In ten years of business, Russian distributor Bureaucrat has shown remarkable growth. In a rare interview, general manager Alexey Popov lifts the lid on the company’s success story
OPI: Tell me how long Bureaucrat has been in business and how it started?
AP: Bureaucrat celebrated its tenth birthday this year. The first team of associates was created in 1994 and the first contracts were with Asian computer accessories suppliers.
OPI: What does Bureaucrat do?
AP: In simple terms, the company aims to help clients create a modern workplace in the office or at home. To achieve this, we provide an advanced and complete solution to meet all needs and eventualities, as well as an entire range of services, including a warranty service, goods’ delivery and warehouse space in Moscow and other regions. We also look to share with our partners the experience and know-how we’ve gained over ten years of constant progress.
OPI: How many offices do you have and how many employees?
AP: Bureaucrat has a head office and the manufacturing division sub office in Moscow along with several of its warehouses. We also have five regional warehouses across Russia, and we currently employ 850 people although this number is growing at a rapid rate.
OPI: Are you independently financed?
AP: Bureaucrat is a totally independent company.
OPI: What is your annual revenue?
AP: We prefer not to talk about such matters in real depth, but Bureaucrat’s annual revenue amounted to $160 million in the 2003 financial year and our forecast for 2004 is to hit $240 million.
OPI: Looking at those figures in a market like Russia, you certainly seem to have come a long way in ten years with impressive revenues. How have you done this?
AP: I don’t believe we have some magic formula, but we have followed a route that we felt best met our requirements for the marketplace we are in. For us, our commitment to a definite strategy was clearly fundamental. We have never tried to be involved in all of the distribution channels and deal in every type of product. Bureaucrat followed a strategy of concentrating its efforts on increasing the company’s presence in one or another product line or brand, and in one or another distribution channel, one step at a time. We always try to notify our clients about our goals and strategies. It is always easier to cooperate with customers when we understand each other, so transparency and communication is an absolute must.
OPI: Why do you think Bureaucrat has been so good at growing business?
AP: Firstly, we’ve been successful at growing the business because the whole structure of Bureaucrat, from the beginning, has been geared for growth. The organisation’s structure, its product line and the team were created taking into consideration the possibility of growth.
The second reason for our consistent growth pattern is that we follow a strategy of concentrating on key products and distribution channels. As I mentioned before, Bureaucrat never tried to be involved in all of the distribution channels and deal in every type of product.
OPI: Did you always have such a clear vision?
AP: Yes. I have a clear vision for Bureaucrat for the next five years. Our goals and strategies have been firmly established for continued growth.
OPI: What is your outlook for profit and revenue?
AP: In the near term, we expect to maintain our current rate of growth. However, at the same time we would expect our margins to fall due to increased competition in the market. Our current growth rate is greater than that of the marketplace, so it will be a tough challenge to maintain it in the long term.
OPI: Who are your major customers?
AP: Our customers are different depending on two factors. We look at them in terms of market type and business model. For the former, key areas are the computer and computer accessories, stationery, furniture, consumable electronics and mass production (ie department stores).
In terms of business model, the main opportunities come from wholesalers (who also have some retail shops and execute B2B supplies), specialised B2B companies and department stores.
OPI: Where are most of your clients based?
AP: There are two ways of calculating this. In terms of sales volume, around 40 per cent of our sales are done in Moscow and about 60 per cent in other regions. In terms of quantity of clients, approximately 10 per cent are based in Moscow while the remaining 90 per cent come from other regions.
OPI: Clearly, Moscow is a key area for you in terms of concentration of sales. However, we keep hearing that St Petersburg is becoming a vital market for office products. Is this true?
AP: St Petersburg’s market is actively growing and is playing a very significant role in the development of the north-west region of Russia.
OPI: Where does Bureaucrat stand, in terms of size, in the Russian office products market?
AP: It depends on the definition of office products market. We do not have a clear definition of this market in Russia. To try and give you an indication of turnover, Bureaucrat’s market share in computer peripherals and accessories (computer mouse, keyboards, speakers, mouse pads and computer cleaning products) is around 40 per cent. In the printing supplies market it is approximately 11-12 per cent and about 22-25 per cent in the data storage media market. In the office paper and office stationery market we account for about 5 per cent while we own 15 per cent of the office furniture market.
OPI: You also do a bit of manufacturing. How big is this side of your business?
AP: The sales of goods manufactured by us amount to 10 per cent of total Bureaucrat revenues. We have three product lines in our manufacturing segment: office furniture, including all office chairs and armchairs; a full line of plastic folders; and packing and wrapping items. In estimating market share of some of the products manufactured by Bureaucrat, I would say that we produce about 13 per cent of all office chairs in Russia and about 30 per cent of all sheet protectors in the country.
OPI: How much business do you do with printer supplies and EOS as opposed to traditional stationery?
