Magnit Still Going Strong
The leading Russian food retailer by sales and store count, Magnit had another strong year in 2013 with headline sales increasing 29.2% year-on-year (y-o-y) to RUB579.7bn (US$16.7bn) as it continued to expand aggressively across the country. Headline sales by revenue have regularly increased by around 30% or more over the past five years, with the key driver being the launch of new stores, particularly across many regions where organised retailing is developing from a fairly fragmented base. We note that Magnit's total number of locations grew from fewer than 2,000 to more than 8,000 between 2006 and 2013.
Magnit's size and its ability to continue seeking regional growth will continue to be key drivers of its performance. Yet while it should continue to quite comfortably post annual revenue growth in excess of 20% over the next two to three years, it is progressing beyond the supercharged growth phase of its development and is expected to place more emphasis on profitability going forward. Growing sales at existing stores as judged by the key same-store growth metric will continue to be of particular importance, and this is where Magnit has performed particularly impressively, especially compared with X5, its main competitor.
According to X5, in 2012 the combined market share for it and Magnit accounted for only 10.7% of the overall food retail sector. Only counting the top 10 players, this proportion was closer to 50%. Adding up the combined market shares of the top 10, nearly three quarters of the sector is in the hands of smaller chains and mom-and-pop type informal stores. When you factor in our forecast that total mass grocery retail sales will grow at a compound annual rate of 30% to 2017, taking the overall size of the industry past US$300bn, the impressiveness of the overall structure of the food retailing sector becomes apparent. From Magnit's point of view, as it grows larger its buying power will become that much stronger. Unless there is a major entry by one of the world's biggest retailers, which we expect is much less likely now than it was two or three years ago, there is little threat to Magnit's competitive position.
|Magnit Performs Consistently Well|
|Selected Russian Retailers - Same-Store Sales (% chg y-o-y, local currency)|