Russian supermarkets have been a great success story of the post-Soviet economy. Several large chains and holding companies have been built and, most importantly, Russian supermarkets have built up the supply chains to provide Russians with an ever-increasing diversity of produce and other groceries.
The following short introductions to some of the largest chains of Russian supermarkets was created by Greg Tracey, an economics student who served as a Home and Abroad Scholar with SRAS in 2019. This guide is intended to introduce future students to the range of grocery stores in Russia as well as to some of the economics and history that created them.
X5: The Leader in Russian Supermarkets
Perekrestok, Pyaterochka, and Karosel
X5 is the largest retailer by revenue amoung Russian supermarkets. It is a holding company that controls multiple brands, including Perekrestok and Pyaterochka, which are staples of Russian neighborhoods and daily life in Russia’s more populous Western half. Pyaterochka, a discount convenience brand, comprises the vast majority of X5 stores. Perekrestok has about 600 mid-range supermarkets.
The company also runs the Karusel brand of approximately 90 hypermarkets (a very large store that sells both groceries and other consumer goods) which are usually located just outside of major cities. In 2017, X5 operated 12,000 stores and handled $22 billion in gross revenue across Russia and Ukraine.
X5 began operations in 2006, with the merger of Perekrestok (founded 1995, Moscow) and Pyaterochka (founded 1999, St. Petersburg) brand Russian supermarkets. It has since expanded via natural growth and additional mergers – particularly by buying larger brands in Russia’s regions and rebranding them. X5 is part of Alfa Group holdings, a massive conglomerate associated heavily with Russian billionaire Mikhail Fridman.
Interestingly, X5’s official documents list the company as being founded in 1975, and it is headquartered in The Hague, Netherlands. However, the company’s operations are almost entirely based in Russia and it appears to have no recorded activity prior to 2005, meaning that an older Dutch structure was probably bought and renamed to facilitate the original merger and provide legal and tax benefits.
The company is in good financial health with revenues of $22 billion in 2017. X5 and Magnit are far and away the market leaders in the robust Russia’s robust grocery store industry. One estimate puts X5’s market share in 2016 at 12.7% in 2016, with a projected share of 21.5% in 2021.
The firm is also still expanding its operations. It added around 2000 stores in both 2016 and 2017, pushing farther east into Russia, where it did not yet have a strong presence. The Leningrad region around St. Petersburg is now so saturated with company stores that some have been closed to consolidate and streamline positions after heavy market acquisitions.
The financial and political crises of 2014 negatively affected X5’s business. However, in quickly rebounding from the effects of crises, the company has gained positive trajectories, such as a growing emphasis on sourcing products domestically or at least from cheaper non-European sources. These trends were triggered by counter-sanctions that banned food imports from Western countries into Russia.
Overall, X5 is a growing industry leader in Russian supermarkets. With a range of low-end convenience stores, mid-range stores, and hypermarkets, it looks to jump ahead of its closest competitor, Magnit. For now, the company is in a good position, particularly in western Russia.
Above: A history of X5 from 2012. X5 is now runs two of the largest chains of Russian supermarkets.
Discount Russian Supermarket Chains
Magnit is the largest retailer by number of stores and geographic coverage amoung Russian supermarkets. They are fixtures of most Russian cities and one of Russia’s best recognized brands. Their 13,000 stores are mostly focused on low-prices and convenience to serve a greatest possible cross section of Russian society. Magnit stores can be found over most of Russia, but are concentrated heavily in the western portion.
Magnit’s headquarters is located in Krasnodar, a city in southwestern Russia. This is where Sergei Galitsky opened his first Magnit grocery store in 1998. Earlier, he was an entrepreneur in perfume and beauty product wholesaling – and this still shows as some Magnit grocery stores also feature Magnit Kosmetika (Magnit Cosmetics) stores. These are usually attached or next door and carry their own branding similar to Magnit, but in bright pink rather than deep red.
Galitsky is both an admirer of Walmart and also sometimes compared to Walmart’s founder, Sam Walton, for targeting segments of the population that are very budget-minded with slogans like “Always Low Prices.” In fact, Magnit has used the direct translation of this slogan (всегда низкий цены) in its own marketing.
The chain of Russian supermarkets defied market expectations when it first opened. At the time, nearly all large investors were focused on Moscow and St. Petersburg, believing that most regional cities would take much longer to develop. However, Galitsky found strong demand and rapidly expanded, eventually taking the company public in 2006. It is still traded under MGNT on both the London and Moscow stock exchanges.
