized systems of quality control and certificates of compliance, rather than farmers simply with notes from their veterinarians. And there would be no contact between the vendor and the final product.
THE NICHE THAT ANDREY DISCOVERED WAS OF NO INTEREST TO THE BIG CHAINS. FOR THOSE CLUMSY GIANTS, THE SECTOR WAS FAR TOO COMPLEX AND WAY TOO SMALL TO WORRY ABOUT.
Right on cue, Andrey was reading W. Chan Kim and Renée Mauborgne's book, Blue Ocean Shift1, which became the lodestar for the company that would become Izbyonka. Andrey embraced the concept that the best way to win in a competitive fight is not to get involved in the first place. The company's strategy should be oriented on the client rather than the competition. This would allow the company to focus on innovation and do anything it cared to without looking over its shoulder.
At first glance, the retail grocery business is a classic "red ocean," where big chains can easily crush any retail start-up. But the niche that Andrey discovered was of no interest to the big chains. For those clumsy giants, it was far too complex and way too small to worry about.
Andrey summarizes: "After looking at these facts, I understood that there was an idea to work on. And after that, there was only one thing left to do: get stuck in."
RULE 2
Doing and analyzing is more important than analyzing and not doing anything.
First, Andrey began by recruiting employees who shared his approach to business. At the outset, it was essential to find someone with an excellent grasp of the dairy production process who was also a seasoned retail specialist. Andrey, the financier, confesses he was ill-informed about these aspects of the business.
"People often ask me what they need to start a business," Andrey explains with a helpless shrug, "… and I think that the key thing is to find people who understand at least something about that specific business. I did not have any clue about the inner workings of the dairy industry. All I knew was that the milk from the market was much better than from the store. But as for a cash register, or how to work with one? I had no idea."
Andrey searched for employees on a free job vacancy site; that is how he found Dmitry (Dima) Kozyrev, a dairy production technician, and Evgeny Semery, a retail manager. Though Andrey could pay only a minimal salary of about 20,000 rubles, he convinced the two men that the venture would become prosperous and would soon see a sharp rise in turnover. Semery did not last long – later, in an interview, Andrey explained that they "just did not get on in ideological grounds." But Dmitry remained, and today he is one of VkusVill's most successful and productive technicians.
From the start, Dmitry played a key role in the company, thanks to his expertise in the production process. He could speak in the language of the production line rather than using layman's terms, such as "salty," "tasty," "hot," or "sweet". He knew how to treat the product, what to add, and how to improve it, for example, by removing excess moisture or replacing one starter culture with another.
"In 2009, I ran across an ad online for a dairy production technician and rang the number," recalls Dmitry. "A young man answered and introduced himself as Andrey. We met at the food court of the Molodyozhnaya mall. He said he wanted to start an unusual venture, creating a small retail chain to sell natural dairy products. I found that a very appealing idea, though now I cannot recall why exactly. I suppose that was because this was not going to be a typical Monday to Friday, 9:00 a. m. to 5:00 p. m. routine. It was interesting. The idea of working with natural products did not embarrass me at all: I understood that if we did everything right, it was real. Andrey has an excellent capacity for sincerely engaging people if he believes in something himself. He could do it then, and he's continued to do so throughout the history of our company."
With Dmitry at his side, Andrey went in search of suppliers. They visited almost fifty producers in a radius of 200–300 kilometers from Moscow before they found someone willing to produce milk products for the Izbyonka brand without the general powdered milk, starch, and preservatives.
"They looked at us like we were idiots," Andrey recalls. "We did not have a single store, but we were making as many demands as if we were a large retail chain such as 'Auchan'."
They found their first supplier – SAPK-Moloko – in the tiny village of Zherdevo in the Kaluga Region. It was a small plant that had just opened a new production line and was looking for any possible sales distribution channels. Their products were already available in local stores, but that demand was insufficient.
Andrey and Dmitry convinced the director to accept a delayed payment, thus, clinching their first supplier. On 12 May 2009, the first Izbyonka location opened.
They started with minimal expenses. Renting 5 square meters at the Troitsky mall in Strogino cost only 16,000 rubles a month, and a commercial refrigerator cost them 20,000 rubles. They made the sign themselves in the back lot of the Tushinsky market. They shelved any thoughts about proper marketing: the primary goal was to get started. Andrey and Dmitry traded shifts transporting the product from the plant to the mall.
"You wake up at three in the morning, drive to the plant in Kaluga, stuff the car with a product, then unload it at nine in Moscow," recalls Dmitry, reminiscing about those early days. "Andrey took two shifts delivering the product, and I took two shifts. Of course, we were not following the established rules: we were not adhering to storage regulations; we wrapped the product up in blankets to make something that looked like a refrigerator. After a month and a half of this, we realized it was time to look for someone with a proper vehicle."
