Affordable merchandise boosts earnings
Bargain stores on the rise in Russia
These days, you'll find people flocking to discount stores across Russia. And it's no surprise why. Nielsen reports that the average consumer visits these stores a whopping 5 times a month! A significant chunk of these shoppers belong to families earning between 90 and 150 thousand rubles, constituting over a third in Moscow and St. Petersburg.
The discount market is booming with major players like X5 Group, "Magnit," and "Lenta" joining the fray. In 2021, hard discounters accounted for more than 5% of all food sales, according to Infoline. This figure has tripled since 2018 when the discount format began gaining traction.
Alexander Anfimogorov, an independent analyst, sheds light on the misconception that discount stores are only for the lower-income segment. He states, "The prices and the products people want are what really matter to the shoppers. The store design may be simpler, even featuring pallet displays, but it doesn't seem to bother the buyers. Surprisingly, these stores have transformed from once-depressing spaces into a highly sought-after format."
The lower gross margin of these stores is thanks to the reduced overhead costs, making them attractive destinations for shoppers. This growing interest in discount stores comes as popularity for hypermarkets starts to wane.
If we take a look at X5 Group's financial statements, the "Chizhik" discounter saw a near-doubling of its revenue share to 7% in 2021. The network's turnover also doubled to nearly 250 billion rubles. Traditionally, these stores operate on an EDLP (Every Day Low Price) model, offering private label products that account for up to 60% of their product range. This allows retailers to retain control over product quality and prices.
The hard discounter format benefits both retailers and suppliers, notes Andrei Karpov, chairman of the Association of Retail Market Experts. "The limited range of products catering to consumer demand ensures high product turnover, reduced losses, and reduced out-of-date stock, ultimately boosting the store profitability."
Sales in each category of presented products average one product position, with sales in these categories being 15 times higher than in traditional supermarkets. This high turnover leads to improved profitability. The format is expected to continue its growth in the coming years.
Though the discount store format in Russia got off the ground a bit later than abroad, its launch often coincides with crises. For instance, "Svetofor" opened in 2008, and "Chizhik" in 2020.
Sources:- "Kommersant FM" Telegram channel- Nielsen- Infoline- X5 Group's financial statements
In the bustling Russian market, established players like X5 Group, Magnit, and Lenta are expanding into the discount industry, fueling growth in the sector. This format, previously associated with lower-income consumers, is now appealing to a broader demographic due to attractive pricing and high-demand products, as evidenced by the success of X5 Group's Chizhik discounter. The business model, based on Every Day Low Price (EDLP), has proven profitable, with private label products accounting for a significant portion of their offerings. Moreover, the high turnover rate and reduced costs in these stores contribute to improved profitability, setting the stage for continued growth in the retail sector.