Magnit has been notable for using technology to improve experiences for both customers and employees. For example, sensors were used to ensure managers knew if a store’s checkouts were getting too cold.
Magnit is one of Russia’s two biggest grocery store brands, the other being X5. However, there have been some concerning signs of late. Despite Magnit adding 2000 stores in 2016, giving it, according to one estimate, a market share of 13.3% that year, its projected market share is only 11.5% in 2021.
Furthermore, sales growth for the company decreased during 2016, allowing X5 to gain an edge. In fact, this under-performance was cited as one of the reasons for feuding among Magnit’s shareholders.
In February 2018, Galitsky stepped down as company CEO, having sold the majority of his shares for $2.4 billion to VTB, a giant state-controlled bank, citing disagreements with other shareholders. They wanted more rapid expansion, while he wanted to focus on profitability.
The sale caused share prices to slump on both exchanges, amid concerns that a state run bank had taken over rather than a private investor. This slump came on top of a fall in value that followed the downturn in indicators and the beginnings of the feuding. The stock has yet to recover. Galitsky now plans to devote his time to youth football (soccer) and philanthropy.
Meanwhile, Magnit is looking to catch up with X5’s revenues via various plans, including partnering with another state-owned company and opening mini-stores in post offices across the country.
Magnit is a leader amoung Russian supermarkets and has been a good option for consumers. It will likely continue to be so. However, rising competition in conjunction with its sale to a bureaucratic investor may hurt the company in the long term.
Above: A profile in Russian of Sergei Galitsky, founder of Magnit, one of the largest Russian supermarkets done for one of Russia’s main news channels.
Dixy is a chain of discount Russian supermarkets, known best for serving low-income areas. It is known to be pretty low quality, but has good distribution and low prices. It operates all over Russia, but has its strongest presence in the western part of the country.
Dixy was founded in 1992. The first store in its current retail format opened in Moscow at that time. Later, much of its growth focused on city outskirts, but eventually penetrated to more neighborhoods deeper into major cities. It had an initial public offering in 2007, garnering $360 million. The majority shareholder is a company called Mercury, which was founded as a food and alcohol importer by Russian billionaire Igor Kesaev.
Dixy is known for somewhat garish, but effective marketing. Its stores are usually bright orange and it has been successful with marketing campaigns in which tiny toys are given to customers for every 500 rubles spent. Although intended to appeal primarily to customer’s kids, on a couple of occasions, these caught on and became brief pop culture sensations, with customers actively trading them online – or even selling them for surprising sums – as individuals tried to complete whole sets.
Dixy is currently one Russia’s larger chains, but there are some potentially worrying signs for its future. One estimate puts its 2016 market share at 3.8%, with a projected 2021 market share of 3.2%. Such a scenario would see fellow store Lenta , with which it is currently tied for third place in Russia’s retail food market, decisively push it to fourth place. Dixy’s 2015 revenue came in at $4.2 billion and it opened 408 new stores in the first nine months of 2016. The company is traded on the Moscow stock exchange under the ticker DIXY.
Dixy’s falling earnings are generally attributed to rising costs from marketing, staff, and rents. A possible reason for some of these struggles is a shift to more expensive operating areas inside city centers. It has stated its desire to cut costs in part by renegotiating rent agreements.
Overall, Dixy is a good place to go if one wants a lot of choices at lower prices and does not mind lower quality. The company is definitely facing some problems that could see it slip amoung the increasingly competitive field of Russian supermarkets.
Above: Shopping at a Dixy store in Moscow. Russian supermarkets.
Krasnoe i Beloe
Krasnoe i Beloe is a chain of Russian supermarkets specializing in alchohol and smaller selections of discount groceries. The name means “Red and White,” which the owner says that is a reference to the Soviet-era tradition to offer guests “white or red?” Red referred to wine, and white to vodka. From this, one might already guess that the store is heavily focused on the sale of alcohol.
While most stores see their highest profits come from alcohol, which usually takes up a smaller portion of the store, Krasnoe i Beloe has turned that model on its head, giving most of the floor space of their generally small stores to alcohol.
While they sell just enough other things to still qualify as a grocery store rather than a liquor store, two-thirds of their 1300 items contain alcohol. Krasnoe i Beloe operates all over Russia, but with particular emphasis on the Ural region, where it was founded.
Sergei Studennikov started Krasnoe i Beloe in the city of Chelyabinsk, located on the eastern side of the Ural Mountains. Currently based in Perm, Mr. Studennikov has mused about moving the headquarters to Moscow to better deal with shifting government regulations on alcohol.Studennikov is himself a fascinating individual. A bootlegger in Soviet times, he recently became a billionaire off of the success of his stores.