The initial stage of a business is an ideal time to go slightly off-piste (within reasonable limits) and bend the rules a little, while avoiding any penalties or fines. As far as the authorities and regulators are concerned, your company does not exist yet; the few clients you have are not highly active. For a start-up, each day can easily be its last. Bending the rules at this stage is a necessary evil, but only insofar as this "illegal" period enables you to finetune your business processes and hone them until they are functional, efficient, and legal.
Over three months, Andrey opened two more Izbyonka locations, and created an intuitive software program to automate product ordering, oriented to the volume of sales from the previous period, so that each day the program became "smarter."
But success still eluded them. For nearly four months, each of the three locations had been losing money, and none of them enjoyed heavy customer traffic. The initial start-up capital of a million rubles was running out.
It was time to start Plan B.
"At first," recalls Andrey, "I opened four locations. However, the first three Izbyonkas proved this was not the right thing to do. I was ready to end this project and look for a new, more promising niche. But I did not have any new business ideas, so I opened the fourth location – to at least fulfill my initial plan."
If it was not for that one decision, nothing would have come about: no VkusVill, no producers doing well because of VkusVill, and no book…
The fourth store opened in a new location. Before this, Andrey had intuitively chosen available space at farmers' markets, counting on the considerable traffic from the market's customers. But the final experimental location was in a shopping mall, close to a Billa supermarket in Mitino (a large suburb of Moscow).
The experiment was a slam dunk, and Izbyonka found its target audience. The suburb – Mitino – was a young district with a lot of young families with small children. For them, high-quality dairy products are a priority when shopping for groceries. It turned out that foot traffic in a shopping mall suited Izbyonka far better than the farmers' markets.
The first day in the shopping mall showed Andrey and his team that it was far too early to admit defeat. Izbyonka's refrigerators were empty by lunchtime. News of a new and innovative dairy shop with domestic products spread like wildfire, simply by word of mouth. And on that day, we grasped the immense power of the grapevine.
We modeled each successive Izbyonka on the Mitino experience. Being focused on young mothers with children, we were "squatting" near major supermarkets by offering a dramatically different product from the large chains. We abandoned the idea of farmers' markets and everything that was excessively local.
"I learned an important lesson from Izbyonka's identity crisis," says Andrey. "When you try to offer a brand-new product or service, it is important to try all kinds of different tactics and options. Your vision may very well differ from your customers' needs and desires. And never judge the success or failure of a project just on one attempt. Opening a business is a process of experimentation and adjustment to the situation. Often something that seemed to flop at the start ends up being the winning formula for your success."
RULE 3
Hire people who you find interesting and feel comfortable with, especially at the beginning.
By the start of 2010, Izbyonka was safely off life support. Its retail locations began to pay off, and the company took its first tentative steps. It was still a start-up, affected heavily by the world around it, but – borrowing yet another medical term – we observed an improvement in the patient's condition.
That is when the key employees appeared at the company, the ones who remain at its core: Alena Nesiforova, Renata Yurash, Tatyana Berestovaya, Evgeny Kurvyakov, Maksim Fedorov, and others.
The company now lives by the rules of a unified, well-functioning organism: perhaps not an ideal one, but certainly a harmonious one. In a perfect organism, all the organs work flawlessly, as if in a laboratory. Entire systems can fail in a coherent one, but the organism will turn on its immune system's defense mechanism to fix them.
Meanwhile, the concept of "us" is developing; an important phenomenon in terms of a healthy corporate culture.
Henceforth I will use "we" to mean our collective hive mind, although I can anticipate many questions from readers: "Who are 'we'? What do you mean, 'we decided'?"
Honestly, we do not have a standard answer to these questions. At some point, it became difficult to determine who produced an idea and who developed it into a working concept, or who first questioned the viability of an idea, or the person who caught the whiff of a mood, then set a rule and was the first to follow that rule. We became such integral parts of each other that, over time, distinguishing the "I" became meaningless.
Today, if you look at the way we assembled the puzzle pieces of the small but ambitious Izbyonka team, you might conclude that it was merely dumb luck, because some coincidences are otherwise impossible to explain.
Now, Alexey Ilyichev owns a medium-sized transport company that provides delivery services for Izbyonka and VkusVill. His success story amazes and defies any logical explanation.
"I live in the Tushino district, near the mall, where the second Izbyonka opened. Once, my wife asked me to buy sour cream. She told me to look in the dairy stall there. I did not find a single dairy stall and bought sour cream elsewhere. Later, my wife brought me to Izbyonka and told me to mark it as the place she wants me to buy all our dairy from. I recall a salesperson and a young man running around with boxes, and later I realized that the young man was Andrey Krivenko and Nadezhda Spirova was the salesclerk."
