MONEY-GROWING: A Store for Gourmets


Narrow Circle

“The boutique format has always been a rare phenomenon. That sector of the market is small,” market analysts of all hues agree. Yet, most are undecided about the precise number of grocery boutiques operating in Moscow. All of them name Fauchon, the first-ever grocery boutique in Russia that opened at 7 1st Tverskaya Yamskaya Street in October 2004.

The boutique is run by the Cyprus-based company Betanol under a franchise agreement with Fauchon. Betanol’s Russian subsidiary, Betanol Rus, is headed by Lev Khasis, board chairman of the retail operator Perekryostok, while the Fauchon chain is run by STK, or Stolichnaya Torgovaya Kompania (Capital City Retail Company), established by Betanol Rus in 2004. The popular restaurateur Arkady Novikov is on the board of STK along with Khasis.

Ironically, Novikov also holds the franchise of a rival grocery boutique, Hediard, secured by the restaurateur in early 2004. The company in charge of developing the brand in Russia is Lankor. However, not a single Hediard outlet has yet been launched in Moscow.

Mikhail Gets, head of commercial real estate at the Blackwood real estate consulting company, mentions the Vatel boutique on Komsomolsky Prospekt, co-owned by the Frenchman Xavier Pignet and Russian businessman Mansur Sadekov, who owns a chain of filling stations in the Nizhny Novgorod region. To open the boutique the partners established the company Lillozanfan.

The co-owners of the Ivan Taranov Brewery are building a chain of tea and coffee boutiques, Colliers International reports. This is just about all there is on the list of luxury grocery stores operating in Moscow.

A Matter of Taste

A grocery boutique is a store for gourmets offering merchandise of exquisite class and quality. Anna Shiryayeva, director general of the real estate consulting company Magazin Magazinov, believes that Russians are misusing the term.

“The name ‘boutique’ can only be applied to a store of the highest class,” she notes. “The range of goods offered at a classic boutique includes handmade chocolate, expensive cheeses, wines, rare brands of coffee and tea, dried fruit, etc.”

Boutique goods are remarkable not only for their taste but also for the exclusive brand names, well known to luxury consumers. For example, all the Fauchon products are sold under the brand of the same name. In some cases, the products are made according to special recipes or imported from around the world.

“The prospective target audience of the boutiques is below 5% of all Muscovites,” says Gets. Shiryayeva says that only “a monstrously tiny” fraction of Moscow’s consumers would shop for groceries in boutiques because a visit to such an outlet is a matter of one’s mood and taste. She believes that these boutiques attract little more than 10 to 15 customers a day.

“You don’t go to a boutique for groceries every day. Visiting a boutique is not a necessity but a chance to emphasize one’s social status,” Mikhail Gets agrees.

Vladimir Kudryavtsev, a leading analyst with Paul's Yard, is convinced that boutique owners should not aim at just well-off visitors. “Most consumers can actually be found among those whose incomes are not that high. They are ready to pay for the attributes of the lifestyle they would like to have,” he says. Kudryavtsev believes that most medium income earners dine in expensive restaurants, buy elite French wine and smoke expensive cigars at least once or twice during the year.

People come to the boutiques to buy a dainty as a gift or to treat their folks to an exquisite delicacy. In addition to a choice of high quality products they receive service of just as high a quality. Most boutiques take orders by phone, make home deliveries, pack the goods in fancy wrapping, etc.

An average boutique purchase can be as high as $100 or more, although, Anna Shiryayeva believes that it is not really possible to determine the average amount, as “it varies from one boutique chain to another”. For example, the average purchase at Vatel is expected to be around $50 and higher.

“Rather, a boutique is similar to a souvenir shop or Britain’s Harrods, which can quite justifiably be called a tourist trap,” notes Marty Wilan of Astera. Consumers quickly lose interest in boutiques, she adds. Wilan is convinced that the capital has already reached saturation point in terms of grocery boutiques. “The same products are available at many large stores, though without the fancy packaging.”

A Dozen Is Enough

Market analysts are convinced that a dozen boutiques in Moscow will suffice. The Paris-based Fauchon has only recently evolved into an international chain, from what was originally a colonial goods store, they say.

Mark Afraimovich, managing partner at Torgovy Kvartal, on the contrary, is cautious in his estimates of how many boutiques the Moscow market can absorb. “Time will tell. You cannot check the market with theories alone. I think that opening the first shops is a marketing move,” he says.

Anna Shiryayeva says that grocery boutique owners often open trial outlets seeking to establish a store catering for a limited circle of close associates. Such an approach does not come as a surprise to analysts because the luxury market, on the whole, is considered hard to predict and research.

Vladimir Kudryavtsev insists that boutiques belong on retail corridors with a well-defined concept.

Natalia Oreshina, retail consultant at Cushman & Wakefield / Stiles & Riabokobylko, says that the number of luxury goods boutiques can equal the number of top class residential estates, such as Ostozhenka, Frunzenskaya Embankment, Zamoskvorechye and others.

