Large Russian grocery retailers continue to outperform in the crisis
Published:27-January-2009
By Datamonitor staff writer
Despite the deteriorating macroeconomic and financial situation in Russia, some of the country's leading grocery chains have reported significant sales uplifts in 2008. Moreover, Russia's largest retailer, X5, expects many small grocers to drop out of the market in 2009, representing a significant opportunity for larger players to consolidate their positions through mergers and acquisitions.
Several of Russia's largest grocery retailers have so far proved resilient to the downturn, reporting buoyant sales growth in 2008, despite worsening trading conditions as the global financial crisis and falling oil prices negatively impacted upon the Russian economy.
X5 Retail Group, Russia's largest retailer in terms of turnover, reported a 53% rise in sales in 2008. X5's rampant sales growth came on the back of 233 new store openings, including the 24 Karusel hypermarkets which it acquired in June 2008. Growth through organic store openings and acquisitions, combined with a solid like-for-like performance (+22%), ensured that X5 remained ahead of the pack in 2008. This put the group, which operates over 1,000 stores under several formats including hypermarkets, supermarkets and discounters, in a strong position to confront a difficult market in the year ahead.
Meanwhile, Magnit, which operates over 2,000 convenience stores and 14 hypermarkets in the Russian Federation, revealed a 44.0% rise in sales in December, despite worries that the country's deteriorating economy could dent consumer confidence and retail sales over the holiday period. Sales for the year were RUB132 billion (E3.6 billion), a like-for-like increase of 18.8%.
Seventh Continent, the largest grocery chain in Moscow, reported a 22.5% rise in sales in 2008. The company increased its selling space by 17% in 2008, opening 14 new stores, including three hypermarkets. The retailer now operates a network of 140 stores in Russia, including 131 supermarkets and nine hypermarkets.
The buoyant performance of some of Russia's leading grocery chains comes at a time when smaller players in the market are suffering the worst effects of the crisis: tightened credit means that many are defaulting on supplier payments, preventing stock replenishments and leaving store shelves empty. X5's CEO, Lev Khasis, has said that weaker consumer spending and the lack of credit could result in up to a quarter of Russia's smaller grocery stores going out of business in 2009 as conditions deteriorate further.
Commenting on X5's situation, Mr Khasis said that the group would not have problems getting access to credit as it leads the list of retailers that are eligible for state aid. Indeed, struggling smaller retailers represent an opportunity for X5 to increase its store portfolio further through acquisitions.
X5 has been on an acquisition spree in Russia for some time, its biggest purchase being Karusel in summer 2008. In December 2008, the retailer acquired Agrotorg-Rostov, which helped to bolster its presence in south Russia. Meanwhile, other grocers are following suit. Magnit acquired a 17 hectare land site in the Adler district of Sochi at the start of 2009, on which it plans to build a new hypermarket. Verdict Research expects Russia's leading grocery chains to make further acquisitions, including real estate and struggling smaller competitors, in the year ahead.
Russia's leading grocery retailers are likely to suffer the least in the current crisis, although they will undoubtedly feel some of the impact. The non-discretionary nature of their core offer will mean that sales are relatively insulated as consumers cut back on non-essential spend in areas such as clothing and electricals. The grocery retailers best positioned to confront the crisis are those operating at the discount end of the market. As price has become the most important issue for Russian consumers feeling the pinch, discount chains such as X5's Pyaterochka, Kopeyka and Dixy will likely see customer numbers rise in 2009.
