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The High Life

Political stability and strong macroeconomic growth have driven new demand for luxury retail in Kazakhstan, but the underserved middle class is also a target for investors.

As the country develops and per capita incomes expand, global retailers have turned to Kazakhstan as a tempting location to set up shop. Foreign companies have come to claim their territory on the new high streets of each city, with the prime example being the recent remodeling of the Soviet-era TSuM shopping center. This landmark project is designed with the goal of fostering a retail environment in downtown Almaty, and has already attracted a variety of international brands. With ample space and a variety of renovation projects on the horizon, high pedestrian traffic zones will soon be laced with more retail options targeted at the upper and middle classes.

Meanwhile, the country is seeing the horizontal expansion of larger shopping complexes and supermarkets that cater to every income group, and fast-moving consumer good FMCG retailers and local suppliers are working together to streamline the sector.

RETAIL SPACE

The continued undersupply of quality retail space and large brands has triggered a shift toward Kazakhstan as a potential market. As the country becomes attractive to Western chains, big names such as Zara, Bershka, Gap, and LC Waikiki have begun direct operations in the country, while others seek to form partnerships with successful domestic companies in a variety of sectors. At the same time, building projects are attracting new markets and foreign investors.

Bahitbek Katen is the President of Aristan Group, a local construction and real estate company eager to work with larger retail groups. According to Katen, the growing number of food, lifestyle, entertainment, and toy store chains in the market is destined to bring about positive change in many sectors. “In general, we see these developments as very positive for our company; the number of deals is increasing and property developers are providing the market with retail space that meets the demands of international brands, both quantitatively and qualitatively,” he said in an interview with TBY. Aristan Group is also spearheading the TSuM project, which will feature smart building management and an outdoor retail space.

The Dostyk Plaza project is another retail space that will host luxury and premium brands, based around the construction of an international hypermarket store. Construction began in April 2012, and the plaza’s doors are set to open in 2014. Unique retail spaces such as Dostyk Plaza and TSuM are also attracting more foreign chains, with Burger King, Marks & Spencer, and Rolex expected to arrive in Almaty by the end of 2012.

Led by Nurlan Smagulov, Astana Group has also sought to increase retail availability in underdeveloped markets by attracting the support of foreign enterprises. With the talent of unique foreign architects and gourmet international cuisine, the company’s MEGA Center chain is expanding to Almaty. “Following our philosophy of being the most cutting-edge company of our type in the country, we invited leading foreign architects to design retail locations and support us during the initial stage of managing our shopping centers,” Smagulov told TBY in an interview.

FMCG

In the steadily growing mass-market segment, companies continue to develop their brand and build competitive corporate profiles. With 18 global retailers present in the country, the industry has reached a new level of quality and a wider selection. As one of the first international trade companies in the country, Metro Cash & Carry Kazakhstan has stores in seven cities nationwide and will expand even further in 2012 by opening two new stores. Jan Žák, Offer Management Director of the company, told TBY, “We see Kazakhstan as an important growth market. We are now considering an expansion course in the country, and we want to focus on the main cities in the north and south of the country, especially Almaty and Astana.” The Customs Union between Russia, Belarus, and Kazakhstan has also opened up possibilities for the company as it creates synergies in the region and builds a strong supply chain.

Although the retail market’s main competition has traditionally been domestic traders operating in bazaars, these local players are becoming key nodes in the supply network. “Up to 90% of the goods in our stores is sourced locally, which in turn supports economic growth and upgrades the infrastructure of the local community,” Žák said. “In each region we organize regular seminars for our potential suppliers, with the help of international experts invited from Europe, to share and transfer knowledge.”

Increasing levels of domestic production have sparked good results for supermarkets and hypermarkets, which are flourishing in Kazakhstan despite a trending worldwide decline. Customers are demanding high-quality products and excellent in-store services, two elements that long-established chain Ramstore has aimed to provide. With 23 stores in seven cities, Ramstore has experienced very rapid growth since entering the market in 1999. By closely monitoring consumer habits, the supermarket giant has survived where others have fallen. “During the crisis, some of our competitors went bankrupt, and others changed ownership. Ramstore, on the other hand, increased its turnover,” Özgür Güneş Fırıldak, General Manager of Ramstore, explained to TBY. “We chose to grow and seize the opportunity to focus on the quality of our operations and infrastructure.” This strategy demonstrates the flexibility of retailers in the country and emphasizes customers’ close attention to convenience and quality. By becoming the only halal-certified meat supermarket in the country and planning to launch a discount brand for lower-income segments, Ramstore is proving its aim to cater to the needs of the local market.

Among the leading suppliers for the expanding FMCG market, food processors Becker and Danone are two companies that pride themselves on creating value-added and jobs for the local market. Becker’s German-equipped meat-processing plant produces over 100 retail items for its consumer base, including sausages, frankfurters, and chilled meat. A staple of the Kazakhstani diet, meat has long been a source of income for the local farmers. Building upon that tradition, “we actively support domestic producers and purchase raw meat only from Kazakhstani farmers, guided by obligatory sanitary requirements,” Aknura Abdikadirova, CEO of Becker & Co, told TBY. National products such as horsemeat are also sold at Becker’s 39 supermarkets around the country. Meanwhile, Danone is looking forward to creating jobs by expanding its milk production plants and operating its main facility seven days a week at full capacity. Although yogurt is a largely underdeveloped market in Kazakhstan, David Manzini, General Director of Danone, believes that as income levels rise, local demand will follow suit.