Aurora Multimarket Chain During the War: Focusing on Growth Instead of Waiting
Large retail chains were among the first to be affected by the dramatic impacts of the full-scale war in Ukraine. Many of them had to quickly address the safety of their people working close to combat areas, rebuild their logistics, revise cooperation with suppliers and effectively reengineer their business from scratch. In this context, some businesses have chosen to freeze any major projects developed before the full-scale invasion and focus on retaining the existing scale of business. Conversely, others see the turbulent times as new opportunities for growth. This is the approach that Aurora multimarket chain adopted - to not only continue growing in the Ukrainian market but also actively expanding its business in Europe. Taras Panasenko, Aurora’s CEO, and Olena Volkova, PwC Ukraine Partner, spoke about the challenges the company faces today.
Taras Panasenko
Aurora
CEO
Olena Volkova
PwC Ukraine
Partner
Taras, the full-scale invasion has dealt a severe blow on many businesses, including some industry leaders in Ukraine. Nearly all of them had to thoroughly reconsider their business processes, their strategy and sometimes even their philosophy. Please tell us more about the transformational processes within Aurora chain that enabled your chain to not just stay at the pre-war level but grow nearly twofold during this time.
“We made a strategic decision to act and grow instead of waiting”
To begin with, I would like to share a curious fact: for 2023, we also expect a twofold growth compared to the previous year.
After the beginning of the full-scale invasion, similar to many other large businesses, we, sadly, lost our most valuable asset, being our people. We also lost over 100 stores. And yet, we decided not to focus on material losses, as this was pointless. Instead, we chose to focus on the opportunities.
Aurora’s philosophy is to be people-oriented and it has stayed unchanged. We genuinely wanted to help the Ukrainians by keeping prices fixed for essential goods, sometimes going as far as selling them at a loss. Our staff also required support.
I would like to stress that we continued paying our suppliers’ invoices after 24 February 2022, coming as a nice surprise to them. In May 2022, we launched a new distribution hub and then returned to opening stores starting from June. We made a strategic decision to act and grow instead of waiting. Obviously, similar to other businesses, the team and I went through numerous difficulties and challenges, including the missile strikes, the fuel crisis, the disrupted supply chains and the blackouts. We were able to overcome them thanks to the efforts of our tight-knit and highly-motivated team and I would like to take this opportunity to thank my colleagues for that.
I see that your decision to focus on growth included expanding to EU markets. What made you venture in this direction and what was the driver in choosing the jurisdiction?
“The full-scale invasion triggered and accelerated our expansion to the EU market”
Our plan to open stores in the EU was developed back in 2021. The full-scale invasion triggered and accelerated this step. Poland was an obvious first choice. However, as you know, we ended up choosing Romania instead of Poland to scale our business out of Ukraine. Our decision to open stores abroad was based, first of all, on the understanding that we are capable of being competitive in these markets.
Romania means a18-million-strong population and a huge market, which is comparable in size with the Ukrainian market due to the population’s higher disposable income. Of course, it is also a step towards the diversification of markets, which will be helpful later, at the IPO stage.
It is true that, back in the day, I was somewhat surprised by your choice of Romania, which is why I would like to find out more, considering that Aurora has opened at least 5 stores there.
“Sometimes, opportunities can be found in less obvious scenarios”
A little bit more, keeping in mind that we opened our 6th store in Romania on 22 December. So why Romania? This is about the fact that, sometimes, opportunities can be found in less obvious scenarios. It is true that, historically, Poland’s culture and market have been a lot closer for us. Romania is a Latino sea of sorts in the surrounding ocean of Slavic countries. In the summer of 2022, we engaged consultants to conduct a multi-factor study, and the Romanian market proved a lot more favourable and fast-growing with a lower competition level than the Polish market. Poland has an extraordinarily high level of competition in retail. Moreover, once you cross the border and set off to drive from Chernivtsi to Suceava, you quickly realise that everything except the language - which is completely unlike ours - is very kindred for us, including the cultural code.
