Diving Into the Red Ocean. How to Break the Rules of Retail and Come Out on Top

Diving Into the Red Ocean. How to Break the Rules of Retail and Come Out on Top
Evgeny Shchepin

The VkusVill grocery chain is one of the best-known and most popular stores in Russia. The company broke into the healthy food market and revolutionized Russian retail by fusing the best international practices. At its outset, VkusVill was inspired by retail chains such as Tesco, Mercadona, Walmart, Trader Joe’s, and Ali, and it formed its corporate culture by studying companies such as Zappos, Google, Airbnb, Netfl ix, Starbucks, IKEA, Toyota, and many others. This book by Evgeny Shchepin, one of VkusVill’s key employees, is a candid account of the company’s successes and failures, plans and expectations, and relationships with its employees and customers– the people who made VkusVill the success it is today.

Evgeny Shchepin

Diving Into the Red Ocean: How to Break the Rules of Retail and Come Out on Top

Alpina

4

Magistralnaya 5, bld. 1

Office 159-169

123007, Moscow, Russia

International@alpina.ru (mailto:International@alpina.ru)

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

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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."