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Russia not for the faint hearted warns X5 Retail Group
Archived article dated Tuesday June 10th 2008
Although Russia represents a massive opportunity for international retailers it is also a challenge because it has many strong local players, according to an executive at its largest food retailer X5 Retail Group.
Speaking at the recent IGD Global Retailing conference, Antonio Melo, chief operational officer of X5 Retail Group, warned that overseas grocers have to therefore be very careful when entering the market as they will face tough competition from retailers like Magnit, Lenta and Kopeyka as well as X5.
Last year X5 achieved annual sales of $5.3 billion from its 900 stores, which gives it a market share of 21.4 per cent. In addition it also operates 700 franchised stores, which gives it an even more impressive overall share and places clear ground between it and Metro that has 18.5 per cent of the market.It is benefiting from a retail industry in Russia that is experiencing rapid growth. Consider that the country's total food market has grown from $69 billion in 2003 to $190 billion in 2007 with growth of 31 per cent recorded between 2006 and 2007.
Most of this growth is coming from modern retailers (that take advantage of organised supply chain infrastructures) whose sales grew at a rate of 49.4 per cent in 2007. Melo forecasts that these types of operators will grow their share of the market from a current 33 per cent to 45 per cent by 2010.
Recent figures have shown that the growth at X5 has been accelerating with its first quarter of 2008 seeing revenues up by 61 per cent and like-for-like sales growing at 29 per cent. And these rates are being delivered across all parts of its business - hypermarkets, supermarkets and smaller soft discounter stores.
The soft discounter format is where most of the action has been to date and X5 has grown its number of these stores to 700. But with the influx of the likes of Carrefour (and its focus on hypermarkets) Melo says the company intends to grow its exposure to this part of the market which at the moment comprises only 14 stores of over 4,000 sq m. Part of this strategy involves the forthcoming purchase of 20 hypermarkets from Karusel in St Petersburg.
X5 is also intent on spreading its business beyond Moscow and St Petersburg, which accounts for a hefty 84 per cent of total group sales. This involves it opening up offices in the various regions of Russia, buying up the key local operators and then integrating them into the supply chain infrastructure of X5.
Tagged as: idg | X5 | glynn davis
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