SSCC Success Story: Goran Kovacevic, owner of trade company Gomex – We are currently looking for a new investor
Retail in Serbia has changed considerably in the past twenty years and is certainly a more successful part of the Serbian economy. We are all doing business in a rather open market, there is nothing that could be called a monopoly, no significant state interventions, and citizens can be generally satisfied with the supply, Goran Kovacevic, owner of the trade company Gomex, says in his interview for eKapija.
He sees the future of trade in neighborhood stores and personalized shopping, and they intend to open 30 new facilities in 2018 in places with over 3,000 residents on the stretch from Belgrade to Smederevo, as well as in Belgrade itself and in Vojvodina.
– We prefer the format of a store with 200 to 500 m2 of retail space, and there's still a lot of free market space for such a format in Serbia.
The interview with Goran Kovacevic is the tenth in the line of interviews with companies-members of the Swiss-Serbian Chamber of Commerce, through which the SSCC promotes the operations of Swiss companies in Serbia and highlights the values and good business practices of this country and these companies.
eKapija: You have a specific ownership structure. The SEAF fund co-owns Gomex. Tell us something more about this cooperation.
– We are probably one of the first companies to have a minority capital increase, so the SEAF fund is a co-owner with a 35% ownership share. Our cooperation is surprisingly good and is a really good model for enhancing the company's development. Since we began cooperating, the company has grown more than ten times, and even more importantly, Gomex has become a fully professionalized company, organized the same way as any company in the West, with fully transparent business activities, which is still a rarity in Serbia.
eKapija: How widespread is your network? How many workers do you employ?
– Gomex now has 1,750 employees, 153 retail outlets, 3 distribution centers and a turnover of EUR 100 million. Our mission is to supply customers with fresh products primarily, and our vision is to become the biggest national chain in the format of 250 m2 of retail space. We invest a lot in the modernization of all technological systems. We have developed a unique loyalty program which monitors orders by more than 300,000 customers and this is the foundation on which we will further develop our services. Each user of our card can already pick ten products on which a discount of 20% will be approved for them only in every purchase. The system recognizes the user while reading out the card, approving all the benefits meant for that user alone. This way, the way to the maximum personalization of shopping is our main direction of development.
eKapija: How satisfied are you with your operations in 2017? What are your financial results like?
– Unlike 2016, which was a year of an in-debt transformation of the system, by which I mean that it was very painful, the year 2017 was rather successful. We realized a growth of 18% on the level of the system, but, even more importantly, in my opinion, we realized a L2L (like-to-like) growth of over 6%. This growth proves that the company is healthy. A frequent problem in trade companies is that they are condemned to a constant growth, so it happens that they open a large number of outlets, thereby creating a problematic image of progress. For this reason, it was important to me for our stores that had been operating for more than a year to be considerably more successful that in the previous year. This is a growth based on the enhancement of business efficiency.
eKapija: What are your plans for the current year?
– The most important plan for the current year is the joint project with our main supplier of fruits and vegetables, Carska Basta. We've already started realizing the construction of a distribution center for fruits and vegetables, which will meet Gomex' needs in the upcoming period. This is a cooling plant of around 2,500 m2, with all the necessary infrastructure. The aim of this project is for the quality of fruits and vegetables to be enhanced, so that our customers would get great quality at a great price. Everybody knows that working with fruits and vegetables is the hardest part of our operations and that it depends on many internal and external factors. This is an attempt to solve this issue in a thorough manner in the long term. I am proud of this project, as we will connect at least another fifty agricultural producers through it, and they will become stable partners to us.
There are also projects related to optimizing the spending of the work hours by our employees, the distribution, and, perhaps most importantly, employee education. We founded our own education center five years ago and we perfect models of education each year. This year, we are testing a model which brings together education, rating employee performance, awarding in line with the results and professional development of the employees. We believe that the future of Gomex depends on the success of this model.
eKapija: You have announced the development of your own trademark. How far has this project progressed?
– We started developing our own trademark four years ago. We started with the best price-good quality model and arrived at the specific product-great quality model. Throughout 2017, we kept redefining all our brands and turned to localized products such as frozen pies, fresh sausages, food supplements etc. We have 215 products with our own trademark and we do not plan to considerably increase the number of items. Our PL products must be thoroughly defined and carefully conceived, so that they would be a competitive advantage.
