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



Alpina

Alpina
4th Magistralnaya 5, bld. 1 Office 159-169 123007, Moscow, Russia International@alpina.ru

Copyright © 2021 by Evgeny Shchepin

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.



Printed in Russian Federation


ISBN 978-5-9614-7188-5

CONTENTS



Foreword .................................................................7

Rule 0, or An Unusual Introduction........................................8
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.
Rule 1...................................................................12
Even amid the fi ercest battles for preeminence in the market, there are always moments of peace. Learn this rule — it will come in handy!
Rule 2 ..................................................................18
Doing and analyzing is more important than analyzing and not doing anything.
Rule 3 ..................................................................26
Hire people who you find interesting and feel comfortable with, especially at the beginning.
Rule 4 ..................................................................34
The earlier you have a conceptual crisis, the better. Izbyonka went through it for a year and a half of its existence, and this period changed the entire company for the better.
Rule 5 ..................................................................42
When a company is at the height of success, it is the best time to think about its future — to ensure that there is one.
Rule 6 ..................................................................48
We have been called “the king of naming,” but we maintain that the name of a company is not the most important thing.
Rule 7...................................................................54
Understanding how experienced you have become is simple: if you analyze what you did a year ago and realize that now you would do something a bit differently, it means you have grown.
Rule 8 ..................................................................62
An internal crisis taught us the invaluable lesson to base our work on common sense and not numbers. For this reason, we no longer use KPI or any other quantitative assessments to measure our employees’ effi ciency. And we never will.

Rule 9 ...................................................................68
A plan for saving the company should be everyone’s responsibility.
The same people who nearly destroyed VkusVill saved it from ruin.
Rule 10...................................................................80
Life never ceases to amaze us with the variety of situations it presents.
Do not try to anticipate these: just play the game and enjoy it.
Rule 11 ..................................................................84
Within VkusVill, we introduced a system of promises, primarily to encourage communication between divisions. We found this could resolve a considerable number of internal differences by simply facilitating communication.
Rule 12...................................................................94
Many people think that nobody gets fi red at
VkusVill, but that is not true. It happens.
Rule 13 ..................................................................98
We rejected all the usual corporate conventions and have never looked back. The interests of actual people are far more important than any artifi cial offi ce standards.
Rule 14................................................................. 104
Our HR department has minimal infl uence on our company’s development. Therefore, all employees at VkusVill have a say in the hiring and onboarding of all new employees. It works.
Rule 15..................................................................110
In an environment of trust and understanding, people are not afraid to make mistakes and show initiative. Everyone slips up occasionally, and the most important thing is not to punish them but to help them learn from these mistakes.
Rule 16..................................................................116
VkusVill has quite a simple offi ce. You might say that it is symbolic of our relationship to everything material.
Rule 17 ..................................................................122
At some point, we stopped planning and started just living.
Rule 18...................................................................124
Read. Read as many good books as you can. That will keep you on the straight and narrow.

Rule 19................................................................130
Sometimes, to solve a single problem for your customer, you must get several divisions involved. We think this is how a customer-oriented company should function.
Rule 20 ...............................................................136
The most important person in terms of quality and improvements is undoubtedly the customer. No specialist can ever be as meticulous, objective, and impartial about a product as a fi nal consumer.
Rule 21................................................................144
It is unnecessary to regulate communication with customers, but you must have a communication strategy.
Rule 22................................................................154
The Customer Support Index is a tool that brings about small, regular changes to make customers’ lives a little easier.
Rule 23............................................................... 162
Any VkusVill product — even an almost-consumed one — can be returned to the store without a receipt for a full refund.
Rule 24................................................................168
Consumer terrorism is not humanity’s most terrifying problem. But extortionists among the general population can hold entrepreneurs at bay.
Rule 25................................................................176
You will never get feedback from your customers if you are not interested in their ideas and suggestions. Apathy is hard to digitize, but is quite easy to feel.
Rule 26 ...............................................................190
In new and successful projects, this principle comes in handy: “fire bullets, then cannonballs.” Perhaps it may be the basis for successful project management.
Rule 27................................................................200
The deeper the concept behind our work is ingrained in the company’s DNA, the more straightforwardly the component processes will be developed. Our ideology of natural and honest products helps us to get rid of many excess goods.

        Rule 28 ...............................................................208

Everyone should do what they do best — or why
VkusVill still does not have its own factory.

Rule 29 ...............................................................212
Trust in people allows the company to save money.
Trust in people allows the company to save money.
Trust in people allows the company to save money.
(Read this a hundred times)
Rule 30............................................................... 216
Duplication of people, providers, and services is a modern entrepreneurial approach to doing business.
Rule 31 ...............................................................220
All confl icts occur in areas where responsibilities overlap. One day, we re-examined our process of opening new stores and forged a lasting peace between our development management and retail management.
Rule 32................................................................226
The more conscious responsibility at ground level, the easier life is for the entire company. Our dream is for every store to become autonomous and self-directed.
Rule 33................................................................234
IT systems for businesses today are like smartphones for modern people. You can live without them, but your quality of life will suffer.
Rule 34................................................................240
Automation should simplify life for both employees and customers.
If the opposite occurs, that is not automation — that’s nonsense.
Rule 35................................................................248
The triumph of artifi cial intelligence: how automated ordering and distribution allowed us to halve the amount of product we wrote off.
Rule 36................................................................254
Apps, chat bots, and other contemporary innovations help customers manage the company more than anything else — and help the company to unobtrusively manage its customers.
Rule 37 ...............................................................260
At some point, VkusVill will probably cease to exist. Once and for all.

100 Facts About VkusVill ..............................................267
Appendix ..............................................................275
Notes..................................................................277

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 Izby-onka 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. 9

        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 10 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 compa-nies—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?                                             13

          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.”
          And as Andrey reflected on it, a vision of his dream store became clearer. On the one hand, natural products with short shelf lives; on the other hand, producers with organized systems of quality control and certificates of compliance, rather than farmers simply with notes from their veterinarians. And there would be no contact 14 between the vendor and the final product.