Russia’s X5 Retail Group Opens Trade Office in Hong Kong

Russia’s X5 Retail Group has opened its first overseas sales office in Hong Kong, the company said in a press release.

X5 is also considering opportunities to establish similar trade offices in Central Asia and South America.

“A permanent presence in Hong Kong, the business getaway to South-Eastern Asia, will enable X5’s procurement team to improve purchasing terms and build up the share of direct imports in a number of product categories, primarily fruit, vegetables, seafood and non-food goods,” the company said.

“In 2017-2018, X5 intends to establish direct imports from another six countries – Bosnia, Mexico, Namibia, Madagascar, New Zealand and Iran. The Company is open to cooperation with producers from other countries looking to tap into the Russian market and is ready to offer favorable procurement terms,” the company said.·

In 2017, the number of countries where X5 has direct relationships with suppliers reached 27. Direct imports already account for almost 50% of supplied fruit and berries. In the 18 months after the launch of the direct import programme, the total number of direct suppliers reached 200.

X5Retail Group is one of the leading Russian food retail companies. The company manages the stores of several retail chains: neighborhood stores under the Pyaterochka brand, supermarkets under the Perekrestok brand, hypermarkets under the Karusel brand, Express-Retail stores under various brands.

As of September 30, 2017, the company operated 11,326 stores.

Net profit of X5 under the international financial reporting standards for the 9 months of 2017 increased by 30.7% compared to the same period of the previous year, to 25.97 billion rubles ($439 mln). Revenue reached 933.3 billion rubles ($15.7 bln), which is 26.2% up year-on-year.

Retailer “Lenta” opened its 200th hypermarket in Russia

Retailer “Lenta” opened its 200th hypermarket in Russia, as it was stated in the company’s website.

The hypermarket is located in Astrakhan. This is the second “Lenta” store in the city and the ninth hypermarket opened by the company in Russia in 2017.

The retailer plans to expand its presence in the Southern Federal District, as Jan Dunning, CEO of Lenta, said.

Luxury Goods Sales Growing in Russia

Domestic demand for luxury in Russia is recovering. 62% of wealthy citizens said they increased the cost of luxury goods in the last year. The same trend can be seen in China and the UAE.

According to a Deloitte survey, covering 11 countries, 62% of buyers in Russia, China and the United Arab Emirates, countries that Deloitte refers to the developing markets of expensive goods, said about the growth of their spending on luxury goods in the last 12 months. In developed markets (in the European Union, the United States and Japan), the share of increased spending on luxury is much less – 49%.

The study involved 1,300 respondents who consider themselves wealthier than their country’s citizens on average and who have made at least one purchase of luxury goods in categories such as clothes and shoes, bags and accessories, cosmetics and perfumes, jewelry and watches for the past six months.

“Consumers in emerging markets continue to stimulate the growth of the luxury market,” Deloitte analysts conclude.

The Russian luxury goods market, which resumed its growth in 2016, continues to grow, also because of increase in the tourist flow, including from China. In addition, the Russian market of premium products was positively affected by the fact that retail companies held back or even cut prices. In 2016 the ruble strengthened, and the companies reduced the prices for luxury goods by more than 11% in Russia.

If in 2015 the Russian luxury goods market showed a decline for the first time in five years (by 9%, to 227.2 billion rubles), then in 2016 it resumed growth – it amounted to 1%, to 229.6 billion rubles.

French Auchan Invests $356mln in Russian Market This Year

In 2017, Auchan Retail, a French company, plans to invest more than 20 billion rubles ($356 million) in the Russian market, the General Director for a hypermarket format of the Russian branch of the retailer, Oleg Alkhamov, told reporters.

“This year we invest more than 20 billion rubles, which is aimed at opening new stores and upgrading IT systems, and, of course, these are investments in rebranding of our supermarkets” Oleg Alkhamov said.

According to him, this year, Auchan will open 4 hypermarkets and 20 supermarkets in Russia, however, this is not the final data.

“We will look at what the market could offer, we always consider proposals from developers who invite us into their trade centers,” the company’s representative added.

Last year the company opened 10 hypermarkets in Russia.

“It’s not slowing down, it is these actual contracts that exist,” he said.

Currently, there are 102 Auchan hypermarkets in Russia.

X5 Retail Net Profits up 57.3%

Russian food retailer X5 Retail Group’s revenues rose by 27.8% to RUB1,033,667 mln in 2016 – the fastest growth rate since 2011. Adjusted EBITDA rose by 33.8% to RUB79,519 mln and net profits of RUB22,291 mln were up 57.3% on last time.

Like-for-like sales increased by 7.7% with an improvement across all three of the company’s major formats. The company added a record 2,167 new stores in 2016 compared with 1,537 new stores in 2015. Pyaterochka was the main driver of growth: net retail sales rose by 32.5% y-o-y (9.1% growth in LFL sales and 23.4% growth from a 37.4% y-o-y increase in selling space).

