X5, Magnit, and Dixy will expand their store offer in 2017 with the addition of instore pharmacies across their network. Such a move is expected to drive footfall, broaden shopper mission for their customers, and raise average basket spend. This will be due to the expanded assortment of health and beauty and consumer health products and the relatively higher ticket item spend that comes with these categories.
Instore services already part of Russian retailers’ strategy
X5, Magnit, and Dixy are already committed to a multi-format operating model that grows organically. X5 and Magnit look to increase store density in key urban centres, and absorb more customers from their stores’ catchment areas. So, the offer of additional product assortment and services instore will improve the retailer’s store KPIs with more choice and convenience for their customers. In addition, there will be minimal impact on retailers’ margins since instore service expansion tends to have a relatively low capex as it does not require additional land or building requirement.
X5 to broaden consumer base with pharmacy partnerships
X5’s strategy for 2017 is to broaden Pyaterochka’s consumer base with sublease partners that will provide various instore services, especially pharmacies. In 2016, X5 signed a cooperation agreement with “Megafarm” to be the priority supplier for more than 3,300 instore pharmacies by 2020. These tend to be pharmacies sized between 20m² and 200m² and located at the checkout area, or as a shop-in-shop within Pyaterochka stores. Additional expansion is likely with the development of X5’s Pyaterochka stop & shops across Russia’s key transport hubs.
Magnit to launch pilot pharmacy in 2017 summer
Magnit’s Deputy General Director, Ilya Sattarov, announced that the retailer will pilot at least four pharmacies as early as June 2017. Magnit is already present in the drugstore channel with its own retail brand ‘Magnit Cosmetic’ that will be piloted as an in-store format within the hypermarket and supermarket banners. This is a move the Russian retailer is committed to because its certainty that consumer health and pharmaceutical sales are in a state of growth from a low base. In addition, Magnit’s drugstore format reported a 7.6% growth in LFL average ticket for FY2016 - the only format to significantly grow that year.
Dixy partners with K+31 to roll out more instore pharmacies
Dixy’s Director of Business Development, Evgeny Malkov, said Dixy Group agreed a partnership earlier in 2017 to place 230 K+31 pharmacies across its network. Dixy Group already operates its own-network of instore pharmacies in some branches, but now looks to other pharmaceutical retailers to open their own units across the remaining stores.
Opportunity in health and beauty brand manufacturers
An expansion of instore pharmacy services in Russia amongst these three retailers will mean a possible roll out of instore pharmacies across 14,000 stores in Russia in 2017 and 2018. Almost 90% coming from the Pyaterochka banner alone. Suppliers can think about trading opportunity in the health and beauty category.
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Amin Alkhatib, Retail Analyst CEE, IGD International: based in London, UK, Amin is responsible for shaping IGD's research in Central and Eastern Europe; as well as contributing to IGD's broader European research programme. Follow me on Twitter @Amin_IGD for further insight on the region’s retail landscape.