Ilyichev continues: "I had already been working for myself for a long time in the (private) transportation business. Out of curiosity, I asked Andrey what trucks they drove. He answered that they were just getting started and driving products around by themselves but were looking for someone to take the job on. I gave him my phone number, and ten days later, Andrey called me back. We met at the warehouse, and he showed me products and said: 'Here is the milk, and here is the kefir.' I answered: 'Right, but what is next?' Andrey said, with a surprise: 'What do you mean, what is next? Take it, drive it, unload it.' I did not even show him my passport!"
Alexey recalls the early days, "I could not believe that Andrey just handed me the keys to his warehouse full of product! It was fun back then. Such enthusiasm! Of course, I knew from the beginning that I would not be the only driver for long, and that is what exactly happened. After we opened the sixth outlet, the question of a second vehicle came up. But Andrey stepped away from solving transportation questions from the very beginning, so I handled everything." The next story is about Alena Nesiforova, who worked as a market researcher for DuPont. Nevertheless, she swapped her business trips to Paris and Barcelona for work trips to Kaluga and Ryazan after deciding to work for Izbyonka:
"I studied at the Moscow State Linguistic University, the best linguistic university in the country, and at one point tried my hand at tutoring. I posted an advert on a website, and the first call came from Alena Krivenko (Andrey's wife). She had a lot on her plate, not a lot of time, and a need for English. I was the perfect choice, as I lived right across the street from her son's kindergarten. We started working together and understood that English was not the only thing that we had in common. We talked a lot about life. A couple of years after we met, Alena told me that her husband Andrey was planning to launch Izbyonka and suggested that I give it a shot. I agreed it was a significant risk – I was leaving a large, stable company to jump into the unknown. When I look back on it now, it seems like such an adventure!"
Nadezhda Spirova was one of the company's first salesclerks. She came to Izbyonka in June 2009 and is still working today. She has happy memories of those early days.
"In 2009, I moved to Moscow and worked at Kroshka Kartoshka2 for a few months. Then my sister saw an advert in the newspaper for sales staff at Izbyonka and suggested that I go for an interview. The company still did not have an office – I met with Andrey Krivenko and Dima Kozyrev in a café. I liked everything. Andrey told me to come to look at the location on Friday, and on that Saturday, I started work and have been there ever since. In 2016, I transferred to VkusVill.
Nadezhda recalls the early sales tactics of the first Izbyonkas: "We grabbed people and persuaded them to try something. As soon as a person opened his mouth, you shoved a spoon full of cottage cheese3 in, and while he chewed, you told him who you were and why he should buy dairy products from you. We, the first salespeople, were like the Three Stooges rolled into one. We were not afraid of being funny, and we deeply believed in the products we were selling."
There are dozens of these kinds of stories. These people, our priceless employees, were the ones who created this company. They erected this fortress, brick by brick. And they did this not because they were paid phenomenal money, or because they were being threatened with fines and punishments, or even because they were consummate professionals. It was just because each of them was first and foremost a human being, and only after that a market researcher, clerk, or analyst. Each of them created their world and did so sincerely. These people just cared.
WE, THE FIRST SALESPEOPLE, WERE LIKE THE THREE STOOGES ROLLED INTO ONE. WE WERE NOT AFRAID OF BEING FUNNY, AND WE DEEPLY BELIEVED IN THE PRODUCTS WE WERE SELLING.
And when someone asks at another conference: "What HR strategies did you use to create your team while launching your business?", we just want to walk up to that person, hug them, and wipe all those HR strategies out of their head. Life, intuition, and engagement are so much more effective than any HR strategy out there.
RULE 4
The earlier you have a conceptual crisis, the better. Izbyonka went through it for a year and a half of its existence, and this period changed the entire company for the better.
By the end of 2010 and the beginning of 2011, Izbyonka had nineteen office workers, about eighty salesclerks and assistants, and the company served thirty-one retail locations.
It was a period of radical reengineering of the Izbyonka project. The key processes were well-managed, and that allowed us to focus on the product offering. We were opening new retail locations and attracting new customers. However, we were faced with an unexpected and vexing problem. A large-scale survey of our clients showed that most repeat customers did not trust Izbyonka. They were drawn to us for our unique products, such as Mechnikov Prostokvasha (a type of fermented milk) and cottage cheese casserole, but they would have been more than happy to buy these products from better-known brands had they offered them. In other words, most of our customers WERE FORCED to visit Izbyonka. This shocking revelation forced us to examine our intoxicating success in a different light. What we perceived as the demand for our products was the lack of alternatives rather than our products' intrinsic value. That fact made the company extremely fragile and vulnerable.
Thankfully, the book Corporate Religion4 by Jesper Kunde fell into our hands at about the same time. This book radically changed our relationship to brand positioning. And thanks to Kunde, for the first time we considered the importance of a unified business concept.
