X5 is preparing to compete with online commerce

Retailer introduced a new strategy.
X5 Retail Group will slow the growth of the network in 2019, told X5 CEO Igor Shekhterman and group financial director Svetlana Demyashkevich. In 2019, the company will open about 2000 Pyaterochek, Perekrestok and Karusel, Demyashkevich said. In 2018, the network will grow by 2500 points, in 2017 X5 opened about 3,000 stores. By the beginning of October 2018, the group had 13,685 points in Russia. But revenue should grow. “We want revenue growth [in 2019] to remain in the range of 15–20%,” Demyashkevich said. “Further, depending on the level of inflation and macroeconomics.”

“Magnet”, unlike its competitor in 2019, will maintain the network’s growth rate at the level of 2018, its general director Olga Naumova said on October 22. The goal of Magnit for the current year is an increase of 1,500 stores. The priority for 2019 is the renewal of the network and the opening of 2,000 pharmacies in the premises of already operating outlets, Naumova said.

Unlike Magnit, the X5 does not plan new formats. The company, according to Shekhterman, came to the conclusion that, in addition to the existing stores near the house, super- and hypermarkets, other segments are unattractive: “We consider this [focus on three formats] to be an important competitive advantage.”

Apparently, X5’s leadership is not threatened yet, says General Director of Infoline-analytics Mikhail Burmistrov. According to him, the concerns were related to the fact that Magnit will make drastic and large-scale changes. “It’s clear now: the changes will not be quick,” said the expert. “In addition, Magnit has many accumulated problems and a very wide focus: pharmacies and pharmaceutical distribution, cosmetics stores and other formats. Breakthroughs are unlikely. ”

The main format of the X5 in terms of revenue share is Pyaterochka’s shops. In recent years, their network has grown rapidly, Shekhterman recalled, now it is necessary to reduce the pace for the sake of quality. The development priorities of Pyaterochek are to improve the supply to customers and improve operational efficiency by reducing product losses and employee turnover. Perekrestok supermarkets will also focus on the best offer for customers and online development, Karusel hypermarkets - on a new concept and increase in revenue per square meter.

The tactic of X5 - to increase sales at the expense of internal improvements, and not network growth - is reasonable, the chairman of the Russian Association of Retail Market Experts Andrei Karpov is sure. Retail is stagnating, in fact, networks entice customers from each other, so you need to rely on the quality of service, loyalty programs, etc., he adds.

The long-term goal of the X5 is to adapt to the next-generation retail, Shechterman noted. So far, he said, offline retail will remain the largest market for the group. But gradually, the consumer begins to choose new ways of shopping, and the X5 will adapt to this, added the director of Pyaterochek, Sergey Goncharov.

In the long run, the transition of “big retail” to online services is inevitable, says co-founder of the product delivery service Instamart Peter Fedchenkov. But while in the more developed Western markets, large networks see in online sales a promising way of diversification, in Russia it is more likely a question of experimenting, testing the capabilities of the networks themselves and customer requests for this type of shopping, he argues.

While X5 plans to develop online sales for home delivery only on the basis of "Crossroads", said Schechterman. But in 2019, the X5 will begin testing online commerce in other formats. Pyaterochka, as Goncharov said, will test the model when the buyer himself picks up the order from the store (click & collect), delivers to nearby customers, and installs automated points for issuing online orders within the stores. According to Goncharov, this will not require large investments.

X5 is already a technology leader in Russian retail and will retain this status, says Burmistrov. In his opinion, this will not only keep the first place in terms of revenue, but will also become the key to high business efficiency.

Now global changes are taking place in the retail sector, reminds Burmistrov: ambitious alliances are being created (for example, Alibaba and Mail.ru Group), e-commerce leaders attract investment and launch marketplaces like Sberbank and Yandex based on Yandex.Market. “Focusing on technology and innovation makes the X5 more prepared to compete not only with Magnit, Lenta and other FMCG networks, but also with the next wave of competition with Internet giants,” the expert concludes.