Grocery boutiques may also emerge along the Boulevard Ring and on Kutuzovsky Prospekt, Kudryavtsev says. But so far there are barely more than ten appropriate locations in Moscow, according to Oreshina. “In Moscow, there are practically no large clusters of elite housing,” she adds.

Countryside Boutiques

Perhaps it was the scarcity of prime residential compounds within the city boundaries that prompted investors to set up grocery boutiques in elite countryside settlements.

The first to enter that market was the company Open Investments involved in constructing the country residential settlement of Pavlovskoye Podvorye at the 14th kilometer of the Novorizhskoye Shosse [motoway]. The project envisages the development of a variety of shopping and leisure facilities within the settlement.

“We have decided to open boutiques within the leisure zone. There will be three of them – selling cheeses, wines and meats,” Vladimir Chyulyukov, director of the Veranda U Dachi restaurant and consultant for the Pavlovskoye Podvorye project.

According to Chyulyukov, the boutiques will not be large, with a space of 50 to 200 square meters. “So far, there are no delicatessen shops in the Rublyovka (Rublyovskoye Shosse) area at all, while people living in the countryside are used to exquisite merchandise,” he explains.

Realtors believe that public amenities in closed communities are too expensive to maintain and do not provide sufficient returns, which is why for the time being investors content themselves with building small stores in the countryside.

However, because Pavlovskoye Podvorye is situated between Zhukovka and the Nakhabino golf club all the residents of the homes along Novorizhskoye Shosse are likely to drive through the public zone of the settlement, general director at Terra-Nedvizhimost, Andrei Makarov, believes.

Market analysts recall an attempt to open an expensive store of ecologically safe products called Gruenwald in the Rublyovka countryside, which never got off the ground, despite huge investments.

Affordable, But Expensive

Goods sold at grocery boutiques are available at premium class supermarkets. In Moscow, there are three outlets of the Stockman chain, nine Azbuka Vkusa (Alphabet of Taste) outlets and several elite Pyat Zvyozd (Five Stars) supermarkets of the Sedmoi Kontinent (Seventh Continent) chain. Those stores also target high income earners, says Mikhail Gets.

Nevertheless, they are different from boutiques, says Anna Shiryayeva, they just position themselves as shops of a higher class. Natalia Oreshina says that such shops can still be regarded as belonging to the luxury goods segment, as the average amount spent on purchases there is $50 and over. The range of goods they sell also differs from that of other stores.

In addition to the traditional selection of goods available at any supermarket, these outlets offer exquisite delicacies. Only 20% of Muscovites can afford to shop at such supermarkets, Oreshina says. But sales at premium class stores are lower: “The margin is higher, while sales are lower.”

Discount hypermarkets, unlike premium class supermarkets, have significantly lower prices but sales are high. Afraimovich notes that an economy-class supermarket with daily sales of less than $20,000 is loss-making, whereas with luxury stores the situation is quite the opposite.

“Extra charges on merchandise offsets low customer numbers,” Afraimovich continues. “Such stores are not meant for large numbers of customers.” But customer flow must be sufficient for the store to have floating assets, in order to maintain the range of goods on the shelves.

Analysts also mention delicacy food stores as another genuinely luxury retail segment. So far, there is only one such outlet in Moscow.

The Globus Gourmet food store opened on the premises of the Gimenei shopping and office center at 22 Bolshaya Yakimanka in late June. The store was launched by STK, the same company that runs Fauchon. Globus Gourmet differs from the boutique in terms of the size of the retail area and the size of the purchases.

The 750-square-meter store is twice as big as a regular boutique. The average purchase amounts to $30 to $40, according to STK. The company’s general director, Andrei Yakovlev, says the premium class supermarket is remarkable for the high quality of products, not high prices.

“The food store will sell every-day delicacies, not some exclusive products bought as gifts, like in Fauchon,” STK says.

The list of goods on Globus Gourmet’s shelves is extensive, with exclusive products from Europe, America, Asia and Africa accounting for up to 30% of the entire range, as well as farm produce and ready-made meals prepared by the store’s chef making up another 25%.

STK plans to open two more food stores by the end of the year and expand the chain to 10 outlets by 2008. Within the next two years the company will invest $10-12 million in the development of the chain. STK has already spent $2.5 million on its first outlet, and expects payback within 3-4 years.

Natalia Oreshina put STK’s decision to switch to a more affordable luxury food chain instead of developing the Fauchon boutiques down to the lack of appropriate properties in the capital. “Finding a large property in a prime location is extremely difficult,” she says. “Probably STK will abandon the idea of further development of Fauchon altogether. After all, in Paris there is only one Fauchon and one Hediard.”

A top manager at Kalinka Stockmann explained STK’s move as follows: “The main thing that matters in the grocery business is a large number of customers, and customers are not willing to buy expensive groceries in boutiques every day.”