Kunde's example of SAS was an organization with a clear and well-defined concept: "to become the best airline for business travel." Everything at SAS was subordinate to this idea, which immediately defines what planes the airline needs, which drinks to serve, which newspapers to offer, etc.
We had cherished the dream that Izbyonka would become an irreplaceable part of the lives of intelligent Muscovites and that we could change their habits and tastes. But how does a brand become a religion? Are there step-by-step instructions for the process? This is where Kunde's work came in handy for us.
The primary message of Corporate Religion is that customers are not naturally inclined to be content with advertising slogans. People are looking for a narrative or message that confirms their faith in a brand. Emotional values are replacing material values – and this is where we found room for growth.
We analyzed Izbyonka based on the algorithm that Kunde proposed: How do we see ourselves? How do others see us? How should people see us? The result was a depressing diagram (Fig. 1).
In an ideal world, all three circles should intersect. The deeper they integrate with each other, the stronger and more successful the company becomes, and the more self-explanatory the concept will become.
Our situation was the reverse: our customers did not understand what we wanted to say to them with our products: we said one thing, but the customers interpreted it in a completely different way.
We had to find a solution to this pressing problem.
The beginning of the solution was the creation of the unified concept department in 2011, which was led by – and is still curated by – Alena Nesiforova, that valiant girl who swapped Paris and Barcelona for Kaluga and Ryazan.
Alena's task was a formidable one: to develop a unified concept for Izbyonka that would convey the company's core values to its customers and rally employees together around a shared idea, just as Dr Kunde had proposed.
"It was one of the most challenging but exciting periods ever, which I am happy and proud to look back on today," says Alena with a smile. "We analyzed the positive aspects of our company and found that there were several: we offered natural foods without chemical additives, short shelf lives for products, assiduous quality control, pleasant service, and producers who were committed to our values and who hailed from different regions in Russia. But these different pieces of the jigsaw did not form a whole for our customers. They considered us to be just another dairy kiosk: if we disappeared, so be it. For the majority, it would not be a major tragedy. But our goal had never been to sell milk. We set out to change the culture of food for Muscovites. We just forgot to tell the Muscovites."
This is a common mistake among small businesses during their initial growth spurt. As the amount of work increases, employees naturally change their focus. You are doing a lot but hitting your target less frequently.
Izbyonka underwent a major shake-up. We had several strategy sessions where representatives from all the key divisions of the business met with Andrey. We agreed to keep holding these meetings until we found a roadmap for development that we all shared.
After several heated discussions, we came to a mutual agreement that we had to develop the subject of healthy eating: not in the haphazard way we had previously tried, but systematically at the department level throughout the entire company. It took several days for us to distill the essence of Izbyonka into just a few words. And then we created our current slogan: "Izbyonka – tasty dairy products for a healthy lifestyle."
Afterward, making decisions became easier and we moved forward towards our common purpose. Our buyers mercilessly "slashed" our products' ingredient lists, forcing our suppliers to remove additives that other retail chains had asked them to add. We did not care if the resulting products had short shelf lives; it was far more essential that parents felt confident about giving our products to their children.
Our development team narrowed the search for retail outlet locations, using new criteria to determine a target audience. A district was no longer assessed by the number of cars and their cost but by the number of stroller moms, who would act as the vanguard to scope out a new store with natural products.
We jettisoned terms such as "farmer," "village," and "environmentally friendly" from our corporate communications because these notions created a false impression of our brand and brought up a lot of negative connotations. The design of our retail locations changed as we distanced ourselves from our prior associations with a "peasant log cabin" and instead presented an image of a modern pavilion of green and white.
We created a newspaper for customers, which focused on the health benefits of dairy products, rather than announcements about sales and discounts. We filled the business card website with information, slowly evolving it into a web portal about healthy eating and lifestyle.
We also reoriented our retail strategy to be part of this information flow. Our sales assistants did not just sell – they educated and consulted, speaking knowledgeably about the properties of Lactobacillus bulgaricus or why kefir made with kefir grains was superior to products made with a powdered starter culture. This strategy was a real hit with our customers, who joked: "At Izbyonka, by not selling to you, the clerks sell twice as much."
The company split into two segments: the unified concept department (the conductor) and the executive management (the orchestra), and under this new arrangement, we hit all the right notes! The position of our circles in Kunde's diagram – how we saw ourselves and how our customers saw us – now intersected.
Over the year, the new concept helped us to bring in a lot of new customers. But the most important thing is that they have become repeat customers, returning again and again, not because they had no other alternative, but because they trusted Izbyonka with its unified concept. And it was through these customers that news about Izbyonka spread like wildfire.
RULE 5
When a company is at the height of success, it is the best time to think about its future – to ensure that there is one.
From 2011 to 2012, new Izbyonka locations in Moscow and the Moscow region sprang up like mushrooms. We opened over 300 successful retail locations and closed almost the same number of unsuccessful outlets. Sometimes, we vacated a rented location after just three or four days of work, forfeiting our deposit, to the astonishment of our proprietor.
