Retailing in Azerbaijan: Key Trends and Developments
By Marija Milasevic, Analyst at Euromonitor International
The Azerbaijani economy experienced a positive trend towards the end of 2009-2013. Real GDP grew by almost 6% in 2013. Officially, unemployment in Azerbaijan in 2013 was 5%. Despite improvement in economic conditions in the country, leading to reduced volatility in financial stability, consumers still claim that their disposable incomes, especially those financed from the government budget (doctors, teachers and scientists) are low, despite average incomes have been rising modestly. This explains the increasing interest in some generics and lower-priced food products, and the popularity of such goods where they are available, and persistent promotions and sales of both non-food and food products.
Retail chains increase in number and extend their reach.
Over 2009-2013 retailing in Azerbaijan saw notable development through a variety of means. The retail market in the country has increasingly come to be populated by a growing core of major chained supermarkets and hypermarkets. These players were in the best position to survive any financial instability, and in many cases continued with their planned expansion, as consumers increasingly pursued wider product ranges, convenience, and, crucially, value for money. Consumers are attracted to these players by their established brands, particularly in terms of imported names, given their association with prestige, quality and consistency. Given the strong performance of these players, operators expanded their product offer, with greater focus on also developing the non-grocery ranges available through supermarkets and hypermarkets. This contributed to their convenience as retail outlets, as consumers are more often able to make all their purchases under one roof.
Development continues to impact heavily on independent retailers, as they struggle to compete with these players in terms of price, convenience, promotions and ranges. Accelerating urbanisation also encouraged the expansion of major chained retailers, as consumers in large and busy cities have increasingly come to value the convenience offered by these outlets in terms of the selection of products offered and the option of purchasing all their required products in one location. Supermarkets and hypermarkets typically became larger, allowing them to accommodate growing ranges of products at different price points, which served to consolidate their success.
The expansion of chained retailers is also having a clear influence on the brands and products purchased. The advance of these players has been supported not only by the outlets’ ability to offer a wide selection of products in all price categories, but also due to their focus on the most popular mid-priced and economy brands from multinational manufacturers, which are already well-established and trusted in Azerbaijan. As chained retailers expand, this is placing greater pressure on specialist retailers and multiple other formats.
The current performance of the national economy is optimistic, with slight growth year-on-year. Despite the constant improvements in economic conditions, opening work places, launching various grant and support programmes for researching, the majority of Azerbaijani consumers remain price-sensitive and are tempted to purchase goods from the lower price segments and to shop more in retail outlets with low prices. Retailers will continue reacting to this trend by increasing the range of cheap goods, by reducing trade margins, launching generics and also running regular discount promotions. In 2013 the number and range of loyalty and discount programmes on offer in both grocery and non-grocery retailers continued to increase. To attract potential customers, retailers often re-position their stores as “economical stores” or “stores with low prices”, such as Bazarstore, Bizim Market, Aile Market in grocery segments, and Baku Electronics, and Beko in the non-grocery channel. The trend of low-cost positioning is not yet being fully realised by retailers, as there is still more room for growth and expansion in both grocery and non-grocery outlets.
Over the next five years, the number of chained supermarkets and hypermarkets will increase. As in the largest cities, demand for well-known brands and high-quality services is also growing in the regions. The next five years period will therefore see retailing in Azerbaijan become more homogenous, as smaller players are forced out, given the expansion of the major chains. Bazarstore, Bizim Market, Favorit Market, Rahat Market, Fresco Supermarket, Sebet Market and Neptun are expected to dictate pricing and overall activity in grocery retailing in Azerbaijan, especially Bazarstore, Favorit Market and Bizim Market, which offer their products at competitive prices, keeping narrower margins and conducting frequent promotional campaigns. Although many companies are expected to focus their attention on activities in the cities, they will increasingly look to the regions. Those local chains will be expected to expand into smaller regional cities across Azerbaijan. Growth of various chains will lead to more activity in generics, encouraging greater price competition. This will favour the largest players, as they are better-placed to absorb costs and thus stay in the competition. In general, rural areas will see more of this activity at the economy end of the spectrum, while urban retailers are increasingly likely to begin developing premium brands, with Neptun leading in that activity.