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Russia’s largest retail company, X5 Retail Group, operates on a different scale to most of its peers. The number one Russian retailer in terms of sales added a record 2,934 new stores to its network in 2017, and has recently opened its 12,500th store.
It reported sales of RUB 1,286.87 billion last year, leaving behind its next closest competitor, Magnit, with sales of RUB 1,143.29 billion, despite the latter having a larger store network of 16,350.
And X5 has no intention of slowing down.
The Russian retail market may still be largely fragmented, with ‘mom and pop' stores dominating the scene. However, fuelled by a steadily-growing middle class, Russia will be sure to see the dominant retail names from the metropoles expand into the far reaches of the world’s largest country.
Digital Expansion
Recent signs of X5’s growth plans came from the recent announcement that it would open two new dark stores in Moscow and St Petersburg by the end of 2018. The move will see an investment of around RUB 70-90 million in each warehouse and aims to support the group's expanding online grocery operations.
The retailer brought one of its three store formats, Perekrestok supermarkets, online last April, and anticipates its e-commerce unit to account for about 2% of the banner’s total revenue within the next three years.
In November, X5 began introducing big data technology to personalise offers for members of its Perekrestok Club loyalty programme.
By grouping customers into segments based on common behavioural and demographic factors the retailer has been able to create over 70% of personalised offers. With one of the largest retail markets in Europe, this data will provide X5 with an invaluable insight into its customers.
"Intelligent systems are set to become increasingly important for businesses, which is why are paying close attention to data processing," said Fabricio Granja, X5 Retail's chief information officer.
"The Perekrestok project is a successful case of using data analytics produced by a self-learning system to foster customer loyalty. Marketing offers that are created based on hundreds of factors increase the effectiveness of targeted marketing by 5% and reduce communication costs by 40%."
Targeted Growth
While technology will streamline its operations and add modern glitz to its stores, physical expansion still lays the foundations for X5’s growth.
For starters, the retailer has focused its efforts on its three main store formats, Pyaterochka proximity stores, Perekrestok supermarkets and Karusel hypermarkets.
Last October, the company revealed plans to sell its convenience format stores under the Perekrestok Express banner in Moscow, due to the fact that the concept accounts for less than 1% of the group’s revenue.
"Convenience stores like those that Perekrestok Express operates in Moscow, which have a selling space of up to 200 square metres, certainly have potential," said Igor Shekhterman, CEO of X5 Retail Group.
"However, they represent a fairly narrow segment of Russia's modern food-retail market, in which proximity stores, supermarkets and hypermarkets occupy more than a 90% share."
Over the past year, the retail group bolstered its supply chain by growing its pool of suppliers by 1,050 new manufacturers from 63 regions across all of Russia’s seven Federal Districts, bringing its total to around 5,000 suppliers.
Western Dominance
Growth remained strongest in the western part of the country, with over 85% coming from regions west of the Ural mountains. Meanwhile, Siberia and the Ural region together made up 15%.
One of the most successful growth tactics for X5 has been acquisitions of smaller retail chains, such as supermarkets, and its potential takeover of 100 Ufa stores.
The group also looked beyond its borders by opening its first trade representative office abroad in Hong Kong, aiming to boost direct imports and open a gateway into South-East Asia.
What’s more, the retailer voiced its intentions to establish direct imports from six more countries all over the world, including Bosnia, Mexico, Namibia, Madagascar, New Zealand and Iran.
While these far-flung outposts still seem a bit aspirational, X5 has shown itself worthy to the task of dealing in big numbers. It is harnessing the combined trends of growing economic prosperity at home and increasingly omni-channel strategies, as forecast by Euromonitor International.
However, Magnit is close on X5’s heels and the next retailer on the list, Lenta, is zeroing in on perfecting the hypermarket segment. Homegrown retailers will also be able to benefit from Russia’s tax-free system for foreign consumers, introduced last November.
As the Russian economy continues to recover and its retail becomes more modernised, X5 will likely play a key role in this important market and beyond.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Kevin Duggan. Click subscribe to sign up to ESM: The European Supermarket Magazine.
