VkusVill: How A Russian Giant Disrupts The Retail Industry
In October 2019 we visited Moscow for a client session. As usual we asked participants for tips about local Bucket List pioneers. This is how we heard about VkusVill. So, we studied them, talked with their people, and uncovered a remarkable story. It’s now time to tell the management story of 2021.
VkusVill is a retail food chain dedicated to offering fresh and healthy food at affordable prices. Founded in Moscow in 2012, they now have 1,200 stores in Russia, 2 in Amsterdam, 14,000 employees, and $1,7 bn in annual sales.
They are Russia’s fastest-growing grocery chain, single-handedly reinventing the retail world. But VkusVill never had the aim to compete with anyone. They just started playing by their own rules. The result? A break with traditions of the retail and management worlds.
All this was achieved without middle management, budgets or job descriptions. The founders own 88% of the shares. Their explosive growth was self-financed, and they stayed profitable as they grew.
Origins and evolution
This remarkable story starts in late 2008 when founder, Andrey Krivenko, quit as financial director of Agama Trade, a major Russian seafood distributor.
Backed by a million rubles (then about $30K) of his own savings, he had the idea to start selling fresh, natural dairy products. He dreamt of products with simple, pure ingredients, short shelf lives and high quality.
He gathered a bunch of people who wanted to join this entreprise, and they opened the first store in May 2009. It was called Izbyonka. Krivenko's idea got a good response, and new stores popped up like mushrooms after rain. By 2012, over 300 stores had opened in Moscow and nearby.
Then they realized there was something wrong with their focus on selling only dairy products. They struggled to generate enough customer traffic. Their most successful stores were near to butchers, fishmongers, sausage sellers and bakers. They were dependent on traffic generated by these neighbouring stores. They realized they should sell not only dairy products. They should become a network of healthy food supermarkets instead. Thus, the concept of VkusVill was born.
In summer 2012 the first VkusVill supermarkets opened. After initial struggles they grew rapidly. Today, they have 1,230 convenience stores, 320 micromarkets (in offices), and 4 dark stores for online orders.
"However, 2020 was another turnaround year for VkusVill", says Yury Alasheev (a VkusVill's board member). "Similar to 2012, when Izbenka turned into VkusVill, in 2020 VkusVill turned their focus from solely offline offerings to both offline and online offerings. In fact, by December 2020 we had seem to become the largest e-grocery player in Russia, within just one year of our first online sales.
The e-grocery development is our theme of today. We realised we needed this to be even more convenient to our customers, and to be able to add products to the customers' assortment without being limited by the floor space at their nearest convenient store."
This latest innovation has certainly been successful. Sales rose from $1.3 bn in 2019 to $1.7 bn in 2020.
How does it all work?
How can they be so successful with 14,000 employees? By violating the traditional laws of retail and management.
Let’s start with their organization structure. VkusVill has five parts—a small top-management team, hundreds of highly autonomous stores, thousands of couriers, 40 retail coaches, and 600 support staff at headquarters.
1. Management Council
There is a top management team (the 'management council') of just 12 people. They take care of company strategy. They split responsibilities, and the four responsible for retail each look after ~300 stores. They run their parts as entrepreneurs.
2. Small autonomous stores
The retail operation of 1,200 stores resembles the Dutch Buurtzorg organization. Each store is highly autonomous. They have far-reaching decision-making authority, and are accountable for performance in their region. Teams run their stores as if they are the owners. They have a stake in the outcome via profit sharing.
All stores are relatively small—and run by a self-regulating team of 5 to 10 people (depending on the location’s needs). Teams select their team leaders. But they all perform similar roles, including the team leader. They unpack products, man the registers and track inventory. The team leader also cares for finance, communication and mentoring.
When the Covid pandemic hit Russia in March, VkusVill made it possible for their customers to pick up their online orders (ordered via the VkusVill app) from all of their 1,200 offline stores. As the online sales grew rapidly over the last year (they now process 70k daily online orders, which accounts for 23% of the total sales) VkusVill decided to open so-called 'dark stores' to deal solely with online orders.
There are now 4 such dark stores (2 in Moscow, 1 in Saint Petersburg, 1 in Tver). These autonomous stores are bigger than the offline stores and have an average of ~20 to 40 people (including 3 leaders) working daily at each location. They expect to open ~30 to 40 dark stores only in Moscow soon.
