Russia: X5, Magnit and Lenta round up

Date : 16 November 2017

We look at the latest developments from Russia’s leading retailers. This includes X5’s store growth ambitions, loyalty programme investment and supplier expansion in Asia and elsewhere. Meanwhile, Lenta are expanding in Siberia.

X5 requests approval to acquire 37 Okey supermarkets

X5 Retail Group has submitted a request to Russian competition authority, FAS, to acquire 37 Okey supermarkets. Okey will continue to operate 72 hypermarkets and 59 discount stores.

Okey to focus in hypermarkets and discount instead

Okey has struggled to generate hypermarket and supermarket revenue and profit at the same rates in the past three to four years. Revenue growth has slowed, with like-for-like sales declining by 2% in 2017 so far, while profit margins have also gradually declined. Therefore, Okey looks to focus on developing its core banner ‘Okey’ hypermarkets and triple-digit growth performer in the discount channel, ‘Da!’.

X5 revises upward store opening forecast to 2,500 in 2017

More broadly, X5 has revised upwards its 2017 forecast to 2,500 store openings by the end of the year. Until now, the leading Russian retailer has been expanding the Pyaterochka discount network via partnership and franchise agreements. As such, the potential acquisition of 37 Okey stores is a different expansion tactic that may benefit both X5 and Okey.

X5 introduces machine learning in loyalty programme

In other news, to improve targeted marketing in Perekrestok supermarkets, X5 has applied machine learning software to process data from its loyalty programme. This will see it use data from the Perekrestok loyalty programme to offer increasingly personalised offers. Several other European retailers are pursuing similar strategies to compete and remain relevant with shoppers.

X5 to expand supplier relationships in Asia and elsewhere

Meanwhile, X5 is looking to expand the number of fresh food and non-food grocery imports from Asia and elsewhere in the world. The launch of a representative office in Hong Kong will allow the Russian retailer access to Asian imports and engage directly with suppliers. This will also improve procurement terms by bypassing distributors, allow more control over production standards and alleviate risks of supply shortages. The retailer will also consider establishing similar trade offices in Central Asia and South America. This is a necessary move for X5 since the ongoing existing embargo on European and US imports was recently extended to the end of 2018.

Magnit to expand pharmacy format as shop-in-shop concept

Elsewhere in the market, following Magnit’s launch of its first standalone pharmacy format, the Russian retailer is expanding the concept further. It has now expanded the pharmacy network to ten pharmacies inside Magnit Family supermarkets and hypermarkets. The retailer plans to reach 50 stores by the end of the year, most of which are shop-in-shops. Competitor, X5’s is also prioritising this area, with ambitions to operate more than 3,300 instore pharmacies by 2020.

Lenta expands in Siberia via acquisition

Elsewhere in the market, Lenta has acquired 22 supermarkets from Holiday Group. The stores’ average selling space is around 800 square meters within urban locations, and in line with Lenta’s supermarket format. The acquisition will support Lenta’s strategy to expand eastward. Ownership is expected to be transferred before the end of 2017 without the requirement of regulatory approvals.

 

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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.