International news analysis: X5 Moscow shows readiness for Russian fight

No comments

Russian grocer X5 Retail Group has acquired Moscow’s 27 Spar stores in an attempt to rival leading supermarket chain Magnit.

Russia’s second-largest grocery operator X5 Retail Group has been granted approval by the anti-monopoly authority (FAS) to acquire 27 stores in Moscow trading as Spar. The deal would mean that X5, once market leader in Russia, is back in the fight against its aggressive and fast-expanding rival Magnit.

X5 Retail Group lost its leadership to Magnit in 2013, but it is determined to remain a contender. Despite challenges, it announced a major concept revamp and refurbishment project across all its banners, launched in Moscow last year. Also, after divesting from Ukraine, X5 spent vigorously to compensate for the lost revenue by expanding in Russia. Expansion continues steadily and M&A now plays a significant part in this. As it strategically absorbs smaller networks, X5’s latest target has been Spar Moscow’s 27 outlets.

Spar Moscow supermarkets closely resemble X5’s Perekrestok supermarket banner, which generates 18% of the group’s total annual sales. X5 revised the value proposition and concept of Perekrestok in 2014. What X5 Retail Group needs right now is to secure key locations to be closer to affluent urban shoppers.

It is this segment that would undoubtedly be most attracted to Perekrestok’s strong fresh offer. Central Russia generates 55% of X5 Retail Group revenues, and the share goes up to 70% for the Perekrestok operation specifically.

How about Spar? Russia has been a key market for Spar International since the early 2000s, alongside China and India, as a priority emerging market for future growth. Spar added 16 new partners to its network in the last three years, enabling it to establish a presence in more than half of Russia’s provinces. So, the latest developments should be seen as a temporary blip in Spar’s ambitions for Russia, and the retailer intends to become a top-5 player in the market by 2020.

As Spar looks to grant new licenses for Moscow, there will be opportunities for smaller supermarket retailers to join the network. In fact, earlier this month, Spar Russia announced plans to increase the number of licenses it issues for the Moscow market.

Grocery competition in Russia is already intense under current inflationary pressures, and the Moscow market is even more challenging. Central Russia, particularly Moscow, is still the heart of Russian grocery market competition. Securing good locations improves traffic, but pricing and assortment remain key drivers of loyalty.