Interview with DIXY CEO Ilya Yakubson.
In the rugged economic landscape of today’s Russia it’s not easy for any company to even survive, least of all to do booming business.
Yet DIXY, one of Russia’s oldest and biggest food retailers, is doing quite well, having grown by 26% last year. Set up in 1992, DIXY now runs more than 2,600 shops and supermarkets in over 740 cities and towns nationwide, and has more than 50,000 employees.
DIXY, which is listed on Moscow Exchange, has achieved much of its success after Ilya Yakubson took over as its chief executive in 2009.
Yakubson, 43, who holds degrees in history, sociology and business administration, began his business career 22 years ago by co-founding a trading company in his native city of Oryol in central Russia.
Between 2006 and 2008, Yakubson was vice-president of Russian logistics company Megapolis, where he developed a strategy for the firm to enter the retail sector. Megapolis is part of Mercury Group, a Russian company which acquired a controlling stake in DIXY in 2008.
In this interview, Yakubson tells EmergingMarkets chief editor Andrei Skvarsky that DIXY was able to quickly redesign its supply chain after Moscow banned Western food imports in retaliation against the Western anti-Russian sanctions, that affordability has become the keystone of Russian retailers’ strategy, and that DIXY can still see a lot of room for growth in the current rocky environment.
Q.: How does DIXY obtain its financing? Does it borrow from any banks?
Q.: What are these banks?
A.: Right now the main banks are Sberbank, VTB and Gazprombank. Prior to the crisis, we attracted syndicated loans from some of the biggest international and Russian banks. Now it’s more suitable to work with large Russian banks on a one-to-one basis.
Q.: Has borrowing become more difficult because of the sanctions?
A.: I would not say that for a company of our size it has become more difficult. Access to credit is still more challenging for small and medium-sized enterprises. For a large company as DIXY it is still fine.
Q.: Your website mentions some debts. Are they a problem?
A.: DIXY Group’s debts are not a problem at all. It’s part of a business to finance operations through debt sources and/or through internal financing options.
Q.: Do you still owe anything to any foreign bank?
A.: No, DIXY has currently no credit facilities in foreign banks.
Q.: Are direct imports, which are part of DIXY’s business, more difficult because of the Russian ban on some food imports from the West in response to the Western sanctions?
A.: The sanctions, which were imposed in August 2014, turned out to be a kind of nuisance. It was quite difficult to re-engineer our whole supply chain in such a short period of time. We had been building this supply chain for 15 to 20 years, and then we had to restructure it very promptly.
So yes, it was a challenge, but we managed to address it successfully.
Generally, it took us from three to four months to replace sanctioned European products. The shelves of Russian stores are full now.
Q.: Did you do so through deals with Russian firms?
A.: No, no, not only with Russian firms. Previously, we purchased most of our fruit and vegetables in Europe, and at the present moment our stores are supplied by food producers from Turkey, Egypt, South America and South Africa.
Internally, import substitution has also increased in the recent 12 to 14 months.
Q.: Is it true that DIXY has been growing by between 25% and 35% a year?
A.: Yes, DIXY’s revenue growth amounted to about 26% last year.
Q.: Can you sustain this pace of growth?
A.: On the one hand, there has been a decline in consumption, but on the other hand, the Russian market is still quite unconsolidated, and from this perspective we see a lot of room for growth and development of our business.
Q.: How do you deal with inflation?
A.: Inflation is rather high; it was particularly high in the first six, seven or eight months of this year, when food inflation amounted to more than 20%.
Consumption has gone down, and this is not very good news for us.
There is also tougher competition among the largest Russian retailers for the best price. Price is the key parameter for Russian retailers at the moment. Earlier, it was location, location, location, now it’s price, price, price. The priority order has become the following: price, promo price, and only then comes location.
The current situation is very interesting – consumption has been declining for the past 12 months and, at the same time, we have seen a record year in terms of the number of new stores opened by top Russian retailers. These players have been very quick and active in accelerating their expansion and opening new stores. They’re opening stores like crazy.
Competition is rising. No wonder, as we are in the middle of a global crisis. Disposable incomes are decreasing, making competition fiercer. Nowadays, we compete with more stores, and for customers with less money.
This is very interesting indeed. I think it is something that takes place in the history of modern Russia for the first time.
Q.: Are you successful in competing?
A.: We are one of the biggest Russian companies. We are the number-four retailer in terms of sales and the number-three one in terms of the number of stores in Russia. Yes, from this perspective we are successful.
Q.: Was your initial public offering of shares in 2007 successful?
A.: I joined the company after the IPO took place, but, as you could have seen, it was a really great achievement for DIXY.
Q.: Do you have any plans for a secondary public offering?
A.: Not at the moment. We can finance further growth with our operating cash flow and with some borrowings. We realise that any equity offering is one of the most expensive sources of financing.