Chief executive Igor Shekhterman said: “We have achieved all of the targets set out by the supervisory board and company management in 2016. We are creating value for stakeholders as the fastest-growing public player in Russia’s food retail market, building a stable and sustainable business that aims to benefit consumers, employees, partners and investors over the long term. As of Q4 2016, X5 is Russia’s #1 food retailer, with a market share of 8.0% for 2016. Revenue grew by 27.8% year-on-year and exceeded RUB 1 trillion, driven by a 7.7% increase in like-for-like (LFL) sales and a 20.1% contribution from a 29.1% rise in selling space. In 2016, we also demonstrated our ability to deliver efficient and sustainable expansion, with the adjusted EBITDA margin improving to 7.7%, up from 7.3% in 2015”.

“Looking ahead to 2017, while we do not expect meaningful positive macroeconomic developments in Russia in the medium term, significant growth opportunities still exist in the food retail sector.  We remain confident about X5’s potential to deliver sustainable growth as Russia’s leading food retailer, driven by market expansion and market penetration. We are now focused on achieving our target market share of 15% by the end of 2020, which will require continued strong performance during the coming years. Our focus will remain on organic growth while maintaining margins as we develop all three of our major formats.”

Russian Retail Market 2016

In 2016, large retail chains grew: Russia’s largest retailers Magnit and X5 Retail Group each opened about 2,000 new stores. Some smaller chains, such as Novosibirsk grocery chain Avoska, Petersburg chain of farm products Girlanda and others, left the market.

A number of companies changed the top management. Alexander Barsukov was appointed a new CEO of Tander (Magnit). Sergei Belyakov replaced Elijah Yakubson as a new president of Dixi retailer, but then a few months later he was replaced by Pedro Manuel Pereira da Silva.

There are reports that Vernij retail chain is selling some of its stores. Although the company denies it, it turned out that a few shops were actually sold to X5 Retail Group.

Meanwhile, retailers explored new markets. For example, many federal companies were interested in opening stores in Grozny, and in February 2016 Lenta retailer opened the first supermarket in the Chechen Republic.

Globus announced that it was going to invest 9 billion rubles in the construction of a retail park near Moscow. Estimated construction period is 2015 – 2020.

Metro Cash&Carry presented a new concept of shops Fasol Express, located at gas stations. The company plans to double the amount of stores every year.

Finnish company Stockmann is leaving the Russian market and closing ten Lindex stores. According to company estimates, the losses amounted to about 78 million euros. Executive Director of the Stockmann was going to resign after the sale of the business in Russia.

In June, Igor Shekhterman, Executive Director of X5 Retail Group, told about the plans of chain development: two most important regions for X5 are Siberia, where it is planned to open 150 stores over the next two years, and South Russia . The first stores are located in Novosibirsk in the stores, previously belonged to Avoska, which was forced to withdraw from the market. The network consisted of 12 stores.

In order to start supplying products to new regions X5 will build new distribution centers. “We have opened 35 distribution centers so far, and we are planning to open around 27 more in five years” – said X5 Retail Group CEO.

In September, premium retail chain Azbuka Vkusa launched a project of biometric payments, now customers can pay by placing a finger on the scanner.

In September, Forbes magazine published the rating of the largest private companies in Russia. Magnit took the first place, followed by X5 Retail Group.

In late October, Kesko Food Russia Holding announced that it would sell 11 K-Ruoka stores in St. Petersburg and Leningrad region to Lenta retailer for 11 billion rubles.

Auchan announced that Atak stores would be rebranded into Auchan store in the next 1,5 year. Also, Auchan in Moscow intends to build the largest distribution center in Europe. The venue will strengthen the retailer’s position in the Central region. In 2017, Auchan plans to increase its investment by almost half – up to 30 billion rubles.

Okey owners, Dmitry Korzhev, Dmitry Troitsky and Boris Volchek, who owned 78.97% of the company, decided to sell their shares. Among the main buyers there are Auchan, Lenta and, according to unconfirmed reports, Magnit.

In December, one of the leading Russian retailer Dixie bought 12 stores from 7th Continent.

Lenta Announces the Opening of 11 New Stores Previously Operating under the K-Ruoka Brand

Lenta, (LSE, MOEX: LNTA) one of the largest retail chains in Russia, is pleased to announce the opening of 11 new stores acquired during the purchase of the Kesko food retail business in Russia (“KFR”), previously operating under the K-Ruoka brand.

10 hypermarkets and one supermarket are opening today in Saint-Petersburg and the Leningrad region, now operating under the Lenta brand.

