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Armenia: The Challenges of Growth
Armenia: The Challenges of Growth

BINGEING: GROCERY STORE INDUSTRY GROWTH ACCOMMODATES CHANGES IN BUYING HABITS


by Julia Hakobyan

Remember those early 1990s-era photos of empty shop shelves and depressed faces waiting in bread lines?

That was then.

Ever thought you'd be able to buy toothpaste for your dog in a food store in Armenia?

This is now.

Among the many signs indicating that Armenia has turned the dark corner on economic transition are, literally, the bright, colorful signs drawing customers into the dozens of modern grocery stores that are so noticeable they have become landmarks.

If a taxi driver doesn't know, for example, where Parpetsi Street is, he is sure to find it if his passenger tells him it's "near big SAS."

SAS, among the first (1997) to bring sophistication to grocery shopping in Armenia (Yeritsian and Sons were first, in 1996), is no longer the generic name for Westernized food buying. The pioneering company now competes with at least three grocery chains and several dozen independents fighting for space and consumer attention in the center of Yerevan.

In September, Star opened its sixth supermarket just a block from "big SAS" (so-called because for a while it was the largest of the chain's three in Yerevan), at the corner of Mashtots and Tumanian. Further down Mashtots, the battle for grocery-shopper drams is even more vividly demonstrated. There, within a square block, the original SAS is now neighbored by Star, AG Market, Best, ArBad and VAS. One block, six supermarkets, and four less than a year old. According to one retail supplier, there are about 40 supermarkets in Yerevan (and one "hypermarket"). About 35 of them have opened within the past 3-5 years.

All but the very young remember a time when food shops in Armenia did not have aisles and shopping carts and computerized checkouts. Rather, there were counters in front of shelves where government-appointed clerks handed out items in a kind of point-and-serve system. And all goods bore no distinction. Brands were a distant concept and bulk prevailed.

Such shops have not completely disappeared, especially in small towns and villages, but in the capital the change in grocery shopping is as noticeable as any progress Armenia claims. And the items carried in the stores, too, are indicative of changed times.

Bananas used to be considered almost an exotic fruit because they were so rarely available in Armenia. Now, shoppers who can afford the prices can get not only a variety of bananas (and occasionally even plantains), but mango ($5.40 each), avocado ($3.55) and guava ($5.80) imported from South America. The dog toothpaste, by the way, costs about $10 and comes in bacon flavor, sold at the same SAS that offers smoked crocodile for about $200.

Surely, the majority of Armenian housewives still rely on staples that haven't changed with geopolitics. But whereas before their orders were served from 50-kilo un-labeled sacks, and rice had two varieties—round or long—they now (as of the past five years) have a choice that includes jasmine, basmati, brown rice, etc., individually packaged. And pasta is no longer defined as vermicelli or macaroni, but comes as spaghetti in different thicknesses, as well as rigatoni, penne, bowtie, lasagna . . . In other words, grocery shopping as the rest of the developed world knows it.

PUTTING HIS MOUTH WHERE HIS MONEY IS

Their progressive commercial concepts aside, owners of supermarkets—like businessmen in general in Armenia—are typically reluctant to speak about their business. Interest is viewed as a threat, and journalists as spies. (A reporter jotting notes on prices in SAS was shadowed by an imposing security guard, and getting permission to photograph is something like asking for keys to the safe.)

Albert Yeritsian is an exception.

The founder/owner of Yeritsian and Sons introduced his contemporary brand of business on Papazian Street 11 years ago, when twin-ply toilet paper was yet a luxury item. His family has opened two other supermarkets since, and also brought the concept of "dollar stores" to Armenia—though the two Yeritsian variants "My Dollar Store" sell items for 800 drams (about $2.40) or less.

"Business is an art. Many think they can do it but only few have the talent to do it properly," says 57-year-old Yeritsian, on the list of the top 300 taxpayers in Armenia, and whose company has 700 employees.

Yeritsian's experience with the Papazian location dates to 1972, when he was appointed manager of the shop—then simply called Store No. 51.

Twenty-four years and a lifetime of social upheaval later, he put his name on the business, aided by a $3 million bank loan. The original 1,200-square-meter market stocked some 2,000 varieties of goods and was remarkable for having smiling clerks, in a society where shoppers were typically treated with suspicion.

"Of course it was risky opening such a big (for those times) supermarket in the infant market of independent Armenia," Yeritsian says. "But, on the other hand, it was a step thought out in detail. At least it was understood that Armenian citizens deserved and needed a new quality of service."

The Yeritsian business (his son Artak is executive director) is modeled on supermarkets he visited in the West. Upon returning to Armenia, he opened stores where sanitation and service are, he says, "top priority."

Others have copied the pattern, first demonstrated when previously dank, often dark, crowded shops hardly branded except by the word (usually in Russian) "Products," expanded and put up plate glass where block walls had previously hidden their goods from public view. Many are open 24 hours. Grocery carts are part of the new phenomenon, with some shaped like cars for hauling children during the shopping experience.

