Doing Business : U.S. Grocer Bets He Can Change the Way Russians Shop : But to open a supermarket he also had to invest in farms, trucking. Giant Vladivostok, three years in the planning, will be the first one-stop shopping venue of its kind.
When a retired New York grocer first ventured here with utopian plans for an American-style supermarket, it cost him a night in a Soviet police station. This Pacific port city, home of the world’s largest naval base, was still officially off limits to foreigners.
Three years later, the Soviet Union is long gone, capitalists are remaking Russia, Vladivostok is a wide-open city--and Dick Schindler, a cheerful, persistent man of 65, is about to launch his pioneer project. The supermarket, called Giant Vladivostok, is scheduled to open Nov. 12, the first of its kind in Russia.
Promising an array of 1,500 products, 24 checkout registers and parking for 500 cars, Giant would look familiar in any American suburb. But to Russians, who trudge from one corner store to another--dismal little specialty outlets with names such as Vegetables, Bread and Fish, where you stand in one line to pay and another to collect your purchase--the supermarket is bound to bewilder.
Schindler is gambling that people will get over the shock, realize one-stop shopping is easier and cheaper and change the way they buy food. If the $18-million Russian-American venture pays off, its partners are ready to expand to as many as a score of cities across Siberia and European Russia.
It won’t be easy. Russian agriculture is backward and depressed. While building the store, Schindler and his partners realized they had no reliable means to stock it year-round with quality, low-priced, locally grown food. So they invested in a network of local farms, packing plants, dairies and trucks to set up a farm-to-grocery channel with no intermediaries.
“This is a country of traders, but they’re all trading with each other and adding something to the cost, so the poor consumer pays the penalty,” Schindler said. “We’re going to do it simple. We’re going to compete on price.”
The formula has caught on with the Clinton Administration, which is groping for new ideas to help Russia’s troubled transition to the free market. The U.S. Agency for International Development, under criticism for spending too much on U.S. consultants in this part of the world, has put up $6 million to improve Russian food production for the Giant venture.
Thomas A. Dine, the official who is reorganizing AID’s programs in Eastern Europe and the former Soviet Union, visited Vladivostok last month and held up Giant as a model.
The best way to help Russians produce more and better goods, in Dine’s view, is to “prime the pump” by putting small doses of U.S. government aid to work for big, fully integrated marketing ventures created in Russia with the help of American capitalists.
“The goal is to make Russia a consumer-driven society, not production-driven,” Dine said. “If I only had a Schindler with a profit motive for every project. . . .”
For now, Giant is still just a futuristic plan--little but an unfinished concrete shell on a muddy plot at the end of a bumpy, winding road. But by Russian standards, the venture has advanced quickly since it was officially registered 2 1/2 years ago, overcoming many of the obstacles that discourage other investors from trying to produce things here.
“We could have come in and been (just) another trader, and in the short term it would have been great, but what would we have built?” asks Schindler, who is organizing the Russian side of the joint venture. “I’ve got only a few more years left, and I want to build something worthwhile.”
Schindler was at his desk on a Sunday, having climbed 10 flights of stairs to the office. He has worked all his life in the grocery business, starting as a bag boy in Buffalo, N.Y., and rising to president of the Gristedes chain in New York. Bored by retirement on the Florida coast, he set out to do business in Moscow in August, 1991, just months before the Soviet Union ceased to exist.
His first obstacle was bureaucracy in the Soviet capital, where he paid bribes for business licenses and permits and got nowhere. So he flew to Vladivostok at the urging of his partners-to-be, managers of the Soviet Pacific fishing fleet to which his company had previously sold food for ships’ crews. They helped him sell the idea of a supermarket to the local Soviet Establishment.
Dalryba, a Russian fishing company, agreed to contribute two seasons worth of fishing rights, which will bring Giant $6 million worth of fish. A firm that runs warehouses for the fishing fleet has invested $3 million in land and supplies, while two other Russian partners, including a bank, are kicking in $2.8 million in cash.
“I got more accomplished here in nine days than in a month of waiting around in Moscow,” Schindler recalled.
He returned briefly to the United States via Moscow. But, having entered Vladivostok without an official permit, he was unable to prove to authorities where he had been those nine days, so he spent a night in police custody in Moscow, until one of his partners bailed him out.
Solving that problem was easy compared to the hurdles to come. Schindler managed to recruit the cream of the Vladivostok Communist Party elite to help run the venture but struggled to break their Soviet habits. “They would look at a building and say, ‘OK, you need 24 forklifts in there,’ because that’s what it says in the book they used for 40 years.”
One-third of Giant’s 91,000 square feet of floor space is for retail shopping. The rest--a wholesale warehouse and food production center--will distinguish it from a typical American supermarket. There will be facilities for baking bread, popping corn, canning, juicing, carbonating soft drinks, broiling chickens, smoking meats, freezing vegetables and packaging ice cream.
A similar but smaller Giant store is under construction in the nearby city of Nakhodka, due to open next year.
Vladivostok is one of the most expensive cities in Russia because much of the food sold to its 700,000 people carries high transport fees from the United States, South Korea, Japan and distant parts of Russia. Giant will buy 60% to 70% of its food from the local farms it is modernizing.
Working with the AID grant and American technicians, Giant is introducing better seeds, building greenhouses and storehouses and installing dairy equipment.
“We’re not building a store but a food system,” said Jarlath Hume, vice president of TPC Foods Inc., Schindler’s Seattle-based American partner, which has 30% of the investment. “The Russian supply side has collapsed. The store is the engine that will jump-start it.”
As do all entrepreneurs in Russia, Giant’s partners face an obstacle course of inflation, bureaucracy and taxes. There is nothing they can do about inflation, which has raised supermarket construction costs by 2 1/2 times the original estimate and delayed the 18-month project by a year.
But when the Russian government tried this spring to renege on Giant’s tax exemption for more than $3 million worth of imported American equipment, Schindler flew to Moscow to lobby one of Prime Minister Viktor S. Chernomyrdin’s top aides. The threatened 23% tax was canceled.
“If you roll over and play dead in Russia, you’ll never build anything or accomplish anything,” Schindler said. “If you fight, you’ll find a way.”
The ultimate test for Giant will be the Russian consumer, who typically has ingrained buying habits and little idea of what a supermarket is.
At least the economics are encouraging. Vladivostok’s fishing fleet and port are profitable, sustaining a sizable middle class of seamen and dockworkers. One of every two families here has a car. And Schindler figures that Giant will save shoppers 20% or more on grocery bills--a real incentive in a country where people spend most of their income on food.
Much depends on getting consumers to buy new products being grown here just for the store. Giant is sponsoring cooking shows on local TV to show Russians how, for example, to cook green beans.
Many Russians find it unbelievable that one company can amass so much food under one big roof. “I am sure the whole operation will end up selling cheap Chinese garb in this huge building,” said Vladivostok journalist Natalya Barabash.
“When Russians see the U.S. food system, they think it is wonderful, but for them it is like Disneyland, because they cannot imagine it happening in Russia,” Bruce W. Krysiak, head of TPC Foods, told a U.S. House of Representatives subcommittee.
But once Giant opens, he predicted, it will become “a visually compelling example in Russia of why a market economy will work.”