Krasnoe i Beloe is not yet one of the biggest players in the Russian grocery store industry, but it is getting there. In 2015, it entered the top 10 stores for the first time. It has a good chance of even meeting the ambitious target of being in the top three by 2021. With 6700 stores in 57 Russian regions, as well as $3.76 billion in revenue during 2017, it is only narrowly behind major competitors Lenta and Dixy. The chain employs 100,000 people.
Shifting business decisions and political climates have shaped the company’s expansion. In a recent interview, Mr. Studennikov spoke about diversifying products. This included the addition of children’s toys to “guilt” adults with. He has also said that one of the hardest things to deal with in expanding to new regions is alcohol regulations and the attitudes of government officials.
For this reason the firm will not expand to the North Caucasus, for instance, where alcohol is much more heavily regulated. Studennikov has also ruled out the Far East because of the sparse population.
The store has not escaped criticism. While Studennikov says he wants to change Russia’s attitudes about alcohol, to make it more like Italy or France, others say he just wants to take advantage of poor people and make money on Russia’s declining number of alcoholics.
Krasnoe i Beloe has also come under fire for making employees pay for unsold inventory, a policy Studennikov says is “motivational.” It was also recently raided by the authorities and saw much of its operations halted for several days for what Studennikov said was a “glitch” in the state’s computerized business registry system.
Despite Russian regulations on alcohol such as minimum prices, high excise taxes, and restricted operating hours, Krasnoe i Beloe has thrived with a booze-centric business model. While it comes in for heavy criticism, its methods also appear to work quite well, and it is expected to continue to expand for years to come.
Above: Promotional video for Krasnoe i Beloe. Russian supermarkets.
Midrange Russian Hypermarkets
Hypermarkets are very large Russian supermarkets, usually with groceries and a range of other housewares, stationary, toys, automotive goods, and more. Think Super Walmarts in the US… The following are chains that specialize in hypermarkets.
Lenta operates the largest chain of hypermarkets in Russia. It is performing well, with 233 hypermarkets and 128 supermarkets in 85 Russian cities. These stores employ 53,100 people. The chain is present across Russia, but has a particularly strong prominence in Siberia. It also bears the distinction of being recognized as a Russian company, but operating mostly with capital from the United States and the European Union.
Lenta opened its first hypermarket in 1993 in St. Petersburg. Its headquarters remains there. The largest shareholders in the company are TPG Capital, an American investment company, and the European Bank for Reconstruction and Development. The company is listed as “LNTA” on the London and Moscow stock exchanges.
The firm is a distant third in the Russian grocery sector, but has been growing fast enough to keep pace with the rapidly growing industry. One estimate puts Lenta’s 2016 market share at 3.8%, with a projected market share of 3.9% in 2021. These numbers put it at joint-fourth largest market share in 2016 and fourth largest market share in 2021. The company, however, aims to remain at third place behind X5 and Magnit by 2020 through optimization of costs and store design.
Lenta has made a point of using innovations to grow its business. One example is a loyalty card program launched in 2000, then much less common in Russian grocery stores, that now has 12.7 million members. They have also partnered with Texan company Revionics for price optimization, which entails mathematically determining how customers will respond to different prices.
Overall, Lenta has shown that it has the ability to compete with larger brands. It is a good option as a low- to middle-tier store that holds a lot of inventory. At the same time, it will be challenged in maintaining its ground for market share in the future.
Above: A video about Lenta’s data initiative.
Okei is a well-known chain of Russian retailer focused on larger stores. It operates across the country, with 110 stores in major Russian cities such as Moscow, St. Petersburg, and Volgograd.
Compared to many other Russian chains, Okei only came into existence recently. It was founded as a hypermarket in St. Petersburg in 2002. Although its operations are focused in Russia, it is headquartered in the small European nation of Luxembourg and traded on the London stock exchange under “OKEY.” About 23,000 people work at Okei.
Okei has struggled recently with increased competition. It sold its supermarket line to competitor X5 in order to focus on its larger hypermarket business. It has also been hit hard as the disposable incomes of Russian consumers shrink.
Overall, Okei has a decent position in the Russian market, but has not been a top performer.
Okei TV commercial featuring Russian comic Dmitriy Brekotkin.
Speciality and High-End Russian Supermarkets
VkusVill is a chain of Russian supermarkets that focuses heavily on fresh food and produce. It is one of the first stores in Russia to attempt to completely integrate its logistics, with the store controlling the production and branding of nearly all of its products. Its name translates to “Tasteville,” implying that their fresh food tastes better than products from competitors.
