'Profitable Growth', M&A Activity In Focus For Russia's Magnit, CEO Tells ESM

By Steve Wynne-Jones
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'Profitable Growth', M&A Activity In Focus For Russia's Magnit, CEO Tells ESM

Russian retailer Magnit is seeking to drive profitable growth from its existing assets, while also engaging in M&A activity that is value accretive, its chief executive Jan Dunning has told ESM.

Last week, Magnit unveiled a new 2021-2025 strategy at its Capital Markets Day in Moscow, at which the retailer pledged to 'improve and extend' its customer offering, enhance its value proposition, and introduce efficiencies that would deliver higher profitability and cash generation.

As a result of this strategy, it expects to increase its EBITDA margin to 8% by 2025, and achieve a 'comfortable' net debt/EBITDA level of around 1.5x.

Strategic Growth

As Dunning explained, with 22,000 stores in the group's portfolio, Magnit is already Russia's largest grocer by store count – requiring the business to look more closely at how it can drive more value from its portfolio.

"It's important that we have a focus on profitable growth, that we look for the right returns," Dunning told ESM. "What more can we get out of our stores? What can we improve in our stores? How can we improve our processes and services orientation?


"I'm happy with our performance last year, because we generated 7.4% in additional sales. This year, I want to do the same. I'm not saying we're going to make another 7.4%, but we should have the ambition to come up with a healthy like-for-like. If I want to grow the business on a top-line basis, it's more easier to do that by driving like-for-likes rather than just adding stores."

That's not to say that Magnit won't be adding new stores going forward – Magnit plans between 1,000 and 1,500 new convenience stores, between 750 and 1,000 drugstores and between five and 15 new supermarkets on a gross basis.

However, this will be complemented by strategic acquisitions, with the business eagerly seeking out local operations in different parts of Russia as potential takeover targets – regional retailer Evoros, a recent acquisition in the Murmansk region, is one example.

"We've done two acquisitions in the past year, and they're heavily value accretive," said Dunning. "Regional businesses are often the first movers and have the best locations, so it makes sense as a nationwide retailer to look at these first."


New Formats

The company has also announced plans to continue to develop new formats such as My Price (a discount banner), Magnit City (grab-and-go style stores in large cities) and Magnit Go (kiosks in high-traffic locations, pictured), as well as its existing portfolio of banners.

"We are still in the embryo stage with some of these, but if I look at our market offering, I believe there are a couple of niche areas where Magnit could develop further opportunities," said Dunning. "The kiosk format looks very promising – we've seen good results from the first three that we have opened. Also, we would like to extend My Price to more than 100 stores this year.

"Bear in mind that having this multi-format platform creates much more opportunity for acquisitions as well – if we were to acquire a group of stores, we could convert some to convenience stores, some to discounters and so forth. There's much more flexibility this way."

E-Commerce Aspirations

Partnerships are another area in which Magnit sees room for growth, with the business pledging to 'extend complementary partnerships' in e-commerce, as well as develop strategic alignment with suppliers of 'marketing, data exchange [and] supply chain projects'.


On e-commerce, an area that has received particular focus over the past year, Dunning told ESM that he believes partnerships with established businesses in this field offer the most direct route to success.

"We initially saw growth in e-commerce, but we were simply not ready," he said. "We had the volume, the critical mass, but we didn't have the platform. So we reached out and developed cooperation with businesses that had a platform onto which we could build our grocery volumes, and learn from that experience.

"But if you want to take an ambitious outlook, you can look at the market and say 'I'm jealous about what [Russian online giant] Yandex has... but Yandex is equally jealous about me'. They have the technology, they have a huge amount of customers, but they lack the critical mass in food. I have the critical mass in food, but I lack the tech.

"The question is, are we going to compete, or should both parties acknowledge that cooperation offers the quickest route into the market?"


Allied to its e-commerce strategy will be the rollout of a new multi-function app, dubbed the Magnit Super App, bringing together its Magnit Pay functionality (launched in December of last year) with complementary customer services, such as utilities payments, and financial and lifestyle services.

"We currently have the Magnit app, the Magnit Delivery app and the Magnit Pay app – all of these will be integrated into one platform," said Dunning. "We're trying to make it more interactive, and also we're looking at better aligning ourselves with the purchasing behaviour of our customers, sending them recipes and things like that.

"Shoppers have massively tested out e-commerce during COVID, and I think that's going to stay – people aren't going to abandon e-commerce once the pandemic is over. Yes, there will be a bit of rebalancing, but I strongly believe that e-grocery is here to stay, and will grow, and we need to be part of that growth."

© 2021 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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