Perhaps this seemed odd to outsiders, but Izbyonka's business model was to not hold on to an unprofitable store. Each active retail outlet had to be profitable to enable the opening of the next one. We knew this was the only way for rapid growth without the burden of debt.
Average sales in Izbyonka outlets were now in the target range of about 35,000–40,000 rubles (about $500) per day, with the record holders bringing in up to 100,000 rubles (about $1,350) per day. Obviously, a great deal depended on the rent, but even the first days of a new store could determine its fate; if sales reached only 4,000–5,000 rubles per day ($53–72), we would move out during the first week, wasting no more time and money on an unpromising location. If there were sales of 20,000–25,000 rubles per day ($260–335), we could jump-start the store, if the retail staff saw potential there.
Despite the apparent initial losses, this approach gave us the qualities we needed most: speed, experience, and the ability to experiment. With time, we tested Izbyonka in all the districts of Moscow and the Moscow region, and this was a tremendous boon to our development group in the initial rollout of the VkusVill stores. By that point, we seldom erred when choosing a location.
After opening 300 Izbyonka outlets, we identified a flaw in our chosen format: Izbyonka was a "suckerfish" that could not exist independently. By itself, it could not generate customer traffic and was too dependent on its neighbors. The ideal situation for Izbyonka was alongside butchers, fishmongers, sausage sellers, and bakers – a quartet that complemented Izbyonka and its dairy products, and an efficient and friendly alliance.
It became abundantly clear that Izbyonka was a dead-end project; the number of outlets would always limit its development. At this point, there were no more sites left in Moscow without an Izbyonka outlet.
Customers were also demanding a wider range of goods from us: "We believe in you, but we eat more than dairy products – add something new!" they begged us.
But even in our hypothetical efforts to modernize Izbyonka, we could not make any progress. Major obstacles were the contrasting temperatures necessary for assorted products and the threat to the quality of our products created by storing other products nearby. We also found it impossible to organize the outlets of 15–20 square meters in a different configuration.
The terms of our rental agreement in many of our locations forbade us to sell non-dairy products as part of a non-competitive clause with other tenants. And it would take a Herculean effort to reorient our customers, who depended on Izbyonka for dairy products. We could see no way to introduce sweeping changes to the range of products we sold, given our outlets' existing setup.
The idea of creating a network of health food supermarkets seemed crazy, but everything was moving us inevitably in that direction. If not us, then who? By that time, we had already embedded with the pioneering spirit; we were not going to trudge along the same path. We wanted to soar.
EACH ACTIVE RETAIL OUTLET HAD TO BE PROFITABLE TO ENABLE THE OPENING OF THE NEXT ONE. WE KNEW THIS WAS THE ONLY WAY FOR RAPID GROWTH WITHOUT THE BURDEN OF DEBT.
In September 2011, several people went to London to study British retail. Alena Nesiforova recalls, "We could not afford a dedicated retail tour to study other companies. Instead, we visited Tesco, Waitrose, and Asda stores like regular shoppers. We came at six in the morning to watch how employees unloaded goods, how they worked the cash registers, and how they served customers. We noted what we liked, and, in the evenings, we discussed how we could replicate this back home."
At a company party celebrating New Year's Eve and the start of 2012, the usually silent Andrey picked up a microphone and congratulated everyone on yet another successful year. He announced the origin of a new project that had been whispered about within the company for a long time.
"Izbyonka clearly showed that people need high-quality groceries. And we are not crazy, like everyone said at the beginning. We do many things the way we like them, and that may seem odd to others. But Izbyonka is just the beginning of the path. We have even bigger mountains to climb in our future. Let us move forward!"
His colleagues broke out in applause. It might sound grandiose, but at that moment we faced the new year convinced that we were going to change the entire world, and that the success of the company depended on every one of us. It was an incredible sense of euphoria – this is a state in which many say people can achieve the impossible.
RULE 6
We have been called "the king of naming," but we maintain that the name of a company is not the most important thing.
People often ask us the same question: "Why did you bother creating a new brand for supermarkets and investing in its development? After all, Izbyonka was already a household name that enjoyed the trust of its customers." This is a logical and fair question.
As we were thinking about the look and feel of our initial supermarkets, we needed to get rid of the annoying vestige of peasantry and farming, which had dogged Izbyonka throughout its existence. With the new brand, we wanted to emphasize the modern aspects of this project; its progressive character and tech savviness. In other words, we wanted our customers to understand that we were not some outdated nineteenth-century outfit, but we were a young and brave bunch, dedicated to proficiency in the best practices from around the world.