In order to process the increasing number of online orders VkusVill started to recruit its own couriers to deliver online orders to customers. There is now a group of ~3,000 couriers hired directly by the wider VkusVill organization. On a weekly basis all couriers are redistributed over the offline and dark stores depending on where they are most needed.
4. Retail coaches
There are no middle managers at VkusVill—but there is a group of ~40 coaches, like Buurtzorg. Each is dedicated to a region, and responsible for ~30 to 40 retail stores. They typically have a background in front-line retail.
But note: coaching does not mean managing. Coaches have no formal authority over people in the stores. They are there to support the teams and facilitate their processes. They make themselves available as required.
5. Back-office support staff
Beside the coaches, retail teams are supported by another 600 people at company headquarters. Here the resemblence to Buurtzorg ceases.
Instead, headquarters resembles the way Haier is organized. The 600 people work in self-managing project teams. They can self-select into multiple projects—which focus on things like research, merchandising, quality control, packaging, logistics, e-grocery, online sales, and back office tasks like accounting, legal and IT. Due to the nature of the business many project teams are relatively stable.
An important note: the main role of people at headquarters is to simplify life in the stores by automating processes, not by managing or directing them.
But VkusVill is more than its five parts. It’s also about Russian pragmatism, seen in their unique "Beyond Taylor" management system and disruptive business models. Let’s look at them one by one.
VkusVill's approach is inspired by management gurus like Laloux, Hamel and Taleb and blended with a healthy dose of Russian pragmatism. But maybe they are even more influenced by Buurtzorg. Like them, VkusVill is better defined by what it doesn't have.
1. No bureaucracy
Bureaucracy is VkusVill's arch enemy. They believe order should be kept in your head, rather than on paper.
2. No set rules
There is a minimum of set rules, protocols and procedures. They believe these turn people's brains and hearts off.
3. No schedules
There are no schedules. They never considered introducing them. For the 600 people at headquarters it doesn't matter if they work at the office, from home, or a cafe on the beach. They just expect people to be efficient, get their work done, come up with new projects, and deliver on existing ones.
4. No budgets
Evgeny Shchepin wrote (in his book): "That’s right: in our company, you can spend as much money as you want. But there’s a catch: you have to understand that all of your expenses are open for everyone to see and the whole company finds out about them instantly."
Budgets are replaced by a culture of trust and transparency, and powered by an IT system that allows everyone to see everyone else's spendings. Every employee is responsible for their own expenses. This seems to work wonders: "This is so much more effective than trying to play astrologist and guess how much your department will spend in the upcoming year. [...] Moreover, under this trust-based, transparency policy, it’s very hard to cover up any dirty tricks."
5. No HR & purchasing department
There is no traditional HR department, nor an HR/personnel director. They simply believe they aren't necessary. There is no traditional purchasing department. Instead of professional purchasers they rely on product experts and technicians to do the purchasing themselves. After all, they are the ones that understand the products best of all.
6. No strategy meetings
In the early days, they held strategy sessions every year, but now, they do not. Shchepin: "One day, we got together for yet another such meeting and recapped the minutes of the previous one, which had taken place a year prior. Out of 15 planned projects, not a single one had been realized. However, many other awesome projects had popped up, many of which we hadn’t even thought of before. At this meeting, we collectively decided to stop planning once and for all."
7. No dress code
Last but not least, there is no dress code. Shchepin: "For that matter, we’ve never had an anti-dress code, either. We really don’t care what our employees wear."
Going Beyond Taylor
Everything they do and have at VkusVill is guided by their purpose and a customer-first mentality. Freely translated, their purpose says: "We, VkusVill company, offer fresh, healthy and affordable products conveniently to our customers. We believe in an honest and responsible attitude, and enjoy working for our clients."
Their purpose makes it clear that customers are at the center of everything they do. Andrey Krivenko, founder and CEO, said: "Everyone who wants to start their own company or realize an ambitious project must remember that the most important thing of all is to be customer-oriented. The consumer’s interests should be more important than profit and the interests of your investors. After all, a company that keeps its customers truly satisfied can’t be weak – especially financially."
They manage to stay true to this claim by refusing to build a traditional hierarchy of managers. Instead they pioneered a unique approach dubbed “Beyond Taylor”. It has some interesting dimensions:
1. No middle management
Authority within VkusVill is radically decentralized—all the way to the local store level. Teams run their stores as if they are their own. They care about what’s necessary to make them successful. Shchepin: "This allows them to take responsibility for their own store, putting their heart into every decision they make, while allowing the company to control the cost of managing the company. The more a store can do on its own, the simpler and more flexible the business will be."
