X5 retail group sells crossroads express. Supermarket "O'Key" in Yuzhny Butovo closes

The largest food retailer in Russia, X5 Retail Group, will sell Perekrestok-Express, a small-area retail chain. The Perekrestok-Express brand itself will not be part of the deal.

X5 Retail Group, Russia's largest food retailer, will sell Perekrestok-Express, a small-area retail chain, the company said. X5 has decided to focus exclusively on three main formats - Pyaterochka convenience stores, Perekrestok supermarkets and Karusel hypermarkets. The operating business without a brand is put up for sale, a company representative explained. Sale trading network Perekrestok-Express will allow X5 to increase its presence in the Moscow region of its main formats within the limits of the market share allowed by the Federal Antimonopoly Service.

“The convenience store segment with stores up to 200 sq. m, in which the Perekrestok-Express network operates in Moscow, has a certain potential for Russian market, but this is a rather narrow segment, - considers the main Executive Director X5 Retail Group Igor Shekhterman.- At the same time, 90% of organized food retail in Russia is occupied by three formats: convenience stores, supermarkets and hypermarkets. With a significant market share in these formats and the potential for further growth, we decided to focus on developing the value propositions of Pyaterochka, Perekrestok and Karusel, in particular in Moscow.” The Renaissance Capital bank will prepare the deal for X5.

The food retailer X5 Retail Group operates the Pyaterochka, Perekrestok and Karusel retail chains. According to the company's report published yesterday, its revenue for the third quarter increased by 24.9% to 317.131 billion rubles. Sales of the Pyaterochka retail chain over the specified period increased by 28.8%, reaching 251.653 billion rubles, the Perekrestok chain - by 18.1%, to 42.417 billion rubles, Karusel hypermarkets - by 3.8%, up to 20.705 billion rubles.

At the same time, Perekrestok-Express became the only network that did not show growth: its revenue for the third quarter decreased by 13.7% to 2.356 billion rubles, which is less than 1% in the structure of the company's revenue.

For the nine months of 2017, it decreased by 11.1%, to 7.336 billion rubles.

Olga Dubravitskaya

"Express" does not pull

Perekrestok Express is the weakest format in the structure of X5 Retail Group: in the first nine months of 2017, its revenue decreased by 11.1%, to RUB 7.3 billion. For comparison: over the same period, sales of Pyaterochka increased by 30.3%, to 724.4 billion rubles, Perekrestok - by 19.4%, to 132.3 billion rubles, Karusel - by 7 .2%, to 63.3 billion rubles.

Perekrestok Express also turned out to be the only retailer format that showed a decrease in the average check for the nine months of 2017 to 275.6 rubles. against 281.1 rubles. for the same period last year.

The EBITDA margin of Perekrestki Express is several times lower than that of other retailer formats: 2.1% versus 5.8% for Karusel, 7% for Perekrestok and 9.1% for Pyaterochka in the first half of the year (For nine months, these data are not disclosed).

The network was launched in 2007 as a joint project with a group of private investors, whose names were not disclosed. Initially, X5's stake in the project was only 40%, but the group had an option to increase it. In 2010, X5 Retail Group obtained operational control over the chain, having paid $6 million for another 20% stake. A year later, the company became the sole owner of the chain.

"Perekrestok Express" was the first X5 Retail Group format, the distribution of which the group began to involve franchisees. Since 2012, the group has changed the principle of working with partners to "reverse franchising" - under the terms of the contract, the network participates in all stages of opening and operating stores, and the partner only manages them. Under this scheme, the franchisee does not pay an initial fee and royalties, but his income is limited to a certain percentage of the store's gross margin. ​

​ To increase the effectiveness of the X5 format, Retail Group tried to experiment with Perekrestok Express stores: at the beginning of this year, several stores of the chain were transferred under the Eda brand.

Reset excess

Perekrestok Express cannot be called a problematic format for X5 Retail Group, it simply does not meet the group's growth prospects, says Konstantin Belov, an analyst at Uralsib. In his opinion, this segment is more suitable for smaller and niche retailers, such as Magnolia or Azbuka Vkusa. “The entire network will not necessarily be bought by one notable player. It is possible that the stores will be sold in parts to small retailers, ”he suggests.

Azbuka Vkusa, according to its representative Andrey Golubkov, may be interested in some Perekrestok Express stores, but no more than 20 objects in Moscow - these points fit the AB Daily format. A representative of VkusVill said that the company was not interested in buying Perekrestok Express stores.

In the West, the format of "convenience stores", in which Perekrestok Express worked, is more common than in Russia, each major player has a network in this segment, notes Deloitte partner Egor Metelkin. In his opinion, Perekrestok Express has no direct competitors in Russia, even AB Daily, Magnolia or VkusVill are focused on a different assortment and a different customer. The Express format has potential due to the global trend to buy ready-made food in stores, says Anna Zhdanova, Associate Director of Fitch Rating Corporations.