We respect this country and its people and they genuinely respect us. To give you just one example, Romanian customers often ask, “When will Aurora stock more goods from Ukraine?” So we are now working hard with our Ukrainian suppliers to make this happen. Our 2024 target is to bring the share of Ukrainian-made goods in the Romanian Aurora to 20%. Currently it's 5% of the revenue and 15 producers, i.e., Biosphere Corporation, Astra Cosmetic and Ergopack, who already import their goods to Romania for our chain. For many of them it is their first experience exporting to the EU.
What is your company’s plan to win the Romanian consumers over? Do you intend to rely on your business philosophy and culture from Ukraine or to adapt to local customs and preferences? And how will your team develop Aurora Romania?
“You need to be able to adapt to the specific market of the specific country”
The experience of retailers from various countries operating in multiple markets shows that they generally tend to demonstrate impressive performance only in several jurisdictions. In others, they mostly have quite mediocre results, demonstrating barely positive EBITDA (note: Earnings before Interest, Taxes, Depreciation and Amortization, an analytical indicator). Hence the conclusion - you need to be able to adapt to the specific market of the specific country.
This takes a local team. In Romania, our team comprises mostly locals, including the CEO, Anca Iancu, our amazing manager. Our customers in Ukraine are also mostly locals, we have over 90% of them. We aim to build - and we have been building - exactly the same Aurora that we know so well in Ukraine by implementing our best practices, Lean approaches, product range management system and the marketing strategies.
So you have fully delegated the growth of Aurora Romania to your local team?
“... to build the same Aurora in Romania that we know in Ukraine”
It is a mix of the local team and the Ukrainian international expansion team. The role of the expansion team is to build the same Aurora there that we know in Ukraine, by providing extensive support to the local team in replicating the processes and helping them get inspired by Aurora’s culture. In addition to that, all top managers from Ukraine are involved in achieving the growth and success of the Romanian business. It is an important OKR (note: Objectives and Key Results) of our business.
Aurora previously reported its plans to open over 50 stores across EU countries next year. Which jurisdictions are you considering as a first priority, other than Romania?
At the moment, our international expansion efforts focus entirely on growing the Romanian business, and the 50 stores are planned for opening next year in this country. Additionally, we have plans to enter the Moldova market, which is relatively small in size but important in terms of the coverage and profitability. Next, Balkan countries and other CEE countries look quite organic. Yet, research is still in progress and it is quite early days to discuss specific plans.
During our discussions with other Ukrainian companies, which have similarly expanded outside of Ukraine, we have learned about their first impressions from opening a legal entity in various jurisdictions. In certain countries, it is entirely possible to incorporate a company and launch a business within three months, whilst in others, just opening the bank account alone will take over two months. Does this leisurely pace deter Aurora at all?
We have already gained some experience opening bank accounts abroad, specifically in Romania. It is indeed a complex bureaucratic process that takes months. You just need to be prepared for this and engage experts that will help understand the process and travel this path as quickly as possible. Generally, it is not a significant obstacle as long as there is an understanding of the process, transparency and a clear goal in place.
There is also a large number of other bureaucratic processes and EU regulations that don't exist or are different in Ukraine. Therefore it is a huge advantage in that context to also have a local team, which is familiar with these formalities, and professional consultants.
What are your plans for growing your business in Ukraine? If the opening of your third distribution hub is any indication, you have no intention of slowing down.
We are moving towards the global market, although the Ukrainian market will continue generating over 50% revenue in the nearest 3 to 4 years. During 2024, we will launch yet another new Aurora distribution hub in Ukraine.
Would you advise other Ukrainian businesses to actively invest in international growth and to accelerate Ukraine’s economic integration into the Eurozone in that way? And, if yes, what benefits would businesses gain by doing that?
