Further consolidation is likely in the Russian grocery industry in the coming years, particularly as larger retailers expand their geographical footprint, Lenta chief financial officer Rud Pedersen has said.
In a media call following the announcement that Lenta is to acquire the assets of Billa Russia, Pedersen said that it was an "opportune time" for further consolidation, with the country's federal retailers being among the main beneficiaries of increased shopping spend during the pandemic.
"I believe there will be consolidation, simply because retail is partly driven by economies of scale," Pedersen explained. "Hence, there is a competitive advantage for those retailers that are large, can negotiate better terms and conditions with suppliers, and can have a more efficient operating model, which is difficult for smaller retailers to compete with."
New Wave Of Consolidation
Lenta's announcement came just 24 hours after Magnit announced that it was acquiring the Dixy chain, and Pedersen added that he believed the Russian market was now on the cusp of a 'new wave' of consolidation.
"I think what we're seeing right now is that some of the local and regional players, which in many ways can still be sizeable, are being exposed to increased competition, as federal retailers have been expanding," he said, adding that the "next natural step" for these retailers was to look at consolidation as the "avenue for growth".
Lenta's purchase of the Billa Russia operation gives the retailer a stronger presence in Moscow, particularly in online, and Pedersen believes the transaction enables it to be "a relevant player, and not just a niche player" in the Russian capital.
"The Billa acquisition does give us a very strong footprint in Moscow, from which we can run our online model," he said. "This is different to what other players have introduced, in the sense that we pick, pack and ship from our stores. Hence, we try to have an online model that is really about fast delivery and proximity to our stores."
Market Opportunities
Going forward, Lenta's main focus will be on Moscow, St. Petersburg, and Novosibirsk, however the retailer is also exploring other regions, particularly areas in which it can potentially achieve a No.1 or No.2 position in the market, which is one of the targets it outlined at its recent Capital Markets Day.
"If there are opportunities outside Moscow, St. Petersburg, and Novosibirsk, which would enable us to take a number one or number two position, or expand an already existing number one or number two position, then we would be interested in such an opportunity," said Pedersen.
As he noted, in Russia, the top five players in the marketplace hold around 30% of the market, while in a market like Germany, the equivalent market share is 75%.
"If we are going to move towards what we see, for instance, in Germany or in the UK, then that means that the top four or five players needs to double their combined market share within the next four to five years," Pedersen said.
© 2021 European Supermarket Magazine. Article by Stephen Wynne-Jones. For more Retail news, click here. Click subscribe to sign up to ESM: European Supermarket Magazine.