Earlier in early October, it was known about the sale of Karusel hypermarkets to X5 Retail Group under the sale and leaseback scheme (sale of real estate with the subsequent conclusion of a long-term lease agreement with the new owner). The cost of X5 Retail Group hypermarket space, according to INFOLine-Analytics, is about 20 billion rubles.

The work that X5 Retail Group is currently doing is normal process optimization for a company that has always struggled for rapid growth and maximum efficiency, Metelkin believes. Both the sale of the network and the reverse leasing of Karusel's premises are an optimization of the group's work, and not an attempt to raise additional funds, X5's debt burden is at an acceptable level, agrees Belov from Uralsib. The ratio of net debt / EBITDA of the company in the first half of 2017 is 1.8 (a year earlier it was 2.34), 72.8% of liabilities are long-term.

Such small stores are “a very narrow segment,” explained X5 Retail Group CEO Igor Shekhterman (his words are quoted in the message). “90% of organized food retail in Russia is occupied by three formats - convenience stores, supermarkets and hypermarkets. With a significant market share in these formats and the potential for its further growth, we decided to focus all attention on the development of the value propositions of Pyaterochka, Perekrestok and Karusel, in particular in Moscow,” Shekhterman announced.

Potentially, the Perekrestok-express chain may be of interest to Azbuka Vkusa for their compact AV Daily stores, since it has big plans for the development of this network, believes Mikhail Burmistrov, CEO of Infoline-analytics. According to him, the retailer can claim a significant part of the Perekrestok-express sites.

A representative of Azbuka Vkusa confirmed that the company is aware of X5's intention to sell a chain of small stores, potentially Azbuka would be interested in some competitor's premises in Moscow under AV Daily, estimated at about 20 outlets.

Another possible interest is the Nizhny Novgorod company "Sladkaya Zhizn", a major distributor that develops Spar stores under license (including in Moscow), continues Burmistrov. “They work effectively in a small format of stores, including sub-franchising,” he notes. A representative of Spar Middle Volga (a legal entity that develops Nizhny Novgorod Spar) declined to comment.

When selling the entire Perekrestok-Express business, X5 can expect to receive up to 3 billion rubles for it, says Burmistrov. According to the representative, the company is interested in selling the entire network of 170 outlets at once. The Perekrestok-Express brand will remain with, he specified. There is no list of applicants yet, the source of Vedomosti adds: the process has just begun.

The decision to sell Perekrestok-express is the right one, Burmistrov assesses. I could sell this chain three years ago, when in the process of business transformation it became clear: there are successful scalable formats, like discounters or supermarkets, there are strategically important ones that require support (Karusel hypermarket), the expert argues. “And the Perekrestok Express format is neither scalable nor strategic,” says Burmistrov.

But three years ago in the Moscow region there were no success stories development of such a network and, accordingly, potential buyers, indicates Burmistrov. Since then, the AV Daily and Vkusvill cases have appeared on the market, and the regional chains Yarche! and Dolce Vita with the Spar format, so the moment for the sale is well chosen, he believes. A number of unprofitable "Perekrestok-express" is closed, points with an updated design, a cafe area and an expanded range of ready-made food have been successfully tested - in fact, this is a full-fledged pre-sale preparation, the expert believes.

In the first nine months of this year, X5 Retail Group (Pyaterochka, Perekrestok, Karusel) closed 55 Perekrestok Express stores as part of an increase in efficiency, the company said in a statement. In addition to closing stores, there are other signs of a crisis in this format. Like-for-like sales (LFL) of Express stores in the nine months of 2015 grew by only 2.7%. This is five times lower than the average for the entire group (+15.2%). Traffic for the same period fell by 3.4%. X5 explained that, in particular, franchisees who do not meet the concept and standards of the trading network are being closed.

"Non-target facilities were closed. They did not meet the concept of the network, new standards and requirements for opening stores," she said. general manager"Crossroads Express" Olga Nikitina. At the same time, she did not specify how the requirements and standards of the group have changed since the opening of the "non-format" outlets.

At the same time, Olga Nikitina stressed that new Perekrestok Express stores are also opening. Since the beginning of the year, the company has opened 28 new outlets. Thus, over the nine months, the network decreased by 27 stores or 12.9%. Now, according to reports, the Perekrestok Express network has 182 stores, 27 of which were opened under reverse franchising. Direct franchised stores are not included in X5's reporting.

X5 has no plans to close any other Perekrestok Express stores this year. But, according to Olga Nikitina, in next year the company intends to close about ten more non-target stores.

got lost

The Express format is somewhat "lost" in the overall X5 lineup, thinks Sergey Ilyin, an analyst at Premier Investment Company.

"In fact, it was an intermediate link between Pyaterochka and Perekrestok. But after X5 rebranded stores, Pyaterochka actually pulled itself up to this level, and there was no point in two almost identical formats. Plus a little more premium positioning " Perekrestka performed poorly during the crisis, when the consumer is primarily focused on price," he says.

