X5 unveils expansion strategy for Eastern Russia

Date : 08 June 2017

X5 announced in its 2016 annual report that it will invest in the roll out of its Regional Supermarket model in the Urals and Siberia, and follows a pilot of the model in 2016. The focus of the model is to reduce store SKUs down to 8,000, focus on local and value-priced ranges, and maximise selling space to between 65%-70%.

X5 expands distribution centres

In 2016 X5 opened six distribution centres (DC) across Russia, the second year running in which it leads the market by number of DCs opened. In Q2 2017 X5 opened its seventh distribution centre (DC) in the Urals and its first Pyaterochka in the Yamal-Nenets region. X5 also announced that its DCs can potentially support a further 80-90 new stores in Yamal-Nenets, which underscores intentions for DC expansion eastwards.

Roll out of Regional Supermarket model

X5’s regional model will open Perekrestoks that are tailor-fit to the needs and consumer affordability of each region. X5 will target medium income households, and focus on value pricing and private label, and trade more with local producers. This would require a logistical infrastructure to fit the transport requirement in the vast geography of the Eastern federations, whilst keeping costs down.

Coop-Pyaterochka: A controlled approach to franchise model

X5 again shows interest in the franchise model. Earlier in 2017, X5 signed a five-year cooperation agreement with the Central Union of Consumer Societies of the Russian Federation (Centrosoyuz) to open 1,000 franchise stores in remote rural areas under the joint-brand COOP-Pyaterochka. This contrasts with 2007, when X5 entered into joint-venture agreements with a group of investors to franchise its Pyaterochka banner which it bought back years later.

Pyaterochka in transport hubs and food-to-go potential

In June 2017, X5 entered into a partnership to open Pyaterochkas in around 600-1,000 Passenger Service Centres (PSCs) at transport hubs across Russia by the end of 2021. The PSCs will have access high footfall areas commonly by working professionals and tourists. This will raise the opportunity for foot-to-go missions and top-up shop missions.

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.

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