Top five Russian retailer
“We acquired Billa as part of our strategy to double sales in the next five years,” Lenta CFO
In an investor presentation earlier this year, X5 said it believes the Russian food market will consolidate to a point where the top firm controls at least 20% of the market, with a second dominant chain holding a 15% market share, the
The retail markets in Russia’s twin capitals are key to any retail outlet, as with a combined population of 17mn the two cities have around twice the customers of many countries in
The acquisition of Billa will improve the mix of stores that
“We are not focused on being number one and we are happy to be the second largest,” says Pedersen. “The strategy is to grow in
Pedersen says that the footprint of the two kinds of store overlap in the two big cities and complement each other very well.
“There is a crossover of customers so
Fragmented market
The supermarket business has been maturing, and now the whole country is well served with stores a process of consolidation has clearly started, catalysed by the economic slowdown caused by the pandemic. It's a process that has a long way still to run, despite this week’s mega-mergers.
“The Russian market is still very fragmented – much more than the western markets,” says Pedersen. In
The general rule is the bigger the supermarket business the better. Large stores that sell large volumes of staples command more leverage thanks to their economies of scale and are in a stronger negotiating position with suppliers.
“Being a large player gives you an advantage and the pandemic has benefited the federal level retailers. Sales have gone up [at the big stores], while they have fallen at the smaller chains,” says Pedersen.
“If the opportunity presents itself; if we can become number one or two in other cities via M&A we will do it,” says Pedersen.
Apart from the large federation-wide players, smaller retailers have grown up in most regions where they have been left unmolested to develop. However, as they continue to expand and due to the added pressure of the pandemic these smaller chains are coming under increasing pressure and they are more willing to sell.
Online expansion
In the 90s supermarkets sprang up like the mushrooms they sold and in a two-decade-long race began to capture as much market share as possible. But now the bricks and mortar business is maturing the number of players is dwindling and only a few big companies are likely to be left at the end of the process.
Russia’s e-commerce is booming and in the new e-grocery business, the fastest growing segment of Russia’s new economy, it's like the early days of traditional retail: new companies are springing up every few months to try to capture specific niches and the race to capture market share is in full swing. The market leaders have all launched an online offering and it is central to their growth plans, but entire new players are entering the business that have never sold food and drink before.
“Lots of new e-grocers are entering the market and if anything, the online business has become even more fragmented,” says Pedersen. “Many are trying to get into the business but eventually there will be few, as that business consolidates as well. You have to have the fragmentation before you can get to the consolidation.”
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