Page 54 - bneMag February 2021_20210202

54 I Eastern Europe bne February 2021
Magnit is staging a comeback under its new management. Photo: www.magnit.com
LONG READ:
Making Magnit Great again
Ben Aris in Berlin
In its heyday, before the crisis of 2014 hit, Magnit was an investors’ darling. At one point international investors were 3% overweight in the benchmark MSCI Russia index and almost all of that overweight was in just one stock: Russian regional supermarket chain Magnit. The company could do no wrong.
But the chain fell from grace about
five years ago and has been struggling to find its direction since. Retail
in general has also been hit by the multiple economic shocks and also seven years of falling real incomes. New management was appointed two years ago and the new CEO, Jan Dunning, explains to bne IntelliNews in an exclusive interview how he is turning the business round.
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The supermarket chain, founded by entrepreneur Sergey Galitsky in the regional city of Krasnodar, was one of Russia’s great retail success stories of the 90s.
Unusually the chain eschewed Moscow, which is by far the richest city in Russia and has a local population larger than most Central European countries, to focus on building out its business in Russia’s far flung regions.
Galitsky was also unusual, shunning the ritzy high life of Russia’s newly wealthy in Moscow and remained in his native Krasnodar to focus on building up a low- cost, but good quality retail business that catered to the everyday needs of the vast majority of the people.
The store’s revenues grew to top $10bn, making it the biggest retailer in Russia during the boom in the noughties and Galitsky became a billionaire on the back of his high volume, low margin concern. Investors fell over themselves to buy
into the new Russia business story that tapped its greatest resource: not oil, gas, gold or diamonds, but its people.
But things started to go wrong in about 2017 when the management team was riven by disagreements on where to take the company next.
“The decline started in the last two years before Galitsky left. He was tired and was not paying attention. He was looking for a successor and wanted to sell,” Dunning told bne IntelliNews speaking from his office in Krasnodar by video link.