AP: The share of EOS in Bureaucrat’s total sales amounts to 75-80 per cent.
OPI: Who are your main rivals?
AP: We have various competitors dependant on the market area. The fact is that Bureaucrat deals in several markets at the same time. This is one of the main differences from other distribution companies in Russia that prefer to do business in one market area.
OPI: How difficult was the period during Russia’s financial collapse of August 1998.
AP: It was a very testing time for our company, especially in the first three months. It was impossible for us to gauge when customer confidence would return and our future revenues were very difficult to predict. But we were able to survive this challenging period and we came through it a more dynamic business which had proved it was able to survive in the most difficult of markets.
OPI: Do you think the 1998 collapse could happen again?
AP: I don’t think that exact same thing can happen. The devaluation of the currency was the main reason for the 1998 collapse, but with the price of oil being so high, we would not expect to see currency devaluation again. Economic growth could slow down with some businesses going under, but nothing as dramatic as what happened in 1998.
OPI: What are the biggest problems you have faced when starting and growing a business in Russia?
AP: From my point of view the biggest problem is the existence of double-entry rules of doing business (official and non official) in terms of accounting, custom clearance and so on. Other problem areas include unforeseen changes to these rules and an absence of clear market relationships.
OPI: Is Russia under Vladimir Putin now a good country and economy for a business to grow in?
AP: Russia has been showing good economic growth for a long time and there are many increasing market areas in the country now. All these facts demonstrate good prospects for developing business.
In addition, I think that Russia is a good place for developing business because of a number of reasons. Firstly, the market is young, making it is easier to enter with new ideas. Also, all markets are actively growing and ROI is higher than in most western countries.
Of course, the risks in the Russian market are also higher than in most other countries, and this is the main mark against starting and growing a business in the country.
OPI: How strong is the Russian OP market and do you see it growing significantly?
AP: All segments of the Russian OP market are growing significantly, with an average growth rate of 20-30 per cent annually.
OPI: How would you compare the Russian OP market with that of its neighbours in your part of the world.
AP: Comparing it to the Polish market, for example, there are many common features, but there are also significant differences between the two. Obviously, the population of Russia is much bigger and its territory also much larger and that is why logistics are different. Also, Russia consists of many regions with many different nationalities, so mentalities within these regions can be different.
OPI: Does Bureaucrat serve other countries?
AP: Yes. Bureaucrat is active in Belarus, the Ukraine and Kazakhstan. This is another important part of our future growth strategy.
OPI: How far behind the west is the Russian OP market?
AP: That question really depends on how you look at it. Based on the presence of well-known world brands, the Russian market is on the same level as western countries. Based on the ratio of OP sales per person, it is far behind. For example, the US office products market is estimated by MPA International to be around $40 billion and the population is around 290 million people. Compare that to Russia where population is half that of the US and the market is 15-20 times less. The Russian market is also far behind based on the development of the distribution channels. They are much more defined in western countries than they are in Russia. There are still a lot of companies in Russia conducting business in all product lines and in all distribution channels.
OPI: OP retailer Office 1 has entered the market earlier this year. Do you see the expansion of office products retailers as important?
AP: Of course, this expansion would be important. However, it is too early to talk about the expansion of these retailers. Up until now, only retailers from the mass markets (cash-and-carry stores or department stores like Metro, Auchan, OBI) have entered the Russian market.
OPI:Are Komus and Ekort the biggest players in the Russian OP market?
AP: Komus and Ekort are surely significant players, but if we assume that the OP market includes printing supplies, computer peripherals and accessories, the number of market leaders is much bigger.
OPI: Can you see mail order taking off in Russia?
AP:Bureaucrat doesn’t deal directly with end users, so we can’t significantly feel such trends.
However, we usually get some information from our clients and what we know about the development of mail order is that this type of service requires a change of people’s attitudes towards buying.
OPI: For a little while now, Wal-Mart has been thinking of entering Russia. What effect do you think this would have on the OP market?
AP The effect should be the same as the entry of Metro, Auchan and other big retail players into the Russian mass market had. Certainly, the opening of these stores influenced sales of little wholesalers and retailers in the cities where Metro and Auchan positioned their shops.
OPI: What effect would Wal-Mart’s entry have on Russia as a whole?
AP: I think the influence would be significant, but not as strong as Wal-Mart’s effect on the US market, at least in the near term. To be honest, I would positively evaluate Wal-Mart’s entry because the number of workplaces would increase and Wal-Mart has shown before that it can change markets.
OPI: What advantages would this have for Bureaucrat?
AP: Bureaucrat would definitely become one of Wal-Mart’s suppliers. We have gained some experience in supplying office products to department stores. Bureaucrat has a special sales division specifically structured to deal with Metro, Auchan, OBI and other department stores.
OPI: That will wrap things up Alexey. Thanks for such an illuminating discussion.