And that's why stores hire and fire their own people. By hiring their peers VkusVill makes sure the stores need to accept the responsibility themselves. They look for the new people, interview them, and believe that the new hire will add value to the team. If it turns be not so, they can only blame themselves.
Trust is at the core of VkusVill's radical decentralization success. Shchepin: "When outsiders hear that VkusVill trusts its workers, many decide for themselves that we must love and coddle everyone toiling away for us. In fact, nothing could be further from the truth. We are indeed very tolerant with regard to our employees’ personal growth and mistakes, and we are ready to weather their crises with them, help out when they have lost their way, and ignore the company’s material and PR losses. But we never allow them to abuse our trust. What’s more, we defend the company’s honor if an employee turns out to be a liar or manipulator."
2. The principle of "duplicating"
When the company started to grow rapidly they implemented the principle of "duplicating". What does this mean? Like the duplication of cells in our bodies, VkusVill tries to duplicate everything in and around the company, be it employees, departments, projects, or suppliers (as long as it makes sense).
Take the case of employees. If there is too much work for one member, this employee 'duplicates' him/herself by hiring a new person to help. As a result, the work can be shared by two people, who stay equal, and thus keeping out hierarchy.
Departments are 'duplicated' on the same principle. There are, for example, two legal departments inside VkusVill, giving employees the choice to work with either. This creates a form of healthy competition between departments to add as much value as possible.
Suppliers are also 'duplicated'. For example, all stores in the north part of Moscow have one supplier, while there will be another for the southern part of the city.
Duplicating departments and suppliers protects the company from internal and external monopolies, while still being able to source the best possible products and services.
3. A system of "promises"
In order to grow without relying on a traditional hierarchy, VkusVill adopted a self-regulating system based on "promises". (This is similar to the commitment system at NER Group).
The promise system starts with so-called 'core promises'. These are promises the company makes to the customer—to offer fresh and healthy products, affordably and conveniently. Then people in the stores commit to a set of 'supporting promises', to fulfill the the core promises. And people at headquarters commit to a set of 'peripheral promises' to support the other two categories of promises.
This system of promises provides everyone with internal or external customers, and all are responsible for the value they provide. For example, store teams have to deliver on their promises to the customer by offering fresh and healthy products, and producers must be sure to deliver orders on time.
The promise system supports the principle of 'natural selection'. That is, those who can’t keep their promises will lose their customers (internal or external). This also means losing some of your income, and your place in the company. Thus, every employee becomes an entrepreneur in a larger company.
4. Powerful IT solutions
The rapid growth of the retail chain would never have been possible without a powerful, user-friendly IT system. This serves as the foundation for all company processes.
Like many other Bucket List companies (e.g. Buurtzorg and Haier), they developed their IT system from scratch. Krivenko: "I understood that there were no ready-made IT solutions for a company like ours. [...] At first, I tried to work with one consulting company to make their solution work for us, and spent lots of time and money. But nothing good came out of it. I had to build our software from scratch."
The IT system is about simplifying things, and freeing people from routine, meaningless tasks so they can spend time on creative and innovative ones. For example, via the system people in the stores track many of their performance metrics (like sales, number of clients, etc) in real time, and can directly enter changes and corrections into the company's product database. They can also track performance against other stores, thus creating a culture of transparency.
Interestingly, they have never had an IT department. All IT development is done by a third-party with whom they have close and friendly ties. Indeed, every VkusVill employee can send requests to the third-party programmers who will try to make their hopes and dreams come true.
5. Business rhythm
The work at VkusVill, and its continuous improvement, is guided by a clear business rhythm focused on being able to listen, learn, and act on customer feedback. This rhythm is supported by two weekly meetings: the Monday and Tuesday meetings.
On Mondays, all retail coaches come together. During this meeting all relevant customer complaints are reviewed. Shchepin: "Often, the problem has already been resolved by the time the meeting happens. The goal of these meetings is different. With our colleagues and comrades in arms present, it is important to review any problem brought up by our boss—the customer—and find out how it was solved. Perhaps you can suggest your own version of a solution and develop, if possible, steps to keep such a situation from repeating itself in any of our other stores."
Every Tuesday, product experts and technicians meet to review specific complaints about product quality. The goal here is not to uncover a problem and talk about it, but rather to begin a rapid response to solve it. Sometimes it is decided that a poor performing producer is banned.
