Following a two-year break, Russian grocery retail began to grow in 2017; an increase of around 1.2% is expected by the end of the year. However, said growth cannot be called steady just yet – the ongoing decline in real household incomes in Russia has a negative impact on growth potential of the country’s retail trade. The Ministry of Economic Development has only been providing verbal support to real incomes so far, although the expected indexation of social benefits in 2018 is supposed to improve the situation.
According to sociological surveys, the Russian consumer model in 2017 still involves high propensity to save (even though the majority of the population is currently unable to increase their savings due to considerable expenditures on food and other necessity goods). This puts pressure on market development and defines a number of features of Russian retail trade. Analysts at “RBC Market Research” have examined the key trends in the Russian grocery retail market in 2016–2017.
Grocery retail has resumed its growth: for the first time since 2013, growth rates in real terms will be positive. However, this is happening in the context of statistical paradoxes connected with reduced real household incomes. An increase in salaries may not be considered steady, in particular due to plans of the Ministry of Economic Development and the Ministry of Finance of the Russian Federation not including a significant increase in social benefits, pensions and salaries to state employees. Said policy can be explained by a number of factors, the main ones being budget deficit and the need to curb inflation.
The key trends include ongoing market consolidation. The share of the 10 largest retail networks in food retail turnover in 2017 will almost reach 30%, and further expansion of chains in the regions will lead to closures among regional players and an increase in the share of major federal networks. “X5 Retail Group” and “Lenta (Ribbon)” were active in the market of mergers and acquisitions in 2017. “Magnit (Magnet)” also demonstrated attempts at M&A deals. Non-network retailers continued to reduce their share in the structure of retail trade turnover.
Not all retailers among Russia’s top 10 had it equally good in 2017: the highest growth rates in 2017 were demonstrated by the market leader, “X5 Retail group” – the company opened more than 2.9 thousand stores, and its revenue increase rates equalled 25.5%. High growth rates were also observed by the major hypermarket operator “Lenta”, having exceeded 19% by the end of the year; more than 80 new stores were opened by the company (hypermarkets and supermarkets, that is, large establishments). Double-digit growth in revenue was also demonstrated by “Krasnoe i Beloe (Red and White)” network – throughout the year it opened more than 1,300 stores and its revenue growth rate exceeded 40%.
Revenue of “Magnit” increased by 6.4% in 2017. Minimal growth in revenue, according to data for the first half of the year, will be demonstrated by “Auchan”. Revenue of “Metro Cash & Carry” in rubles remained virtually unchanged. “O’key” only grew by 1.1%, whereas “Dixy” decreased its revenue by 9%.
Russia’s largest chains are still expanding geographically. The leading federal retailers have been increasing the numbers of their stores beyond the Urals and in Siberia. In 2017, “X5 Retail Group” opened its first stores in Yamalo-Nenets Autonomous District, Altai Krai and other regions, and is planning to enter the market of Tomsk region in the first half of 2018. “Lenta” continued to expand its presence in Siberia, in particular through purchasing supermarkets of “Holiday” Group. The number of outlets in the Urals and Siberia were increased by “Verny (Loyal)”, “Magnit” (convenience stores in Krasnoyarsk) and others. Siberian retailers “Svetofor (Traffic Lights)” and “Yarche! (Brighter!)”, on the other hand, entered the Moscow market in the past year, whereas “Krasnoe i Beloe” retail chain has been actively developing in Saint Petersburg, the Southern Federal District and a number of other regions.
Technological development of retail has been taking place – increased workload of food retail chains and the implementation of online cash registers led to considerable investments in IT being required. For instance, the share of IT costs by the Russian major retailer “X5 Retail Group” reached 10% in 2017. The use of big data, face recognition, security, product availability control, self-service cash registers, the work of logistics centres, online cash registers, and electronic document management – these are only some of the ways of technology application in modern retail. In addition, the interest towards IT is increased by retailers opening online stores. In 2017, online stores were launched by “Perekrestok (Crossroads)” and “Globus (Globe)”; “Ozon” began to trade products of the ‘fresh’ category; and “Auchan” along a number of other chains reported being interested in online trade as well.
Retailers have been increasingly actively cooperating with startup companies and even creating their own business incubators – retail trade is gradually becoming one of the most technologically advanced sectors of the Russian economy.
Key trends also include ‘discounterisation’ of regional retail markets. Decreasing real household incomes and active development of federal networks result in forced retreat of regional networks into the segment of ‘soft’ and ‘hard’ discounters, food marketplaces and the like. Consumers who have to save due to decreased incomes and growing prices on food products have been increasingly choosing discounters as their main stores for food purchases.
Since late 2014, large Siberian retailers have been actively developing discounters, and Krasnoyarsk “Svetofor”, which entered the market of Moscow and Moscow region in 2017, continues to actively increase the number of establishments and revenue, being part of the 20 largest chains in Russia.
Last but not least, one of the main trends of the recent years has been the emergence of food service points and full-cycle meal production within private label development. Whereas in the past takeaway counters were typically only present at large premium chains and hypermarkets, nowadays they can be found in small convenience stores as well as in chains with no premium target audience (“Yarche!”, “Ya Lyubimy (My Beloved Self)” and others). Operation of catering points at stores is organised differently: large retailers tend to establish cookery departments which supply foods to outlets (“Azbuka Vkusa (The ABC of Taste)”), whereas in some retail chains production takes place locally at the given outlet (hypermarkets and convenience stores with smaller product ranges). Real food courts are created by the largest hypermarket chains within their stores (e.g. “Globus”).
Analytical Group Leader
“RBC Market Research”