Supply Chain Enhancement in Grocery Retail under Embargo on Agricultural and Food Produce: the Case of Kesko Food Rus Ltd.

Abstract

Research goal: To explore adjustment to supply chain of foreign grocery retailer operating in Russia under import substitution in agricultural and food sector.

Research tasks: 1. To analyze modern features in supply chain operations: • Supply chain management notion and contemporary issues supply chains face with • Transformation supply chains show in general nowadays • Ability to quickly respond to changes and deal with volatility: supplier relationships management to secure supply chain flexibility and responsiveness 2. To review: • Food supply chain notion and its main properties • Particular features of fresh food supply in retailers’ operations 3. To research: • Contemporary approaches to supply chain enhancement in fresh food retailing: sustainable and short food supply chains 4. To analyze: • State regulation of the market: last years patterns and anti-crisis adjustments • Path dependence essence of the problem in agricultural sector: historical review and food embargo as its outcome • Outcomes of the state policy for grocery retail sector 5. To investigate: • Development of the Russian market for grocery retail before 2014 and in current situation • The way retail chains are distributed in St. Petersburg market, as well as market leaders • Consumer preferences and expectations in target market • Strategies of business development and supply chain improvement used by leading St. Petersburg hypermarket chains 6. To research: • Kesko’s strategy and vision of its future development • The most important challenges the company’s food supply chain has to deal with in the current economic conditions • Kesko representative’s expert vision of its supply chain management respond to sanctions situation 7. To examine: • Short food supply chain introduction as a means to offer substitutes of banned fresh food supply, and the potential for its application assumed by the company management • Limitations of the study and possibilities for further research

Main results: 1. To construct responsive, resilient and flexible supply chain able to compete in changing environment, integration and supplier relationships improvement are crucial 2. Operational excellence in fresh food supply is a criteria to decide on overall retailer’s supply chain capabilities 3. Cooperative relationships within fresh food supply chain and closer interactions with primary producers are beneficial in terms of both company’s operational improvement and sustainable development 4. Sustainable and short food supply chains are widely spread at Western markets and proved to be successful, though they are hardly exploited in Russia 5. Grocery retail market in Russia is getting more regulated because of its deeply ingrained problems, which leads to additional challenges for foreign retailers 6. Russian state authorities are trying to promote rural development and encourage retailers to use the potential of farmer households 7. Retailers in Russia should cope with import substitution and at the same time keep prices at reasonable level struggling with economic crisis 8. St. Petersburg market is the most saturated, though regional development of contemporary retail formats is not equal, and there are growth opportunities existing in rest of Russia 9. Despite the crisis, Russian grocery retail market is one of the European leaders, and the most promising retail formats are hypermarkets and discounters 10. Russian consumers shift to “cheaper farm products” which are reminiscence to traditional markets and show overall behavioral trend for organic and local consumption 11. Most retail chains expand and grow through M&A’s, geographical expansion and development of different retail channels 12. “Being Finnish” is an important part of Kesko Food’s brand based on freshness and quality of Finnish products, and this strength cannot be used at the moment 13. Kesko Food faced troubles restructuring its supply chain under embargo, and for some fresh food categories proximately based suppliers have not been found 14. In Petersburg there exist a combination of conditions to introduce short supply chains of fresh food, i.e. absence of regional tax on store size, local support of farmers, their presence in Leningrad region, lower than country average purchasing prices 15. Short food supply chains for fresh food segment has been approved by the company’s management as the solution to existing problem, as it contributes to quality and freshness features of product range, short lead time, and meets customer expectations in “farm to plate” form, promoting sustainable development in regional agriculture 16. Existing farm households are situated closely to the chain’s stores and can be approached conveniently minimizing logistics costs.