Magnit, Russia's second-largest retailer, is building a complex for tomato production with a total area of about 60 hectares in the Tikhoretsk District of the Krasnodar Territory, a company spokesman said. What investments will be required and what are the concrete terms of completion of the construction, he did not disclose.
Investments in the project, the first stage of which will be completed before the end of the year, - 12.6 billion rubles., Tikhoretsky district administration reported a month ago. The representative of "Magnit" does not comment this sum.
Magnit already has a greenhouse complex called the Green Line in the Krasnodar Territory - about 85 hectares, says a representative of the retailer: cucumbers grow on 50 hectares, 30 tomatoes, 4 ha occupies a nursery department, 0.8 hectares - leaf salads and green culture. In 2017, the "Green Line" supplied Magnit with over 48,000 tons of vegetables (+ 4.3% yoy). Now their greenhouses provide the demand for "Magnet" in cucumbers by 60% and 10% - in tomatoes. "The commissioning of a new greenhouse complex can cover the need for tomatoes by 20-30%," says the representative of the network.
"Magnet" in the fields
In addition to greenhouses, "Magnet" a year ago, and engaged in outdoor vegetables, buying a Lipetsk company "Moscow-on-Don", which grows potatoes, carrots, beets, onions. The retailer built a vegetable store and refrigerators, launched a line for washing vegetables, dry cleaning and fine packaging, and bought agricultural equipment. From the new asset, the network, according to its own data, received about 20,000 tons of vegetables, which they sold in the central and southern regions.
This helped to start working with farmers and large agricultural producers in a new way, says the representative of Magnit: "The company enters into a contract with the farm for part of the future harvest, partially advancing spring field work, buying seeds and fertilizers, providing agro-tailoring at all stages - from cultivation before storage, packaging and delivery to the network. " In 2017, Magnit received over 100,000 tons of products for this model.
"Magnet" sells all its agricultural products under the brand "Rural Fair", says his representative, for goods of own production (semi-finished products, etc.) account for 3-4% of the range.
Vegetable warehouse "Tapes"
In countries with high competition in the food industry and agriculture, retailers do not need to take risks of investment in production - they can choose the right price for supply, assortment, quality and guarantees, says Mikhail Burmistrov, general director of Infoline Analytics. In Russia, the situation is different, he says: own production allows avoiding price jumps and local deficits and reducing commodity losses, since vegetables and fruits from the field to the counter pass a more technological logistics chain. "Own production of perishable products, exchange and unbranded goods for networks is justified and promising," he concludes.
Retailer number three by revenue in Russia - "Lenta" does not yet plan to engage in production, says its representative: "But we are trying to maximally control what gets to our counters." Since 2015, Lenta has been cooperating with farmers directly, controlling everything from seed selection to logistics to the store, he recalls: "Now more than 100 companies from 30 regions, both farmers and large producers, participate in the program. In 2017, the share of purchases of vegetables and fruits under the program was more than 14%. "
In 2018, "Lenta" opened the first vegetable store in the Ryazan region (8000 tons of potatoes and up to 7500 tons of other vegetables), says the representative of the network. "The own vegetable store will allow to better control the quality of products, increase the efficiency of work with farmers, reducing the cost of purchases outside the season," - lists the representative of the network. According to him, the vegetables will be delivered to hyper and supermarkets of "Lenta" in processed form, clean, vacuum packed, and will also be used as raw materials for cooking and vegetable preserves under their own trademarks.
A similar scheme was started this year by another major player, Auchan, who started working with agrarians. The test project was launched in the Astrakhan region, said Maria Kurnosova, Director of Corporate Communications at Auchan Retail Russia. On 15 hectares the partner of "Ashan" - "Arso logistics" - planted 10 kinds of vegetables and fruits unique for the Russian market varieties, she says: for example, cantaloupe melon, yellow, dark, ribbed tomato, yellow and round zucchini, round zucchini, etc. "Auchan" selects seeds, controls the cultivation and quality of products, under a long-term contract, the retailer guarantees the size of purchases, Kurnosova lists.
Not everyone is drawn to the ground
While vertical integration projects for Russian retailers are quite rare, although some foreign networks themselves produce goods under their own brands, notes the head of the practice of providing services to retailers and consumer goods PwC in Russia Martine Peyters. "The goal is not so much to build the vertical integration itself, but to increase sales of own brands and earn on production of those goods where own capacities can significantly increase revenue and guarantee quality," he adds.
The largest retailer in Russia, X5 Retail Group, preferred strategic partnerships to its own production. "For example, we launched the brands of dairy products" Sarafanovo "and" Verkhovye ", which we own jointly with the manufacturing company, - says the representative of X5. "We do not have the competence and the team to launch our own productions, so we are not building a vertically integrated company."
Not everything is integrated
Own production of vegetables and fruits is promising for retail, but branded and packaged products are different, warns Burmistrov.
"Magnet" announced plans to open 40 new productions of food: it was planned to build a complex in Krasnodar to produce semi-finished products, canned products, sausages, etc.
For such vertical integration to be successful, an effective strategy for managing its own brands is needed, this has not yet been the strength of Magnit, Burmistrov notes. "Otherwise, the retailer runs the risk of investing in production, and then faced with difficulties in selling goods to consumers, the positioning of which is not clear to him, and the ratio of price and quality is worse than that of the leading brands," he fears. "In this case, the X5 approach is more logical and less risky." Most likely, Burmistrov believes, Magnit will abandon plans to actively build production capacities for branded products after it has finalized a new strategy.
"Magnet" now decides how to further develop its own production, says his representative: "The company conducts asset audits, examines options for transforming vertical integration, projects to develop the range, improve category management." "Magnit," he continues, is completing work on a long-term strategy, which will also include plans to develop its own productions, taking into account Russian and global trends in consumer behavior. "The focus of attention is the desire of consumers to lead a healthy lifestyle and save time. This can be the creation of an assortment of ready to eat, ready-to-eat, ready-to-cook sets for cooking, eat & go-products for a snack right in the store, "the representative of Magnit enumerates.