6. Value mistakes
One of VkusVill's major strengths is challenging the status-quo via a culture of innovation. This is nurtured by the way mistakes are not punished, but valued. They created a culture where people admit to mistakes, and then analyze what went wrong. They try to see mistakes as learning experiences. This motivates people to try new things and experiment to add value to customers.
Shchepin: "What if a mistake happens not out of malice, but an employee slipped up or made a mistake by accident? Just imagine yourself in their place. You love and value your company. But all of a sudden, you trip up or make the wrong decision, and the company punishes you with a fine. What do you feel at that moment? Intense demotivation, and the lack of desire to decide anything at all."
Instead they try to get to the bottom of the reasons behind the mistakes. Shchepin: "We try to figure out the reason. Were there intentional actions involved? Or is there a bug in the system that allowed them to make the wrong decision? If the system is at fault, we change the system. If there is clear malevolence on the employee’s part, we dismiss the employee."
Disrupting business models
This unique Beyond Taylor management system has led to the birth of a series of highly creative and disruptive business models. Here are just five characteristics that VkusVill pioneered to disrupt the traditional retail world.
1. Small, flexible retail stores
All their 1,200 stores are small—on average, only 150 square metres. They have special teams dedicated to opening new stores quickly, often within a month of signing the real-estate contract. When new stores succeed, they break even in 3 to 6 weeks. If not, they are closed immediately.
Alasheev: "The special teams could not open new offline stores due to the corona crisis. So, they started developing our online webshop—and with great success. We had zero couriers in March. Now, more than 2,800 are employed by the e-grocery part of the company. These squads now deliver 60% of all online orders. The remaining 40% are fulfilled via outside partners.
The couriers started delivering directly from the stores. Now, most deliver from dark stores. The couriers who deliver from the shops are part of the store teams. The dark stores have their own teams, but are still supervised by the regional coaches.
We have had four organization changes since April, because people adjust without waiting for top-down restructuring decisions. The company is organic, not mechanistic. That's how it is possible to move from zero to ~3,000 couriers in six months. Moreover, unlike our competition, we do all of this profitably."
2. One brand advertising
The company does not spend a cent on advertising or other expensive media. Instead, most products at VkusVill are sold under its own label—and more than 95% of products bear their logo. This creates a brand linked to a variety of healthy, fresh and affordable food products. Beyond that, they simply rely on word-of-mouth marketing.
3. Solely fresh offerings
Most products at VkusVill are fresh. Indeed, 73% are fresh—think dairy, fruit, vegetables, meat, poultry, bakery, fish, and other ready-to-eat products. This means most products have a short shelf life.
Because the lion's share of VkusVill products have short shelf lives (60% is sold on the day after production) there is limited need for warehousing or distribution centres. And the warehousing space they have is there to keep fresh products for no more than 12 hours.
Instead, producers are outsourced and have to deliver products every single morning before opening time. Their unique IT algorithms make this happen efficiently. Only 1% of product is wasted.
4. Friendly relationships with the community
As we mentioned, there is a supplier ranking system based on the "doubling principle". This creates healthy competition between suppliers of the same products. It also creates flexibility for VkusVill and its customers.
Nevertheless, VkusVill is convinced of the need for friendly relations with a diverse set of local suppliers, based on trust and fair payment terms (they have ~800 suppliers, of which 95% are Russian). They believe that there should be at least four independent suppliers for each product to control prices and ensure smooth supply.
In fact, they are determined to build long-term, sustainable relationships, based on trust, with everyone in their community—suppliers, customers and employees. They are convinced this is the best way to receive timely feedback, and adapt as needed.
5. Intense customer engagement
VkusVill relies on intense customer engagement. This is done via a set of digital solutions (apps, social networks, websites). After every visit, customers get an electronic receipt for the products they purchased. Each can then be rated on a scale of 1 to 5 (5 being the best), with the ability to add comments.
Through their app (whith 2M+ downloads, and 800K+ active users) they receive millions of product ratings and half a million customer comments every month. If the average score for a product is below 4, it is removed from the assortment. In this way, the assortment is a direct reflection of customer feedback and continuous interaction between customers and the shop.
The management story of 2021
As we suggested earlier, VkusVill could be the management story of 2021. Why? Because their story can no longer be ignored.
VkusVill may be the next poster child for future-of-work gurus. Mark these words: you will soon read about them in mainstream media, HBR and the like.