“Entering international markets is the premier league available to Ukrainian businesses. Ukrainian businesses should represent Ukraine worldwide.”
I often ask myself what our path needs to be like for Ukrainian businesses, resourcefulness, and entrepreneurship to become the same brand as the bravery and resilience of our military, for the Business from Ukraine brand to stand hand in hand with the likes of Leontovych, Sikorsky, Havrylyshyn, Kondratiuk and other world famous Ukrainians. There is only one answer here: one should not hesitate to leave the home championship to play abroad. Although the competition there is often higher, this is an ambitious OKR to set as a target. Ambitious and yet, still achievable.
We and other companies that succeeded in their international expansion are the living proof. Not only does it strengthen Ukraine, but also improves your business’ value proposition to each customer, including those in Ukraine, since you can now play on the global, more competitive, level, where customers are often more exacting but also have a higher disposable income. Entering international markets is the premier league available to Ukrainian businesses. Ukrainian businesses should represent Ukraine worldwide.
You posted a Facebook update recently that Aurora is open to talent in any area. You don't have a specific opening or need but instead, you are looking for talent to build their own successful careers and contribute to Aurora’s growth. I thought it was an original approach. What other out-of-the-box ideas do you have in store or have tried out?
“On a monthly basis, we implement over 100 ideas of our employees”
Yes, we are open to talented and ambitious individuals. I am confident that Aurora is a wonderful environment to realise their full potential. It is often the case that we first look at the individual and then try and think where he or she will best succeed, in what role.
We have extensively implemented Kaizen, one of Lean methodologies. To give you a very high-level summary, each employee can suggest an idea to improve processes or anything in their environment and the idea will be considered by the Kaizen Council that comprises 2 permanent members and three rotated members. As a result, we implement over 100 ideas monthly that could likely be lost without this tool. We reward our people with Kaizen points, recognition and promotion of their future growth.
Another interesting practice is the transparent relationships we have with our vendors. For example, we arrange regular meetups (Zoom meetings) with all our suppliers, usually attended by over 300 vendors. During these meetings, we share our plans, updates and give our suppliers a chance to see and talk to each other. It is important that they are free to ask any questions or highlight our areas for improvement. We record and thoroughly analyse these and provide feedback during the next meetup. Each problem is an opportunity to become better today or tomorrow. Problems are the treasury of growth.
Impressive! Thank you, Taras, for such an engaging conversation and may Aurora successfully bring all these ideas to life during its expansion to the European markets.
Aurora in Times of War:
- The company Aurora started operating in the market in 2011 and currently runs a network of 1300 stores in Ukraine and 6 in Romania.
- After the onset of the full-scale war, Aurora opened six stores in Romania and plans to expand in the European market actively.
- In 2023, "Aurora" contributed over 3 billion UAH in taxes to the budget.
- In 2022, as part of a charitable initiative in collaboration with the NGO Zemlyachky, they successfully raised 6 million UAH, producing 1,000 sets of winter uniforms for women.
- In 2023, "Aurora" conducted seven charitable campaigns, raising over 55 million UAH for military support and social projects, including:
✔ 10 million UAH allocated to the Defense Forces through the "Save the Future Together" and "Guardian Drones" campaigns.
✔ 1.5 million UAH contributed after the "Safety Ribbon" social initiative to support the "Long Arms of Territorial Defense" project.
✔ 11.2 million UAH raised through the "Path to Victory" campaign via the official fundraising platform of Ukraine "UNITED24" as part of the "Drone Army" project.
✔ Within the "Country of Native Hearts" campaign, 5 million UAH was collected for the restoration of the Pediatric Burn Center of the First Medical Union in Lviv.
✔ 6.4 million UAH directed towards operational donation.
✔ Through the "Cossacks and Aurora" campaign, 8 million UAH was raised.
✔ 10 million UAH was donated to the NGO "Zemlyachky" to produce warm military women's uniforms.
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