Lower inflation contributed to slowdown in Russian grocery market growthMore information on this topic is presented in the PMR report:
- December 2017
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The Russian grocery retail market increased by only 4% in 2016, which was a major slowdown, as over the last few years the market had been growing in double digits, according to PMR’s new report “Grocery retail in Russia 2017 – Market analysis and development forecasts for 2017-2022”. The main reason was that whereas in 2014-2015 the market’s growth – whilst negatively affected by the rouble’s depreciation and by the overall crisis in Russia’s economy – was supported by rapid price increases (the grocery segment includes mostly staples that consumers have to buy regardless of the economic situation), in 2016 this effect weakened considerably as inflation eased.
In 2017 and subsequent years, the grocery market will grow slightly faster than in 2016, according to our forecasts. However, a return to double digit-growth rates should not be expected. What is more, if the sanctions and Russia’s subsequent countersanctions are abolished and imports of Western products to Russia increase, the growing supply might result in a further slowdown of prices’ increase. Market growth will not be fuelled by inflation to the extent it was in previous years. However, this effect will be partially nullified by the increasing demand for more expensive, Western products. Also, the market’s growth will be supported by growing consumer confidence and the increasing sales value of large-area store chains, which plan to continue their expansion.
The grocery sector is still one of the least affected sectors by the macroeconomic and political situation in the country. In 2016, the grocery segment accounted for more than 61% of the whole Russian retail market, and its share – which had grown for several years – will likely remain at the current level in the years ahead.
The Russian grocery retail market is still vastly dominated by alternative channels of distribution, including open-air markets, smaller traditional stores or specialist outlets, among others. Nevertheless, it is home to many modern retail chains. The majority of them are still of domestic origin – only five of the top 20 grocers are foreign, with the French-based Auchan taking the third position by sales as of 2016.
Interestingly, the list of the five largest domestic retailers on the Russian grocery market remained unchanged but there was a reshuffle of the top two players. Magnit has been the largest grocery player by sales for the last three years, but in 2016, its main rival, X5 Retail Group, took the top spot. What is more, it is worth noting, that the grocery retail sales revenues of both Magnit and X5 Retail Group exceeded RUB 1tr (€13.5bn) in 2016.
However, despite X5’s leadership in terms of sales, Magnit remained the largest grocery company in terms of store count with close to 11,000 stores in 2016. And it will maintain this position also in 2017, even despite the very rapid expansion of X5, whose brands are expected to grow their estates the most this year. In late November 2017, X5 already opened its 11,500th grocery store in Russia. It is also worth noting that Magnit and X5 account for almost three-quarters of all stores owned by Russia’s top 20 grocers by sales. Their dominance is particularly evident in the discount segment, where they account for about 90% of all stores and over 70% of sales turnover via their Pyaterochka and Magnit chains.
Discounters channel is the largest modern grocery channel in Russia, as well as the one with the highest growth perspectives. This is due to the continued high popularity of the format among Russian customers. Discount stores became highly popular during the economic crisis as Russians looked for lower prices and cheaper brands, but the format is also benefitting from the trend toward smaller and more frequent purchases closer to home. Hypermarkets, however, are also still popular with Russian consumers, and retailers continue to actively expand in this channel, albeit at a slower pace than in previous years. During the crisis, people started to hunt for discounts and promotions even more; and private labels continue to gain in popularity in both food and non-food categories. These two factors positively influence sales in both these modern retail formats.
The majority of Russia’s top grocery retailers operate in more than one store format, and Dixy Group is present in all the modern retail formats. Retailers tend to diversify their format’s portfolio in order to reach more consumers. It is also worth noting that there are grocery retailers who have decided to cease developing certain formats altogether in order to focus on other, more promising ones. One example is X5, which says it may stop opening new convenience stores under Perekrestok Express banner. Another is O’Key, which intends to sell its eponymous supermarkets.
The growing popularity of online sales is also visible on the Russian grocery market, however, this distribution channel has not yet fully developed. The main problems are costs of logistics and the sceptical attitude of Russian consumers towards online sales. Only a few of the large retailers have their own online stores. Thus, there is great potential in this channel. In 2017, X5 launched online food sales based on its Perekrestok chain; Auchan plans to do the same in the near future.
More information on this topic is presented in the PMR report:
Grocery retail market in Russia 2017. Market analysis and development forecasts for 2017-2022