Russia: Magnit and X5 battle for top spot

Date : 30 March 2017

We look at the top domestic Russian retailers Magnit and X5 and their ambitious growth strategies. We review their aim to take hold of the top spot and present our expectations for 2017.

X5 out-performs top Russian Retailer Magnit

Market leader Magnit, reported a 13% growth in 2016 sales. In the same year, it was outperformed by X5 at 27%. X5’s performance was driven by its dynamic increase in store numbers adding over 2,000 stores in one year, improved like-for-like sales growth, at 8%, and average ticket growth, at 2.5%.

Magnit’s 2016 like-for-like performance was one of the least dynamic amongst the top Russian retailers with a 0.4% increase, as well as an average ticket growth of 0.6%. This had hindered the number one Russian retailer from outperforming its close domestic rival X5 regardless of adding almost 2,000 stores to its network the same year.

X5 expected to overtake Magnit in 2017

We expect X5 to take the top spot in 2017 in terms of retail sales, reaching over RUB 1,330bn (€17.8bn), marginally surpassing Magnit. This is considering that market shares between X5 and Magnit were marginally equal in 2016. X5’s ambitious 2020 growth plan and healthy like-for-like performance means it is likely to continually outgrow Magnit over the coming three years.

Plan in 2017 for X5 and Magnit

Magnit will maintain its lead in terms the the most number of stores in Russia over the 2017-2021 period. This is regardless of X5’s ambitious and likely plan to close that gap significantly by 2020. Both retailers are looking for nationwide expansion, especially to new geographies, and into smaller population centres outside the core population centres and in Eastern federations.

Plans for 2017 will be further vast store expansions from most retailers, but a sizable portion of the growth will be derived from X5 and Magnit. X5 is already trialling a regional supermarket model outside of Moscow and St Petersburg that it is looking to roll out in the coming years. X5’s model will involve widening the assortment of low- and mid-priced products that suit consumer spending power in lower-income federations. By rationalising its product range to fit the affordability ladder of consumers in the eastern provinces it can attract traffic to their stores.

New store formats

Beyond store number growth both retailers will also look to widen their channel portfolio. Magnit is due to launch instore pharmacies with the intention of raising store footfall. Whereas X5 announced it will be launching online Perekrestok later in 2017 to serve the Moscow area. This will involve an integration with Perekrestok.ru for more personalisation via its loyalty programme.