Russia’s retail market in 2018 faced stagnant household incomes and food price inflation. This led shoppers to become more economical with their spending. As a result, retailers had to compete more for their share of spend in groceries, which has led to a slowing in real sales growth rates.

We look at the 2018 full year results and highlight how the leading Russian retailers managed in the face of the challenging macroeconomic conditions.

Source: IGD Research, YOY: year-on-year, LFL: like-for-like

Macroeconomic conditions main reason for X5’s slowdown

X5 continues to be one of the fastest growing networks in sales and store numbers, amongst Russia’s leading grocery retailers. However, its like-for-like growth slowed in 2018, which it put down to the lack of real growth in shoppers’ incomes, as they faced rising food price inflation toward the end of 2018. That said it maintained double-digit year-on-year sales growth as it opened more than 2,300 stores during the year.

Magnit’s transformation strategy shows some fruition in growth

The number two Russian retailer showed positive Q4 results, making it the first quarter in two years that it reported improving like-for-like sales. That also translated into improved full year results for 2018, which Olga Naumova, Magnit CEO, attributed to the investment in a new customer value proposition (CVP). As part of the strategy the retailer focused on category management, improved on-shelf availability and better store locations. Naumova stated that all new stores will be opened under the new CVP and will include improved layouts.

Lenta’s focus on ranging and marketing improves like-for-like growth

Lenta was the only leading retailer to report a better set of like-for-like sales in 2018 versus the previous year. It attributes this to the continued focus on the shopper, which has helped it grow average basket spend. The retailer said it continually revised its range to offer more relevant products and raise shopper awareness through effective and targeted marketing. This was done by tailoring its fresh assortment to suit regional demands, building supplier relationships to help it to extend and enhance its range, and actively engage with shoppers via its loyalty programme and in-store marketing.

Okey reports sales decline for first time in over 15 years

It reported a decline in sales, which at a total sales line was due to the disposal of its St Petersburg supermarkets to X5. This was accentuated by a 3.4% year-on-year sales drop at its hypermarket format. In 2019 it plans to focus on its discount format DA! and its new Okey compact hypermarket.

Dixy officially ceased to be a public company

The retailer had previously received permission, in December 2018, from the central bank to not disclose financial information. In 2019 it will focus on preparing for its merger with Bristol and Red & White, and a new strategy and structure for the new combined company.

Auchan Russia change in management

Following Auchan Russia’s second year of sales decline in 2018, Francois Remy, Auchan Russia CEO, took the executive decision to build a new team structure at the directorial level. Remy stated this was required “in order to improve efficiency”. He also stated that 2019 "will mark the re-launch of Auchan Retail Russia".

Subscribers can read the latest news about the Russian grocery retail market.

Russia’s top two retailers, X5 and Magnit, have added small in-store concessions of Post Bank in several stores as part of pilot projects being run by them both. These are in partnership with Russia Post, the parent of the banking service. Capitalising on the traffic generated by post offices and banking services will help both in their attempts to halt their declining or marginally growing like-for-like sales.

Magnit started with its own concession in post offices…

The retailer partnered with Russia Post in 2018 to open small Magnit concessions inside post offices. In June 2018 there were 12 stores and one mobile unit. The strategic move will benefit Magnit by traffic generated by the post office. While Russia Post benefits from the cost efficiencies in reduced overhead and distribution costs by sharing services and facilities with the retailer.

…footfall generated observed in store visit…

In our visit to the Arbat Street and Bumanskaya Street stores in November 2018 we observed the significant footfall attracted by the post office service.

Source: IGD Research

…and now Magnit supermarkets will introduce Post Bank concessions

In December 2018 Magnit launched mini-branches inside 10 supermarkets. The retailer will be using the post office’s own logistics to save transport costs for itself and its partner. The pilot of the in-store concessions will continue until the second quarter of 2019 when the decision of whether to scale it up will take place.

Source: IGD Research

X5’s Pyaterochka responds with own Post Bank concession

Three Pyaterochka stores added small in-store concessions, and it plans to open 50 of these in 2019. They will be available in cities with more than 10,000 inhabitants and in stores that are a considerable distance from post office branches. Testing will take about six months before the retailer decides on whether to scale up the project.

In-store concessions likely to be a common feature in Russia

X5’s Pyaterochka has been struggling to improve on its stagnant like-for-like results, while Magnit continues to report a decline in these terms. The two retailers are looking to revive their like-for-like performance via several means, the use of in-store concessions to boost traffic will be one. We expect these tests to show a successful return on investment, and for the concept to be rolled out more widely.

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Magnit and X5 have been investing in a range of supply chain initiatives to boost cost efficiencies. This is crucial to both retailers as they look to protect their profit margins, so they can sustain their 1,000-plus annual store opening strategies. From consolidated delivery to various transport modes, we look at how Russia’s top two retailers are looking to benefit.

Magnit and X5 opt for consolidated delivery service

The retailers partnered with Artlogic, a digital solutions company, in 2018 to connect them with suppliers and transport companies through an online platform for delivery ‘pooling’ www.pooling.me. The service allows transport companies to consolidate goods from different suppliers and deliver the orders to regional distribution centres (RDC). Orders addressed to one RDC are consolidated using a special online portal. Currently the service is available in the Moscow region and Rostov-on-Don, in southwest Russia.

Source: www.pooling.me

Delivery consolidation or ‘pooling’ benefits retailers and suppliers

There is no minimum order and the service is flexible enough to allow for varying sizes of deliveries. The aim of this system is to cut costs in fuel usage, reduce delivery times, increase frequency of deliveries, reduce incoming flows in warehouses, lower unloading downtime, and reduce the need for warehouse storage. Suppliers place a delivery order on the portal www.pooling.me, where they see the costs of the delivery. If the delivery exceeds 24 pallets, then the pricing changes in accordance to the price tariffs in place. The service works with suppliers such as Johnson & Johnson, L’Oréal, and local food suppliers to transport a range of products.

Source: www.pooling.me

Magnit tests new multi-mode delivery service

Magnit has been looking for several ways to reduce supply chain costs, one of which is a ‘piggyback’ (combined) delivery service. As part of this it has partnered with a Russia rail subsidiary. It combines transport methods of trucks and rail to improve the supply it provides to distant stores. It does this by loading the truck onto freight trains for part of the journey. It tested the service along the Novosibirsk-Moscow-Novosibirsk route and announced it reduced costs by 5%, and saved two days transport time, down from the typical five days when using trucks only. The retailer intends to pass on some of these savings to its suppliers and shoppers.

Source: www.magnit-info.ru

X5 will develop last mile delivery service

X5 is looking for innovative ways to boost supply chain cost efficiency via its innovation lab. In 2018 the lab introduced three supply chain pilot projects. As part of its five year plan in NextGen Retail, it is looking at partnerships with service providers and suppliers to develop a last mile delivery service.

Source: www.x5.ru

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