Izbyonka had completely different associations, all of which were nauseating by this point. To the average customer, the name evoked a cozy grandmother from the countryside, who lovingly milked her cow in the evenings, then climbed into a worn-out car in the early dawn and drove the milk to Moscow. When we leveled with our customers that this idealized grandmother existed only in their imagination, they always shouted, "How could Izbyonka mean anything else? More than anything, Izbyonka means grandmothers, and cows, and villages…"
AFTER "IZBYONKA," WE WERE AFRAID OF NOTHING; IN COMPARISON, EVERYTHING WOULD BE AN IMPROVEMENT.
This is the reason we decided on a new name, and that is how VkusVill began.
Of course, we could have produced a clever little backstory to explain the origin of the VkusVill name; a legend with hidden meanings or a secret message that we wanted to publicize by our name. But VkusVill's name appeared out of desperation.
We spent much time discussing the concept of our new stores. We understood how they would look, what they would sell, and who would work there. But we could not figure out what to call them.
Our trip to London had impressed us with the unique characteristics of British retail, and upon our return, we were brimming with enthusiasm to begin. We could no longer carry on without a name.
Andrey Krivenko joked, "After 'Izbyonka,' we were afraid of nothing. In comparison, everything would be an improvement." But we were stymied and could not come up with a name.
We had to register our brand name in all the product categories, so we needed to produce an imaginative name without possible crossings. We offered many options, but the patent office rejected 99.9 percent of them as they compromised other brands already registered in Russia.
We called in the marketing agency, Brandtime (greetings, Vladlen!). We tasked them with finding us a name with lightning speed and registering it. It took about a month.
There was a great deal of back and forth negotiations, but we finally settled on "VkusVille," with a soft "L" at the end, which contains the Russian word for "taste" and the notion of "village"; and the general connotation is "tasty village" or "a village with taste." But we could not register the name, as there was already a "Vkusavelle" registered elsewhere.
An excerpt from an email sent by Alena Nesiforova (13 January 2012): "By the way, 'VkusVille' got rejected; there is some 'Vkusavelle' out there… We are rushing to produce a new name now."
Only then did VkusVill appear.
Mind you, the stress should be on the first syllable – "Vkus" in the word VkusVill – but even our employees ignore this rule, so we have made peace with both versions.
The name took off: it is easy to remember and evokes all kinds of associations. Occasionally, we get a note from some wit wondering whether we were high when we called our companies Izbyonka and VkusVill.
We just smile, confident in our belief that the most important thing is what a company does, not what it is called.
RULE 7
Understanding how experienced you have become is simple: if you analyze what you did a year ago and realize that now you would do something a bit differently, it means you have grown.
On 15 June 2012, we launched the first two VkusVill in a soft opening: customers could make purchases but we did not publicize our store launch. That enabled us to shut down the stores if something went wrong. By 17 June 2012, each of the four original stores was officially open. We still remember the addresses of the first four stores by heart:
● Lyusinovskaya str. 36/50 (near "Dobryninskaya" metro station)
● Trofimova str. 35/20 (near "Kozhukhovskaya" metro station)
● Bolshaya Spasskaya str. 8, building 1a (near "Sukharevskaya," "Prospekt Mira," and "Komsomolskaya" metro stations)
● Dubki str. 2a (near "Timiryazevskaya" metro station)
We chose these locations based on the established presence of a successful Izbyonka in the district and their relative proximity to the city center. We thought the first VkusVills should open inside the Third Ring Road so that customers could stop for groceries on their way home from work. Later, we understood it was useless to break into the city center: VkusVill was a store for suburban communities, although our primary customer travels home from work by public transportation, not by car.
As always, we had opened in a rush. The cash registers froze up, refrigerators switched off, and delivery trucks were late. Every disaster that you can imagine happened, but still the first four VkusVills opened their doors to customers.
Today, we cannot help but shed a tear when we look back at the shelves and storefronts from that time. Only the milk section offered anything like a choice. The widest selection! But in all the other categories, there was a distinct scarcity. Our new technicians could not source enough quality suppliers who could provide products with the proper ingredients. The inventory in the four stores was laughable, and many of our suppliers were not ready to amend their ingredients and recipes for such minuscule orders. But we cobbled together some range of commodities on the fly.
Our stores' range of commodities included just over 200 items (today the total is around 2,000). We had to resort to "spreading" the same goods along shelves to conceal how empty they were, a well-worn tactic from the 1970s in the Soviet Union during acute food shortages. Our first customers commented, "Back in USSR!" It stung, but we agreed that an entire shelf of just apple juice and five-liter water jugs could not invite any other connotation.
To develop VkusVill, we recruited the two top sales assistants from Izbyonka.
"Neither of us understood how to work in a self-service store. We were used to our little stands with the small inventory we knew by heart. Here, there was a real supermarket, with lots of new products," recalls salesclerk Elena Pozhidaeva.