The idea is for us to be recognized for items our market knows well and for us to produce them using original recipes and without artificial additives. The end goal is for our customers to understand that we guarantee quality and health safety of the goods and that we are paid to take care of it instead of them.
eKapija: Neighborhood stores have become a global trend. What does this concept offer precisely? Have consumers had enough of megamarkets?
– The return to neighborhood stores is not a surprising process at all and is connected to social changes. An employed woman is no longer an exception, but a rule. She doesn't have enough time for house chores, but still wants her family to eat healthier.
This leads to an increasing use of prepared and semi-prepared food, which is a double-edged sword. Food should be bought at a store, but it should be good, tasty and safe. That's where local traders come in.
In my opinion, it's quite wrong to have to drive to the suburbs to buy fresh food. I'm sure that it's healthier and more cost-effective to buy smaller amounts of truly fresh food at your local trader, than to fill our the fridge with unnecessary food, 30% of which will be thrown away. Big formats base their profitability primarily on a small number of employees, which makes any kind of a closer contact between traders and purchasers impossible, which is the main difference in relation to local traders. A local trader who sees you in their store often is much more liable to understand your specific needs than an industrialized store such as a hypermarket. Of course, we are talking primarily about selling food to those who are not so price-oriented that they are prepared to accept the so-called junk food.
eKapija: In your opinion, what is the state of retail in Serbia like?
– Retail in Serbia has changed considerably in the past twenty years and is certainly a more successful part of the Serbian economy. We are all doing business in a rather open market, there is nothing that could be called a monopoly, no significant state interventions, and citizens can be generally satisfied with the supply. Of course, we are talking about a market where the average salary is under EUR 400, and there is no price low enough to satisfy an average consumer. Trade margins are on a critical level, but are still sufficient to cover the costs and enable development, but this is a serious problem, as salaries are low, which has a considerable impact on the quality of business. It's not likely that these problems can be solved without an increase of the GDP, and it only remains for us to be patient and persistent and to repair the system step by step.
eKapija: How do you rate business conditions in Serbia? Where is there the most room for improvement?
– There have been some positive trends regarding the conditions of doing business, but I believe that this is far from what is needed. Stabilized public finance has provided systemic stability, but this is still only just a basis for the realization of a successful society, and not a goal in itself. Seeing how the economy is not realizing any significant growth, and that the state is realizing a surplus, it is clear that the distribution is the problem, with local investments being the biggest loser. The state is constantly exercising the policy of the so-called zero impact on the budget, whereby no measure can lead to a reduction of the inflow to the budget. For the economy, this means “give with one hand, take with another”, a method guaranteed not to function. In essence, the inability of the state to solve the problem of the public sector is behind it all. The non-functional public sector is the noose around the neck of the economy, and without resolving that issue, each economic progress is only temporary. An increase in local investments is of crucial importance, and the current business environment does not benefit it. Of course, solving these problems is closely related to serious social tensions, which is why each responsible society needs to take care to distribute the burden of the reforms in a just manner. That's a real challenge.
eKapija: Which Swiss values do you admire?
– Switzerland is a small, wonderful country, without many natural resources and without much geo-strategic importance. As such, Switzerland could be an insignificant, poor country, but it is nevertheless perhaps the most desirable place to live in. The Swiss were smart enough to find their place on the global map, to turn their country into a gold nugget and keep it stable and successful. In this world where force is still the primary concept of resolving any conflict of interest, this is truly an admirable result, worthy of respect. I especially like the concept of internal democracy, whereby the will of the citizens is surveyed in frequent referendums. Nothing is ideal, but Switzerland is an experience that deserves to be studied in detail.
eKapija: What are your long-term plans?
– I am a bit of an old-fashioned manager, who prefers a certain amount of security in business, especially considering the fact that at least 1,750 families depend on Gomex. Global financial trends are very volatile and even more non-transparent, so our debt policy is rather cautious. That is why we've chosen the method of capital increase as an important source of additional finance. We are currently searching for a new investor and I believe that we will finish the job this year. Regardless of the results of negotiations with investors, we have development plans and realized predispositions allowing us to expect, with a high degree of certainty, to become a truly national company in the next five years. We have already penetrated a part of central Serbia, and we expect to organize another distribution center for the entirety of central Serbia in two years. As for further plans, we'll see what happens. Twenty years ago, even this seemed as likely as spending my vacation on the Moon.