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bne February 2021 Eastern Europe I 55
VTB Bank bought a 29% stake from the chain's founder in February 2019 for RUB138bn ($2.25bn). VTB then brought the stake down to 17.3% after selling 12.05mn shares, or 11.82%,
to the Marathon Group of Alexander Vinokurov for a reported $1bn. Minority shareholders, led by Russia-veterans Prosperity Capital Management, were infuriated by the deal, saying it “spits in the face of investors.” The stake comes in just below the 30% threshold that would trigger a mandatory buy-out of minority investors, of which Prosperity was one of the biggest.
In that same year Magnit’s rival X5 Retail Group, which belongs to oligarch Mikhail Fridman and has a number of supermarket brands in its portfolio, overtook Magnit to become the biggest retailer by revenue and X5’s stock price soared, while that of Magnit’s remained flat, despite the green shoots of an economic recovery appearing. Magnit’s management regrouped and is now fighting back. This year it is the turn of Magnit’s shares to soar, while those of X5 remain more or less flat.
New broom
Dunning is a dyed-in-the-wool retail professional. He spent 10 years working for the German discount supermarket chain Aldi, was operations director of Metro Cash & Carry Russia and then general manager of Metro Cash & Carry Ukraine before taking over as CEO of Russia’s second tier chain Lenta and eventually was hired to be president,
a non-executive position, which was introduced in 2019.
As president he spent time touring some of the company’s 22,000 stores that stretch down into the towns and villages across Russia’s 11 time zones.
“It was a good experience, as while president I toured the stores and got to know how the business was run on the ground,” says Dunning.
After Galitsky left the company Dunning was asked to take over as President and CEO of the company in June 2019 and began to reshape the juggernaut that Magnit had become.
“Since February 2019 I brought in my new management team to transform the business into a “proper” retail business,” says Dunning.
Dunning has had to face multiple challengers since he took the helm. The company had already been knocked by its internal disputes over direction and was rocked again by various crises even before the 2020 coronacrisis hit.
Magnit has always done well by offering value for money. While it is not a discounter per se, it has always focused on keeping prices down and has built up a loyal following as a result.
The organised retail business has
had to cope with Russia’s economic stagnation that began in 2013, when growth stalled and real incomes began to stagnate. While firms like X5 have built up their businesses in the biggest cities – like Moscow and St Petersburg – the lower incomes hit the poor regions disproportionately, hurting Magnit’s business more than its rivals. Against that as bne IntelliNews has reported, the squeeze also killed off the small players and concentrated turnover in the biggest player, so ironically retail turnover in many of these companies has actually increased during the stagnation.
Retail revolution
Already arguably one of the most modern parts of the Russian economy, organised retail is currently going through a revolution and e-commerce is booming, catalysed by the coronacrisis. Turning Magnit’s fortunes around is not just a question of fixing its problems but actively developing its business to take these new realities into account. The task is two-fold: digitise the business, but as Dunning points out, the backbone of the business remains running the thousands of physical stores spread across the country.
“It’s an asset you can’t ignore,” he says. “The future is digital, but we have reached a critical mass offline and the network is so big it has its own challenges. The stores are very important and how they are run, how shoppers make on the spot decisions, is key part of the business.”
Dunning admits that Magnit has been
a bit slow in setting up its IT and getting into e-groceries, but its site was updated recently and it is now getting its act together. Like everyone it has seen explosive online sales growth during the coronacrisis and over the last six months Dunning has introduced a slew of new services and innovations.
Online sales tripled from their January- February levels during the lockdown that started in May 2020 and the base went from a 100 orders a day to 3,000.
While at Lenta Dunning revamped the IT sector and claims that he had some
of the best information on customers
of any of the big retailers thanks to one of the most advanced systems. (Magnit attempted to buy Lenta in 2019, offering $1.8bn for the chain, but was pipped at
“Since February 2019 I brought in my new management team to transform the business into a “proper” retail business”
Jan Dunning
Chairman of the Management Board, President and CEO at Magnit PJSC.
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