"There was a lot of bustling around and unnecessary worry, but from the first day of working at VkusVill, I could tell that it was the store for me. I was responsible for its success. We did not sleep at night, we were too tired to talk to our families, but we felt amazingly fulfilled with the work that was going on – it was a memorable time of my life."
Local retail manager Tatyana Berestovaya adds: "The company's primary source of income was Izbyonka, and we could not abandon it. We had to combine opening the new stores with our regular work at Izbyonka. During the launch of VkusVill, I slept two to three hours a night. I would come home late, lie down, and not remember if I had changed my clothes or not."
The salesclerks of VkusVill stuffed their first customers to the gills, as if it were a cruise ship buffet. We knew from our experience with Izbyonka that sample tastings were the best way to sell unfamiliar products to customers, so we relied heavily on well-stocked sample tables throughout the stores. Salesclerks kept up a brisk pace, steaming, frying, boiling, and cutting something or other, and the customers ate and ate and ate.
We launched our loyalty program, "Давайте дружить!"5 (Davayte druzhit!) with the rollout of the first VkusVill stores. We gave all Izbyonka customers free bonus cards. Over time, the loyalty program changed many times and became a valuable tool both for us and our customers. But at the beginning, the principal purpose of the program was to entice Izbyonka customers to the new VkusVill stores. At Izbyonka, they could earn points on their cards to spend at VkusVill. In our naivete, we thought this strategy would see people go all the way across Moscow to one of only four VkusVills to spend their 150 bonus points on berry juice or bread.
WE MOVED ON, MADE MISTAKES, AND TOOK A HIT, BUT WE BUILT THIS PROJECT. AND WE DID IT ALL WITH INCREDIBLE ENTHUSIASM AND ENERGY.
Alena Nesiforova, our irreplaceable unified concept manager, puts it well: "During the launch of VkusVill, everyone involved gave their all. If we had planned everything ahead of time and thought through our actions several steps ahead, I am not sure whether everything would have worked out. Each day, every single employee at the company brought their ideas, thoughts, and words into work. Each new plan was born out of an argument, but that is exactly what gave us the company we have today. The VkusVill project was created half a year before the stores opened. For a new retail format, this is record time. But the real work began after the first stores opened, when we were putting out fires left and right: the wrong selection, the wrong buildings, the wrong design, the wrong loyalty program. We changed the first four stores past the point of recognition. What we had then and what we have today are two completely different projects. We moved on, made mistakes, and took a hit, but we built this project. And we did it all with incredible enthusiasm and energy."
RULE 8
An internal crisis taught us the invaluable lesson to base our work on common sense and not numbers. For this reason, we no longer use KPI or any other quantitative assessments to measure our employees' efficiency. And we never will.
We recall the summer of 2013 without relish. We nearly cancelled the VkusVill project because it almost shut down the entire company. The supermarkets were deeply unprofitable.
In comparison with the crisis of Izbyonka in 2009 – when the company was hemorrhaging money – VkusVill was not so catastrophic: Izbyonka was still doing very well, generating enough income to cover our new baby's mistakes with room to spare. We chugged along for an entire year under this model – if the money we spent on VkusVill did not exceed the income from Izbyonka and we did not see any red flags, we continued to hope everything would work out.
By summer of 2013, we had many newcomers in our ranks: buyers, retail managers, salesclerks, and analysts. Each new person came with his or her baggage and tried to execute the job as he or she knew best. Faced with the challenges of our everyday hustle and a lackluster financial situation, our focus on the customer and our unified concept eroded, and we repeated the same mistakes from two years ago.
It was hard for our technicians to find suppliers for just four stores and to convince them to change their ingredient lists, and remove substitutes, dyes, aromatics, and other additives from their products. At a certain point, the new technicians began to feel themselves being humiliated and their work was made overly complicated: if everyone else sells deli meat made with sodium nitrate, why on earth should VkusVill want to sell without it?
Our desire to sell products under our brand hampered us. It was challenging for our new technicians to convince suppliers we did not need their brands – with their cows in skirts or similar nonsense. We were after a high-quality product, not questionable regional marketing.
The executive management took their lead from technicians and opened four additional VkusVill stores. They hoped it would become more like a retail chain and would be interesting for suppliers: a chain of just four stores may not seem like a serious player, but one with eight might. And we hoped now we might see some financial success.
But in the end, those four new VkusVills nearly dragged the entire company down. Instead of managing four unprofitable stores, we suddenly had eight – all during the summer period when sales typically fall by 20 percent. Izbyonka had worked full steam ahead and went into overdrive. It could never survive such recklessness.
In this critical situation, the directors of the executive management looked for the root causes in all the wrong places. Our employees have always loved their freedom. Our company has never been characterized by its bureaucracy, employee fines, inter-office memos, and budget meetings. Trust and responsibility have always been and still are the most important values for our people. We worked that way from the founding of Izbyonka, and could not imagine working any other way.