The group that operates these stores was founded in 2009. The first products to be sold were milk and dairy. At the time, they were sold under the Izbenka brand (an izbenka is a traditional Russian rural hut) from small kiosks in rented space in grocery stores. Store founder and owner, Andrey Krivenko says that he was initially inspired to launch the business when he could not find a supply of the fresh Russian cottage cheese that his pregnant wife craved.
As the popularity of the brand grew, in 2012 the group expanded to open its first stores with the branding “VkusVill” (usually co-branded with Izbenka at first, and later with just the VkusVill brand). Most of its first stores were light on products and generally Spartan in appearance.
VkusVill sources its products from local Russian farmers and the food is then processed and packaged by VkusVill. This gives the store complete control over quality but also a wider share of profits in the production chain. In fact, 95% of goods in-store are domestically and usually locally sourced. Nearly all are VkusVill branded.
As the brand has grown, so have its product offerings, filling the store shelves with most basic necessities from fresh bread and produce to ready-made or frozen dinner items. Russian counter-sanctions against agricultural imports from western countries helped the company by increasing both demand and prices for goods produced domestically. In this, it is similar to Russian meat producer Miratorg.
Russians are particularly sensitive to food quality and VkusVill looks to capitalize on this. The company has also begun to adopt more sophisticated store designs that are meant to impart to visitors that it offers only environmentally friendly and fresh food, with rustic and natural-looking, yet still modern, interiors. They are also now running promotions through their store card program to encourage people to eat a more diverse diet by offering discounts to people who buy more than 30 different foods each month.
The chain has been influential in encouraging small Russian farms to diversify production. It now offers many natural cleaning products and cosmetics – although many of these rely on imports or imported ingredients.
VkusVill brought in revenue of $480 million in 2017. The company set major expansion plans for 2018. These included doubling the number of stores to 1000, expanding to St. Petersburg, and a range of locations spiking out in about a four hundred kilometer radius from Moscow.
The company had some complaints during 2015 about the quality of milk. However, the company emphasizes immediately responding to customer reviews and it appears that the issues were quickly resolved. It remains highly respected amoung Russian supermarkets.
VkusVill is a fascinating Russian business that is growing from a small, privately owned chain to a major regional family-run enterprise. A set of unique circumstances and innovations have enabled it to rapidly expand into a significant force. Although it is still not a major national player, the Russian supermarket is tapping into a higher-end market for natural foods that has not been given a modern commercial outlet before.
Above: Interview with VkusVill founder Andrey Krivenko.
Azbuka Vkusa is a chain of high-end Russian supermarkets. Its name means “A to Z of Taste” in English. Stores are mostly located in Moscow, with some in St. Petersburg. Something it is particularly well-known for is the import of specialty products from Japan, including many western products such as cereals that have production or distribution there.
Azbuka Vkusa was founded in 1992 in Moscow, where it also has its headquarters. The founders, Maxim Koscheenko and Oleg Lytkin, own 45% of the business, and also sit on the board of directors. Outside investors, including well-known oligarch Roman Abramovich, own 37%. CEO Vladimir Sodovin has overseen its recent transition from the “supermarket for the rich” to a store that serves a (slightly) more diverse clientele.
In 2016, the company brought in revenues of $750 million dollars. At the present moment the company is privately held, but there has reportedly been some consideration of an initial public offering in the future.
As far as expansion, Azbuka Vkusa is looking primarily at further developing in the St. Petersburg and Moscow markets. This could be because it sees its customer base as being primarily small families that are reasonably well off.
Despite not being the largest retailer, some of its achievements speak to a record of quality rather than quantity. The company is first among Russian stores in turnover per square meter. It also became the first retail food company in Russia to create a quality management system based on ISO 9000 standards.
Not all is well, however. Ownership of the firm has created some controversy, including a lawsuit concerning the purchase of certain shares that involved Mr. Abramovich’s investment company Millhouse, which primarily invests in start-ups across different industries.
Additionally, market diversification has brought into question their business model of selling high-end products that one cannot get elsewhere – such products are increasingly fewer within Russian supermarkets as locally produced equivelents become more common.
Azbuka Vkusa definitely has a reputation as a grocery store for the well-heeled. It has a record of high quality but could get into some trouble as the market becomes ever more competitive and diverse. It will be interesting to see if it does indeed end up having an initial public offering soon to bring in fresh capital.
An advertisement for Azbuka Vkusa.