Rashd Ibrahimov is the CEO / Chairman of the Management Board at Araz Supermarket MMC.
Revolutionary Change in Trade
Today, everyone is familiar with the concept of supermarkets. They have become a part of our lives. However, people’s attitudes towards supermarkets when they first emerged were not uniform. The chains of stores, a vital segment of retail trade, emerged globally in the 19th century, and the first self-service stores started operating in 1912 in the state of California, USA. In 1916, entrepreneur C.Saunders opened the first supermarket in Memphis, USA. This marked a revolutionary change in trade, laying the foundation for the formation of supermarkets. In the old continent – Europe, supermarkets began to appear in the 1950s, after the continent recovered from the devastating impact of World War II. In 1951, ex-navy officer Patrick Galvani opened a store in South London, similar to the American supermarket concept. The novelty drew significant interest from customers and yielded ten times more revenue for the owner than traditional stores.
Store Concept in Former USSR
In former USSR countries, the new supermarket concept was initially perceived as a luxury, due in part to the lack of private trade facilities during the Soviet era. The socialist commodity circulation sphere, unaccustomed to competition, efficient management, marketing, and advertising, didn’t require diverse trade formats due to a limited variety of goods. The consumer sector planning did not correspond to the population’s demands, but was based on production capabilities, with trading volume and product range being determined by upper organizations. With the USSR’s dissolution, state-controlled trade facilities began transforming into non-state institutions, leading to a new market economy and changes in trade structure. Despite initial difficulties, customer attitudes changed over time.
In the 1990s, the shift to a market economy in the CIS countries led to the emergence of retail networks. However, their development was slower than expected, hindered by reduced industrial production, lower living standards, and a lack of significant retail turnover. Over time, as wholesale and distributing companies diversified their businesses, modern retail chains began to emerge
In the post-Soviet space, a complex and contradictory process took place, with the transformation of mutually economic activities of the republics, which were parts of the single national economic complex, into contemporary inter-state relations of sovereign countries. Both the lack of industrial production and emerging international economic relations led to the domination of imported goods in the newly formed retail turnover.
As a result of reforms associated with the transition to a market economy, food markets began to emerge and actively develop in the CIS countries, including Azerbaijan. The 1990-2000s remained in memory with the formation and development of the first retail trade institutions – the contemporary form of trade in the CIS. The first local companies emerged, and the development of network trade began from them. The share of network trade was minimal – less than 1% – because the main customers of expensive supermarkets, the first format of network trade, were middle and high-income individuals.
Competition was initially observed between markets and neighborhood shops, as consumers were used to shopping from neighborhood shops. The slow development of local retail companies in the CIS was due to the unstable political system and the multitude of social problems in society. Therefore, retail trade was not considered a promising direction of business. Shareholders thought that there were many risks in this area due to the dependence of retail trade on imports, high inflation in the country, lack of professionals in the retail market, and low purchasing power of the population.
Moreover, the interest rates of bank loans, which were the financial sources of retail trade projects, were very high. Also, the lack of large suppliers, the underdevelopment of the local industry hindered the development of the modern form of trade. The lack of development in information technology and telecommunications markets, the lack of specialized staff for establishing a network business were also factors preventing the development of the new model of trade – markets. At that time, companies operating in the IT market could only offer simple solutions for sales points. Often, companies engaged in retail trade tried to develop by independently hiring programmers on their own resources. The incredibly high cost of communication services significantly limited the ability to centralize the management functions of the network business.
However, despite the existing difficulties, the process of forming the first retail sales networks was launched. The first supermarket in the CIS – “Seventh Continent” was opened in Russia in 1994. Two years later, the “Perekrestok” supermarket started its activity. In 1997, market leaders began to expand their networks with 2-4 new supermarkets per year. In Azerbaijan, the first supermarket chain was created by the “Khyal” company located in the central Mashtagha in the 1990s. Although the company could increase the number of markets included in the network up to 30, it could not strengthen its position in the market. Later, the “Almaly” supermarket chain entered the market, serving customers with 40 markets, but this supermarket chain also could not stay in the market.
The same trend was observed in the CIS. Although the first national networks in these countries went bankrupt due to the reasons mentioned above, the subsequent retail trade networks learned from the mistakes of their predecessors and were able to strengthen their positions in the retail turnover.
Decade of Continuous Growth
From 1993 to 2003, under National Leader Heydar Aliyev’s domestic and foreign policies, Azerbaijan gained stability and a strong economic foundation. The national economic development model, emphasizing the essential role of entrepreneurs and private sector participation, rejuvenated all economic sectors. The “State Program for the Development of Small and Medium Enterprises (1997-2000)” marked a new era of national entrepreneurship. President Ilham Aliyev successfully continued these policies, propelling Azerbaijan’s comprehensive growth.
Reforms increased strategic currency reserves, developed the non-oil sector, expanded economic relations, fostered a competitive, export-oriented, innovative economy, and expedited industrialization. Initiatives such as single-window registration for businesses, preferential lending mechanisms for investment projects, and rising nominal incomes stimulated the consumer market, revived retail, and expanded network trade. Consequently, the period 2000-2010 is recognized as the era of supermarket network growth in Azerbaijan, with many current business groups emerging during this time.
In the following years, reducing the number and cost of licenses and permissions, simplifying procedures, applying a single-window principle for goods transit, granting seven-year tax and customs concessions to promote investments, and easing customs procedures for import-export operations all accelerated retail trade development and the expansion of supermarket networks.
Company Name : Araz Supermarket
Contact Person : Elvin Hasanov
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Economy Prime journalist was involved in the writing and production of this article.