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26th International Exhibition for Food, Beverages and Food Raw Materials “Prodexpo-2019”
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27th International Trade Fair “Upakovka-2019”
22nd International Trade Fair “Interplastica-2019”

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 country’s 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 (“Х5 Retail Group”, “Magnit (Magnet)”, “Auchan Retail Russia”, “Lenta (Ribbon)”, “Dixi”, “Metro Group”, “O’key”, “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 “O’key” 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 company’s 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 2016–2017, 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 2–2.5 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 “O’key” 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