Russia's Magnit eyes Siberia as pushes deeper into regions

Mon Oct 15, 2012 2:02am EDT
 
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By Maria Kiselyova and Natalia Ishchenko

MOSCOW (Reuters) - Magnit (MGNT.MM: Quote), Russia's No.2 food retailer by sales, is targeting Siberia as it presses on with a rapid expansion into the country's regions which it believes can deliver at least another four or five years of strong growth.

Sergei Galitskiy, who opened his first shop in 1998 and has built Magnit into a 6,000-store empire, told Reuters he would stick to a winning formula of targeting low- to middle-income shoppers through mostly convenience stores.

"Do you really think that many people in this country earn more than $2,000 per month?" he said, sitting on a couch in the lounge of a five-star hotel a short walk from the Kremlin.

"When we cut the price for bananas by 1 rouble, we sell 100 tonnes a day more ... There are people who live within their budget."

Magnit turned over $11.4 billion in 2011, compared with $15.5 billion at Russian grocery leader X5 Retail (PJPq.L: Quote).

But it is currently growing three times as quickly as it opens three stores a day and as X5 struggles with its shift away from acquisition-led growth and underperforming hypermarkets.

Magnit expects revenue growth, which has run at an annual rate of around 40 percent in recent years, to slow to 30-32 percent this year and gave preliminary guidance last month that it would ease further to 25-27 percent in 2013.

Galitskiy, Magnit's chief executive and 42-percent shareholder, said that was only natural for a maturing business, and there was still plenty more mileage in its existing strategy as it has only a 4 percent share in a highly-fragmented market.   Continued...