The Star chain offers frequent-shopper discount cards, as well as a credit card co-branded with HSBC Bank, allowing up to $900 debt. It presently has about 5,000 cardholders and hopes to double the number by the end of this year.

The common impression is that the new markets have inflated prices. In the cases of seasonal perishables, it is an accurate evaluation. At a street-side market this September, for example, plums sold for about 75 cents less per kilo than just down the street at the new Star. Other prices, though, are in fact sometimes higher at the "mom-and-pop" markets than in the big stores.

In any case, one need only visit nearly any location at any hour to see that Yerevan shoppers welcome the convenience of having everything in one place—even if convenience might cost more.

It is a pattern that Yeritsian tested, and is now eager to exploit. The company is now developing a business plan to open a five-hectare [1 hectare = 2.47 acres] mega-market that would be a shopping/entertainment center.

"It is time for Armenia to have such a market, where a family can spend a few hours and buy anything they need, instead of traveling many kilometers throughout the city from one store to another," says Yeritsian, adding that his company—which also owns a sausage plant, and is building a $5 million bakery (with 60 percent Czech investment)—expects to spend about $50 million on the complex.

Yeritsian is shockingly straightforward about his finances, in a city where hardly anyone speaks about such matters.

He emphatically says that he does not pay bribes for "protection" either from tax authorities or from potential competitors.

"The truth is that, if you pay taxes, you have nothing to worry about," says Yeritsian. He also says the sort of monopolization common in other industries in Armenia has not encroached on the grocery business.

And unlike many other businessmen, Yeritsian is ready to provide tax figures.

Yeritsian and Sons supermarket chain pays about $8,500 a month in pension taxes and, last year, his Atenk sausage company paid $102,800 in taxes. (In just the first six months of this year, Atenk paid that same amount, due to dramatically increased production.)

RISING STAR

Star Divide, parent company of the Star grocery chain, opened "SuperStar," the biggest retail outlet in Armenia, in August.

The 2,100-square-meter "hypermarket" claims more than 20,000 items, from household goods to perfume and toys, with food products as its calling card.

A 900-square-meter second floor has a fast-food court and arcade games for children.

Located in the Nor Nork district of Yerevan, SuperStar is part of an ambitious plan by Star Divide to dominate the grocery industry in Armenia. The company's chances of success are embraced by the European Bank for Reconstruction and Development (EBRD), which bought 28.3 percent of Star Divide shares for $4 million.

Vahan Kerobian, Chief Executive Officer, says the company has comprehensively studied the retail trade sector in Armenia to conclude that the potential of the supermarket industry in Armenia remains largely untapped.

"Armenia has all preconditions for making a successful retail business," Kerobian says. "The market imports enough high-quality goods and the variety and quality of locally manufactured products has improved and increased with each year. What is more important, people's purchasing capacity has been increasing as well."

Kerobian says his research shows that the supermarket industry represents only about five percent of total retail trade in Armenia. (Sales of wheat products lead retailing, followed by vegetables, then fruit.) "Our company is planning to have at least a 50 percent share."

Within five years, the company plans to increase the chain of its markets from its present six, to 45, in three categories. "Metro" markets of 200-400 square meters will operate in city centers. Supermarkets of 600-1,200 square meters will be in residential areas, and more hypermarkets will be built on city outskirts.

The company plans expansion into the regions once it has saturated Yerevan, where 70 percent of grocery retail is transacted.

Star Divide expects to invest about $16 million over the next two years to start the expansion.

Part of its initial strategy is to set up a product distribution center. Currently, like other retail chains in Armenia, Star depends on independent wholesalers for stock.

"The creation of the center will be of vital importance for us as it should provide an uninterrupted supply of goods to the chain of our markets," Kerobian says. "Because of transport and geopolitical problems (blockade), the delivery of goods into Armenia is very unstable. For a supermarket chain, it could be disastrous, since two-thirds of the goods in Armenia are imported.

"The logistical center would allow the markets to function efficiently, while having some goods in reserve."

Through the support of EBRD, Star Divide has received consultation from Tesco, a giant retailer in Great Britain, on how to set up a distribution network in Armenia. Tesco has a product turnover rate of nine days, whereas in Armenia the average is 36.

Kerobian says the goal of the company is not just to have so many stores, but to further build and refine the concept of mass grocery retailing in Armenia.

Originally published in the November 2007 ​issue of AGBU Magazine. Archived content may appear distorted on your screen. end character

About the AGBU Magazine

AGBU Magazine is one of the most widely circulated English language Armenian magazines in the world, available in print and digital format. Each issue delivers insights and perspective on subjects and themes relating to the Armenian world, accompanied by original photography, exclusive high-profile interviews, fun facts and more.