Development Prospects of the Wine Industry in Russia
Research by the Center for Investigations of Federal and Regional Alcohol Markets
Review of the Russian Beer Market
Research by Credinform Information Agency
Review of the Global Coffee Capsules Market
Research by the Company Euromonitor International
Review of the Russian Cookies Market
Research by the Company IndexBox
Review of the Russian Market for Meat Products
Research by the Company GfK Rus
Branding in the Russian Market for Bottled Sunflower Oil
Research by the Branding Company Labelmen
Review of the Russian Dairy Market
Research by the Company Laboratoriya Trendov
Review of the Russian Market for Non-Sweet Snack Foods
Research by the Company NeoAnalytics
Review of the Russian Market for Starch Products
Research by the Company ID Marketing
Review of the Russian Market for Canned Meat
Research by the Company AnalyticResearchGroup
Review of the Russian Market for Non-Cultivated Crop Processing Equipment
Research by the Company Eventus Consulting
Review of the Russian Food Retail Market
Research by INFOLine Information Agency
Review of the Russian Market of Packaging for Liquid and Viscous Foods
Research by Experts
23rd International Specialized Exhibition RosUpak-2018
Review of the Russian Market for Public Catering
Research by the Company NPD

Review of the Russian Market of Food Retail

Research by the Information Agency INFOLine
Russia is the third largest market of retail trade in Europe, following France and Germany. Today, retail trade is one of the key branches of the countrys economy, accounting for around 16% GDP. In 2017, retail trade turnover in Russia demonstrated growth by 1.3% in physical terms after dropping for two consecutive years (-4.6% in 2016 and -10% in 2015).
The Ministry of Industry and Trade of the Russian Federation is currently developing a new Trade Development Strategy for Russia, which includes the concept of comfortable consumer environment, which will be under the responsibility of local and regional authorities. According to the Ministry, an individual is supposed to have food, clothing, footwear, necessity goods and household goods within reach to be purchased, or to have the opportunity to eat at a catering establishment, no matter what Russian settlement they are in. Large commercial facilities such as hypermarkets and supermarkets should be within reach by transport. This is what comfortable consumer environment implies.
Deputy Minister of Industry and Trade Viktor Evtukhov states, Today, Russia's retail is in no way inferior to major global enterprises, and in certain aspects it even surpasses its foreign competitors. Russian companies often define the main trends in the consumer market.
According to INFOLine, the TOP-10 major FMCG chains (5 Retail Group, Magnit (Magnet), Auchan Retail Russia, Lenta (Ribbon), Dixi, Metro Group, Okey, Krasnoe&Beloe (Red&White), Globus and Monetka (Little Coin)) occupy 29.3% in the structure of the food retail market in Russia. As General Manager of INFOLine Ivan Fedyakov points out, Russian FMCG companies became strong and modern and can constitute serious competition, in particular to international retailers. This can be confirmed by the rating where no foreign companies could be found in the TOP-3 for the first time in years: X5 Retail Group is the leader; Magnit is second, and Lenta retail network reached the third position. All the leaders of the FMCG segment are national companies, which is not typical for the rest of Europe, where international retailers managed to conquer the markets in several countries. According to estimates by INFOLine, in early 2018, modern formats occupied 70% of retail turnover in the segment of food products in Russia.
Despite the strong positions of the industry leaders, the top networks are demonstrating multidirectional development. Growth rates of X5 Retail Group, Lenta and Krasnoe&Beloe have been exceeding the inflation rate, and the companies have been active in investments and increasing their shares in the process of market consolidation. According to INFOLine, Auchan Retail Russia, Dixi Group and Metro Group had revenue reduced in the past year, whereas Okey Group and Magnit demonstrated negative dynamics in comparable sales, showing limited investment activity (with the exception of Magnit, growth of which exceeded 1,600 FMCG stores). Weak results of certain top chains have led to cases of management restructurization. For instance, changes at Dixi Group began in late 2015 and lasted until 2017. Head of Auchan in Russia Jean-Pierre Germain announced his resignation in July 2017, and his position was later taken by Fran?ois Remy, Head of Auchan in Romania and Luxembourg. In May 2018, Metro announced that Pieter Boone, Managing Director of Metro in Russia, was leaving the company; his place was taken by Philippe Palazzi, who used to be in charge of the companys business in Italy. Due to the change of its main shareholder, Magnit reviewed its management team in 2018.
Experts at INFOLine believe that the FMCG market has switched from the phase of extensive growth to the phase of consolidation. The consolidation process takes place against the backdrop of growing competition among major networks, high investment activity of federal retailers, growth in specialized chains in large towns and cities, and the least efficient regional networks being displaced. These factors combined raise the industry's barrier for entry in the future. The 7% increase in the share of FMCG networks during the past 2 years decreases the share of traditional trade significantly. In 20162017, more than 100 regional chains left the market of FMCG retail trade, and specialized networks, such as alcohol markets, fresh goods, bakeries and other formats, demonstrated active development.
Fierce competition and the high rate of market consolidation require exceptionally efficient business models from companies they have to combine profitability of operating stores and openings of new efficient outlets. Under these conditions, long-term success and steady business development depend upon two factors: compliance with consumer expectations and efficiency of the commodity distribution chain.
Results of the INFOLine Retail Russia TOP rating reveal that in 2017, X5 Retail Group became the leader in the segment in terms of revenue for the first time since 2012, surpassing Magnit. Until 2020, X5 Retail Group is planning to maintain its growth rates and to open at least 22.5 thousand outlets per year primarily Pyaterochka (Five) discount stores. "X5 decided to focus on its three main formats Pyaterochka, Perekrestok (Crossroads) and Karusel (Carousel); in October 2017, its Perekrestok-Express business was put up for sale. In its report, X5 Retail Group announced its plans to reach a 15% share in the Russian FMCG market by 2020 (according to INFOLine, it equaled 9.5% in 2017). X5 occupied former facilities of around 100 Monetka discounters in Moscow and Moscow region, and acquired 32 Okey supermarkets in December, rebranding them into Perekrestok later, in 2018. As a result of M&A deals, in 2017 Magnit acquired 164 stores from 23 retailers, and the increase in retail space amounted to 18.7%. In 2018, the chain is planning to further increase the number of outlets to 400 through M&A deals. Lenta opened 40 new hypermarkets and 48 supermarkets in 2017 (8.2% growth). Thanks to high investment activity of federal retailers (X5 Retail Group and Magnit), discount stores developed the most among retail trade formats in 2017 growth in their market equaled 18%. Active transformation of the supermarket format by retailers has continued and involves a reduction of retail space, activation of promotional offers and optimization of trade facilities.
For 2018, INFOLine forecasts a trend towards expansion in the high-margin, fully controlled commodity distribution chain among retail networks from logistics, direct imports and private labels to online trade and development of wholesale trade as well as personalization of interaction with the consumer within the new business ecosystem based on extensive use of Big Data. Analysts at INFOLine believe that this phase in FMCG retail development can be called consolidation technological superiority.

Yana Voytsekhovskaya
Junior Project Analyst