The total selling space of new Lenta stores is 40,0231sq.m, of which 39,657 sq.m is owned and 2,366 sq.m is rented. In terms of size and layout, the stores are compatible with existing Lenta compact and supercompact hypermarket formats, and all of the store locations are strategically complementary to Lenta’s existing stores in Saint-Petersburg and the Leningrad region. All stores are opened 24 hours, 7 days a week.

These new openings bring the total number of Lenta stores to 180 hypermarkets in 77 cities across Russia and 44 supermarkets in Moscow and St. Petersburg.

Lenta is the largest hypermarket chain in Russia (in terms of selling space) and the country’s fifth largest retail chain (in terms of 2015 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 180 hypermarkets in 77 cities across Russia and 44 supermarkets in Moscow and St. Petersburg, with a total of approximately 1,089,165 sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 5,800 sq.m. The average Lenta supermarket store has selling space of approximately 1,000 sq.m. The Company operates seven owned distribution centres.

The Company’s price-led hypermarket formats are differentiated in terms of their promotion and pricing strategies as well as their local product assortment. The Company employed approximately 34,134 people as of 30 June 20162.

Steady demand for pears in Russia

According to major Russian retailer, the Dixy Group, pears are one of the most favoured fruits in Russia, enjoying stable sales throughout the year.

The peak season for pears starts at the beginning of spring with the start of supplies from the Southern Hemisphere. The main varieties during that time period are the Vermont and the Packham.

“Before the embargo, Belgium and Holland had been the main supplier for pears. However, we were lucky that we also had contracts with suppliers outside of the EU, once the embargo hit, so we were able to quickly rearrange distribution with a minimal amount of disruption.” said a representative from the retail chain.

The main pear supplier has become Serbia during January-April, in addition to supplies coming from South Africa, Argentina and Chile from April to September.

Despite suffering frost damage in the spring, the retailer said that they had not noticed any supply issues from Serbia and that the prices are at the same level as last year.

“The green pear varieties remain the favourite amongst consumers, and we currently have the Williams and Chinese pear in our assortment.”

As soon as the Russian embargo was introduced back in 2014, Russian suppliers immediately started to develop this category, actively investing in new growing areas and creating their own supply chain, but the production is still not to the level to be able to cover the demands of the major retail chains.

X5 Retail Group to import 100% of its fruit & veg directly

The X5 Retail Group (“Pyaterochka”, “Perekrestok” and “Karusel”), primarily owned by Russian billionaire Mikhail Fridman, aims to be able to import 100% of its fruits and vegetables, without intermediaries, by 2019. At the moment, the retailer directly buys from abroad about 20% of its fresh produce.

In order to make it possible for the retailer to import everything directly, the firm will set up contracts with foreign producers, which will allow it to know what the exact price of the products will be, while managing the shipment and delivery terms, which is impossible when working with distributors, reported X5 in a statement.

To do this, the X5 will open two warehouses in rented space, which will be supplied solely by products from abroad until the end of 2016. This arrangement also reduces the duration of travel of fruit and vegetables from abroad by three days. This year, the company will start to operate warehouses in St. Petersburg and Novorossiysk, totalling 6 thousand square metres each, and in 2017 another one will come into operation in the Central Federal District.

At the moment, the company already has more than 100 contracts with foreign producers; a figure it plans to double within the next two years. The retailer is collaborating with suppliers of the EAEC and CIS countries, as well as from Georgia, Syria, Iran, Morocco, Serbia, Macedonia, Moldova, Egypt, Israel, China, India, South Africa, New Zealand, Mexico, Ecuador, Colombia, Argentina and Chile.

Azerbaijani companies to supply major Russian food retailer

X5 Retail Group, Russia’s second largest food retailer, will receive produce directly from member companies of the Azerbaijan Fruit and Vegetables Producers and Exporters Association (AMTIIA ), the Azerbaijan Export and Investment Promotion Foundation (AZPROMO) reported.

The decision was taken within the framework of AMTIIA’s meeting with representatives of X5 Retail Group. The sides discussed the direction of mutually beneficial cooperation and took a decision on the direct export of fruit and vegetables to the Russian market.

Headquartered in Moscow, X5 Retail Group operates such trade networks as Pyaterochka, Perekrestok, and Karusel.

The newly-established AMTIIA is responsible for boosting Azerbaijan’s export potential in the fruit and vegetable sector as well as increasing overall production levels.

Currently, some 14 Azerbaijani companies are allowed to export their agro-production to the Russian market.

The northern neighbor is still one of the main trade partners of Azerbaijan, which has long had a well-established place on the Russian market. The country currently ranks fifth in Russia’s foreign trade with the CIS countries (following Belarus, Kazakhstan, Ukraine and Uzbekistan).

The trade turnover between Azerbaijan and Russia amounted to $1.06 billion in January to July 2016, while some $212.9 million of the figure accounted for the export to this country.