3 Dec 2009 19:27

X5 touts new supermarket growth strategy

MOSCOW. Dec 3 (Interfax) - X5 Retail Group, Russia's largest retail chain by revenue, has a new strategy for growing its Perekrestok supermarket chain, which will see changes in assortment and added services.

"X5's previous growth strategy responded to the old realities of the market: a store's format determined its size and the product assortment and the priority was low price," Mikhail Susov, the head of supermarket format development, said at a news conference in Moscow. "The market has now reached the level where marketing becomes important. Therefore, we adopted a strategy of breaking out the formats to cater to various target markets, without competing against ourselves," he said.

The new strategy positions Perekrestok as the supermarket for the middle-class consumer, for whom assortment and quality is no less important than price. The accent of the new Perekrestok strategy is on fresh products: produce, meat, seafood and cheeses, as well as in-house production: salads, baked goods, cooked dishes. By the end of 2010 those products are projected to make up 60% of turnover at the supermarkets.

"We want the chain to have more farm products, so that the store is associated with a high-quality farmers' market with a good meat section, fresh vegetables and cheeses, and one that is clean, well lit and convenient," Susov said.

X5 also plans a substantial expansion of private label products. Those products are targeted in 2010 to make up 20% of Perekrestok sales among products in the lower price segment and 30% each in the medium and high price segments. Private label sales are to rise to 28% of total revenue by 2011, he said.

The company also plans to expand the range of services, to include payments for housing utilities, Internet access, mobile communications and bank loans; and sales of insurance and virtual mobile operator products.

The changes will reduce shopper volume as the stores are more tightly focused on middle-class consumers. "By concentrating on the market with the highest income, we calculate that traffic may fall, but we anticipate a substantial increase in the average receipt," he said.

The Perekrestok chain currently has 211 stores, four of which operate under the Green Perekrestok brand. X5 Retail plans to open at least 15 supermarkets in 2010, as well as integrating the 52 stores in the Paterson chain.

However, it is the Pyaterochka discount chain that generates the bulk of X5's revenue. The 952 discount stores posted 105.3 billion rubles in revenue in January-September, 34% more than in the same period last year. The 210 supermarkets had revenue of 53.4 billion rubles, 11% more year-on-year.

Net revenue totaled $8.9 billion in 2008, EBITDA was $803 million and net profit was $112 million (excluding a goodwill writeoff). Alfa Group owns 47.9% of shares, the founders of the Pyaterochka chain have 23.1% and company management has 1.9%. The free float is 27%.