Leading retailers continue to consolidate the Russian market

Amin Alkhatib
Senior Retail Analyst

Date : 07 May 2019

The three leading Russian retailers X5, Magnit and Lenta reported above market sales growth for the first quarter of 2019. Russia’s Ministry of Economic Development lowered its forecast growth of total national retail sales for 2019 from 1.7% to 1.6%. This is significant drop from the 2.8% growth rate reported in 2018. The three retailers continue to consolidate the market as they grow sales at three to 10 times the market rate.

Pyaterochka improved its shopper proposition and boosted footfall

X5’s year-on-year Q1 sales growth to reach RUB405,864 mn (US$6,088 mn) was slower than in the previous year, partly due to fewer store openings. However, it reported a dramatic increase in like-for-like growth, a key performance indicator it was struggling with in 2018. The improved performance was driven by the boost in traffic generated from an adaptable customer value proposition and assortment. Also due to improved customer services and roll out of personalised promotions.


X5 develops service offer at stores…

The retailer entered into a joint-venture with one of Russia’s leading online retailers, Ozon, to open 2,000 pick-up points and about 2,000 parcel lockers in Pyaterochka stores. The venture also includes the delivery of Ozon packages to these lockers via the subsidiary X5 Omni. To further support this strategy X5 will roll-out and operate 1,500 PickPoint lockers. Karusel, X5’s hypermarket format, also launched a Click & Collect service in Moscow and St Petersburg.


…and continues to grow with the help of small acquisitions

X5 completed the integration of 85 RITM-2000 stores it acquired in early 2019. The stores are in areas surrounding Moscow and St Petersburg and will be converted into 81 Pyaterochka and four Perekrestok stores. The retail group will continue to grow its network via a combination of organic store growth and tactical acquisitions.


Magnit in line with expectations

The retailer reported like-for-like growth for the second quarter in a row, in line with its expectations for the year. It opened more stores than in 2018, which supported its improved total sales growth to reach RUB289,700 mn (US$4,346 mn) in Q1 2019. However, profitability continues to be a struggle with margin dropping from 7.1% in Q1 2018 to 6% in Q1 2019. The retailer gave several reasons for the decline, which included lower revenues from new store openings and increased rent costs from more leased space.


Magnit rebrands under one single banner

In February 2019 the retailer rebranded four out five of its store formats. This includes its drugstore banner, Magnit Kosmetik. The rebranding also includes a new logo for the retailer under the slogan 'Let's bring families together!'. It will be used on the facades, signs in sales areas, private label product packaging and promotional materials.

As of March 2019, all new stores will be rolled out under the new brand. Magnit CEO, Olga Naumova, stated that “we are repositioning Magnit to truly serve every Russian family and so are creating a Magnit family of stores.” It also launched its cross-format loyalty programme at the end of Q1 2019.

Source: Magnit

Lower visit frequency and wholesale business slows Lenta sales growth

Lenta’s sales growth in Q1 2019 slowed down significantly when compared to 2018. This is due to a combination of factors. Much of that is due to a 61.5% drop in sales from its wholesale business, which is currently going through structural changes, and the closure four net stores in that period. Also its like-for-like sales performance was lower than the previous year because of lower frequency of visits, shoppers trading up and buying less in volume and food price deflation.


Utkonos owner on path to acquire Lenta

The owner of Russia’s largest pure online grocery retailer Utkonos, Severgroup, acquired a 42% interest in Lenta and has plans to acquire the remaining shares. This would make strategic sense as both retailers will be able to complement each other.

Both target similar shopper demographics, mostly middle to high income urban shoppers. The online retailer has a limited private label range, whereas Lenta can support it with learnings on developing its own brands or offer its own assortment to sell online. For suppliers this acquisition can widen the scope for collaboration from physical to online.

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