X5 launches 'hard discounter' as Russians turn to low-cost convenience stores

MOSCOW, Oct 29 (Reuters) - Russian market leader X5 launched a new line of discount shops on Thursday while Magnit reported strong sales growth at its convenience stores, with low prices and speed set to drive the country’s post-pandemic retail market.

Russians’ already falling real disposable incomes have plunged further this year as low oil prices and the coronavirus pandemic ravaged the economy.

President Vladimir Putin has promised to reverse that negative trend in what has become one of the country’s most socially-sensitive issues.

Russia’s largest food retailer X5 opened a new brand of ‘hard discounter’, called Chizhik, the Russian name for a bird from the finch family, with low prices and convenience its core goals, Chief Executive Officer Igor Shekhterman said.

“Shoppers coming to Chizhik, will understand that it has the most necessary range of items and at reasonable prices,” he told reporters at the store’s opening in north Moscow.

X5 is putting its digital businesses at the heart of a new strategy, it said this week, expecting the online retail market to grow by more than 300% in the next three years.

It plans to open 45 Chizhik stores by the end of 2021 and intends to develop own-label products to sell in them.

Rival retailer Magnit, which has previously expressed a preference for neighbourhood convenience shops, reported a strong third-quarter on Thursday.

At its convenience stores, third-quarter like-for-like (LFL) sales increased 7.8% year on year, despite declining footfall, notably stronger than at its supermarkets, where LFL sales fell almost 2%.

Improved efficiency was behind an EBITDA margin increase of 133 basis points to 7.2%, said BCS Global Markets analysts, with the firm’s earnings before interest, tax, depreciation and amortisation up 37% year-on-year.

Reporting by Alexander Marrow; Editing by Kirsten Donovan