Having offloaded its supermarket business to X5 Retail Group, Russia's O'Key Group is now focused on growing its presence in the discount channel, according to its annual report.
Announcing an increase in total group revenue of 1.1% last year, to RUB 177.4 billion (€2.5 billion), O'Key chief executive Miodrag Borojevic said that the competitive retail environment in Russia has led to it focusing primarily on its 'compact hypermarket' and discount channels.
While 2017 was a year that saw economic recovery in the Russian market, "aggressive selling space growth ahead of food retail sales continued to put pressure on the performance of more mature stores", he said.
"In this regard, in 2017, we made a strategic decision to sell the business of supermarkets in order to focus on compact hypermarkets and discounters businesses development to attain greater efficiency and higher profitability."
O'Key is not the only Russian retailer to have put profitability on the agenda in recent months, with Magnit CEO Sergey Galitskiy leaving the retailer in February, following what was believed to be a difference of opinion with shareholders as to the best course of action to take, in order to maintain growth.
Growth Potential
O'Key's discount channel, which operates under the Da! brand, saw revenues increase 80% last year, albeit off a small base, with the segment posting RUB 10.4 billion worth of sales.
It opened 13 discounter stores last year, in the Moscow, Tula and Ryazan regions, with the segment's growth primarily driven by stable growth in traffic and an increase in average basket size.
Basket size was up 11.7% across the Da! estate last year, with traffic rising by close to two thirds (62.8%).
Its O'Key hypermarket business, meanwhile, saw revenues decrease 1.6% year-on-year, to RUB 167.1 billion, due to 'intensifying competition and the closure of two hypermarkets in the first half of the year'. It also opened one new hypermarket in the period, in Yekaterinburg.
Like-for-like basket size was up 2.7% across the O'Key estate, however traffic was down 4.3%, the retailer said.
It announced its intention to sell its 32 supermarkets, including 18 in St Petersburg, to X5 Retail Group last December, with X5 CEO Igor Shekhterman saying that the transaction is "fully in line with our strategy of strengthening Perekrestok’s position as the leading supermarket chain in Russia."
Discounter
In terms of the supermarket channel at least, O'Key seems content to leave its rival to it. In terms of discount, however, the retailer is not lacking in ambition.
Commenting on the group's plans, Armin Burger, chief executive of Da!, said that last year saw the progression of a "unique for Russia store format of a classic discounter", with the Da! Store count reaching 67 locations by the end of the year.
"The coordinated efforts of the team, along with a strong value proposition where low prices meet quality assortment that covers the daily needs of every customer, have enabled us to demonstrate the consistent growth of LFL indicators."
The group has also boosted its private label presence, increasing its number of store brand SKUs to 900, 180 more than last year, and has also rolled out e-commerce operations in St Petersburg and Moscow, one of the first grocers to do so in the Russian market.
It may be working off a considerably smaller base than that of its rivals - 145 stores, compared to more than 11,500 at X5 Retail Group, but in terms of aligning itself with the needs of its consumer base, O'Key may have a few aces up its sleeve.
© 2017 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
