Page 130 - RusRPTAug21

Magnit hosted an event where COO Ruslan Ismailov provided an update on the company's hard discounter chain My Price. The company currently has 76 hard discounters up and running with an average selling space of around 250 m2, and it aims to expand the chain to 200 stores by the year-end. The format offers 2,000 SKUs, 19% of which are private-label, while 65% are in the low-price category. The items that are also for sale at Magnit's convenience stores are offered with a 15% discount. The stores are not located in high-traffic areas. They are usually within 15 minutes walking distance for customers, a bit closer than the average for Svetofor, a competitor in the hard discounter format. With My Price, Magnit aims to capture promo-hunters from convenience stores, including its own stores. However, it does not believe that cannibalization will be much of a problem given the more remote locations and narrower assortment. Magnit's loyalty program data seems to confirm that this is the case so far: only 5% of convenience store customers have started shopping at the hard discounter format in overlapping territories. My Price stores generate a lower gross margin and less EBITDA than the convenience stores, though their opex is lower as well. And considering that they require 40% less capex, the ROI is comparable. The format is currently being run by the management team of the convenience store format. Next year, a decision will be made on whether or not to form a separate management team for the chain. The company sees enough capacity in the market to open several hundred hard discounters per year.
Magnit announced that it is introducing changes to its organizational structure to accelerate its e-commerce growth and digital transformation. The retailer is creating a new business unit focused on e-commerce development that will be led by recently appointed E-Commerce Director Andrey Lukashevich. Mr. Lukashevich has previously been CEO of Delivery Club (2015-18), Head of Mail.Ru’s FoodTech Ventures (2018) and CEO of taxi aggregator Vezet (2019-21). A separate business unit will oversee the development of Magnit’s technology, IT infrastructure, advanced analytics and big data. Because of this, ED and Deputy CEO Florian Jansen will be made redundant.
The Federal Antimonopoly Service (FAS) has approved Magnit’s acquisition of Dixy. That said, the FAS requires the deal to exclude 142 Dixy convenience stores outside of Moscow and St. Petersburg to comply with the market share limit of 25% in some municipalities. Furthermore, Magnit needs to reduce its market share in 22 municipalities to 35% by 1 July 2022, which will require some store closures. It is up to the retailer to decide whether to close Magnit or Dixy stores. The retailer is sticking to its operating and financial guidance, and it believes that the potential synergies in purchasing, category management and other business processes should help it improve its margins going forward.
O’KEY reported a 6% y/y growth on its top line in 2Q21 after a 1.9% growth in 1Q21. Analysts believe this acceleration was mostly prompted by the low comps of April 2020 and is likely to be short-lived.
O’KEY published a solid trading update for 2Q21 that showed a 6% y/y growth in net retail revenue (RUB44bn) after recording a 1.9% y/y growth in 1Q21.
130 RUSSIA Country Report August 2021 www.intellinews.com