At this point, things took an unpleasant turn as the executive management determined that the root of the problem was the excessive freedom granted to our employees, rather than the fact that there was no customer traffic at any of the eight VkusVills! They decided it was the lack of strict regulations that was stalling VkusVill and creating a situation where one person might do the work of three while the others slacked off. If we toughened the rules, executive management suggested, everything would be fine.
The peak of the crisis came that August. We did not have enough money to pay our suppliers, and rumors of our impending bankruptcy swirled around. Suppliers refused to load their product into our trucks, fearing with good reason that they might see no payment.
But this was not the scariest part. Our loyal and cohesive team crumbled like a sandcastle in a storm. "Why did we get involved with this VkusVill idea, anyway?" people grumbled, "we could have lived perfectly well by just selling milk."
It became pointless to work for VkusVill: employees did not want to spend energy and time on something that was doomed to failure. Focusing on Izbyonka and developing a comprehensible, well-known project seemed like a far more promising task.
You might well ask: why did the founder of the company, Andrey Krivenko, not intervene? Andrey did not make any principal decisions. He completely entrusted the launch and development of VkusVill to the team led by executive management; the team of Izbyonka employees and new hires. But as the ship sank deeper and deeper, truly little trust and understanding remained with those still on board.
Several years later, when VkusVill became our blockbuster project, I sat down with Andrey to talk about that period, when everything looked likely to grind to a complete halt. Here is a fragment of that conversation:
"Andrey, can you give us your version? How did it come about that we nearly went out of business in 2013?
"The problem was not so much VkusVill itself, but something larger. It was part of our experiment in self-governance. Early on, I decided that the company should not depend on my decisions. One of my mistakes was introducing a balanced indicator system (BIS), which created an ideal picture. Each top manager on the management board had their indicators, like a double-edged sword. A typical example is our account manager, Maksim Fedorov, who is the only one who still works with this system. He has two indicators: write-offs and shortfalls, and he has to find a balance between these.
"Our mistake was to expand this system to all of our employees, and only with time did we understand that a BIS only applies to mathematical models. For Maksim, it is all about math.
"We set up a BIS for the entire company. Valera Razgulyayev (information manager) told us he faced the challenge of tracking the fulfillment of BIS for all employees; when an employee had low indicators, it was time to pull them up. That was, of course, total nonsense. It was all pulled out of thin air. We got carried away.
"That summer, I purposefully did not get involved in the company micromanagement. VkusVill was spending incredible amounts of money and we suffered considerable losses. Despite this, we opened four more stores – and as a result, in August 2013, we stopped paying our suppliers on time."
"You astonish me! You talk about it as though we are talking about a minor risk of just 10,000 rubles ($134) rather than the fate of an entire company. As if we had lost it, it would be no big deal."
"No, those problems were solvable. But the interesting thing was that amid all these back payments and losses, everyone's BIS was ideal! Our suppliers were refusing to load our trucks, but employees got their paychecks ahead of time, although everyone knew perfectly well what was going on. It was an excellent lesson for us: this system failed because we needed to base our work on common sense, not on indicators."
"Tatyana Berestovaya remembers that when you returned to Moscow and understood how dire the situation was, you went white as a sheet for several months. You called all the retail managers together at eight o'clock in the morning and went through every problem together with them."
"That was not a waste of time. Thanks to this crisis, we found a sustainable model for VkusVill. Of course, it was not without its losses. We downsized sales staff, and Aleksey Farafonov (COO) left us into logistics. But it left a bad taste in my mouth: if the BIS model would not work for us, we had to find something that would.
"It was when we remembered Gary Hamel's article, 'First, Let's Fire All the Managers'.6 I kept going on about the idea of building a company without managers. Afterward, there was Laloux with Reinventing Organizations, Taleb's Antifragile, and so on.
"The self-governance system works well for us. I have been an outsider to the company for some time now. I do not even take an active role on the management board anymore; all the urgent questions ultimately get to me, and we implement new projects on the ground level."
Back in 2013, Andrey had to micromanage the company and submerge himself in key divisions work. The first self-governance experience for the organization was a fiasco, but this just got Andrey more excited.
After returning to "power," Andrey put the question bluntly: "What are we going to do? Close VkusVill and forget about it, or put it on life support and try to bring it back?"
At that moment, after all of our arguments and disputes with each other, we realized it would be a colossal waste of energy to stop then. It could not be possible that we had spent an entire year sweating, losing sleep, and forgetting to eat, only to lose everything so meaninglessly.
We relaunched the VkusVill project.
"Big money destroys all good beginnings. We just took the money away from VkusVill. And it somehow survived," Andrey Krivenko said five years later at a talk for readers of Republic, an online portal. Everyone laughed.
Ücretsiz ön izlemeyi tamamladınız.