Analyst of IG "Aton" Elizaveta Lebedeva thinks that unprofitable and unpromising stores have closed.
“In the case of a smaller format like Express, store performance is more dependent on specific locations. In addition, now, with the reduction in real incomes of buyers, consumers are looking for more attractive prices that can be offered by convenience stores or discounters. Most likely, they take customer traffic from Express, says Elizaveta Lebedeva.

She also noted that now there are not so many who want to open retail store franchise products.
"Obviously, the competition in food retail is getting stronger, the competition for consumers is getting tougher, and franchising looks less attractive," she says.

Normal closures

In turn, Natalia Kolupaeva, Raiffeisenbank's senior sector analyst consumer goods, believes that the franchising scheme has its advantages for X5, since in this way the company outsources to entrepreneurs the search for new interesting sites for opening stores, offering them its brand, procurement and logistics.
“In addition to opening, any large retailer operating small format stores is making forced closures of those stores that do not meet operational requirements. In particular, about Express, it can be said that the closure of these 55 stores means that they were most likely unprofitable , did not meet the requirements for performance indicators that were budgeted," she argues.

Natalya Kolupaeva noted that the opening of new Express stores suggests that X5 is not leaving this format, but is adapting it to changing market conditions.

"These can be point changes. Sometimes it is enough to move a store to a neighboring block, which is more attractive in terms of customer flow. For example, there is an old store that has been operating for many years, and a new Magnit, Dixy opens nearby, and nearby the new shopping center with Auchan City. The old store is losing its attractiveness, it may be pointless to wage price wars with neighbors, and the company decides to close it and open a new one in another place,” the analyst says. But at the same time, Natalya Kolupaeva stressed that the Express format is not the main one for X5 and currently occupies about 1% of all retail space x5.

“Based on the results of the concept transformation, if the newly opened stores are successful, the format will continue to develop,” the expert concluded.

Knocked down the crisis

"X5 currently doesn't have such a large specialized team of people who are looking for sites that Magnit has," says an analyst at Raiffeisenbank.

Indeed, Magnit, based on its reporting for the first half of 2015, makes 5.65 net discoveries per day across the country, while X5 has this figure of 3.81, and network growth is largely provided big deals M&A.
Roman Tarasov, head of the development department of the Magnolia chain, is also inclined to the version that Express suffered due to the worsening economic situation and the decline in the standard of living of Russian consumers.

"Now the crisis, people have become less money, they began to go to shops less, everything is simple, - he says.

Marat Ibragimov, an analyst at the BCS financial group, also believes. According to him, the current market situation is not conducive to the development of this format, since it is designed for wealthy buyers who have little time and low budget constraints. The analyst does not rule out that after the crisis, X5 will start opening new Express stores.

There are no seats

At the same time, Magnolia's Roman Tarasov says the store closures may be due to difficulties in renting space.
“Perhaps, some ten-year lease agreements have expired, and the owners do not want to renew them at the old rate, because the crisis. And then the company closes old stores, and opens new ones in other places where rent is smaller,” he argues.

The theory of high rental rates confirms the director of the network of stores near the house "One step away from you" ("Attacks") Alexei Shipunov. “We simply couldn’t reach an agreement with the landlords and moved out,” he says. “Besides, it’s important to make a profit, and if the site is unprofitable, what’s the point of renting it?”

Abandoning the Express format and transferring stores to the Pyaterochka camp looks like the most reasonable solution, Sergei Ilyin, an analyst at Premier Investment Company, believes.

The Perekrestok Express brand development project was launched by X5 in October 2007. To do this, the group created a joint venture (JV) with the chairman of the board of directors of the network gaming clubs"Jackpot" by German Goglichidze and the owner of the Perekrestok-mini franchise stores Valery Tarakanov. Subsequently, they left the project, now it is headed by Olga Nikitina.

In early December, the O'Key network notified some suppliers that supermarkets would be closed from December 13th. Dairy and meat producers said their companies were not notified, but O'Key stopped placing orders for its supermarket chain. One of the largest suppliers alcoholic products.

Currently, goods in O'Key stores are sold at discount prices. So, for example, in a supermarket on the street. Venevskaya in the South Butovo area, one can observe half-empty shelves. According to information from the sellers, they are finalizing January, after which the store will close.

The O'Key network did not respond to the official request from DP. The press service of X5 Retail Group provided a comment from a press release a month ago, which it published in connection with the petition filed with the Federal Antimonopoly Service: “The company is considering the possibility of acquiring the supermarket business (more than 30 objects), which currently operate under the O' brand. Kay. We requested the position of the FAS on the possibility of a deal. The further steps of the company will depend on the response of the department and negotiations with the counterparty.”

According to Nikolay Gabyshev, Managing Partner at Peregrine Capital investment company, on the one hand, X5 and O'Key probably have a clear understanding that the FAS will eventually approve the deal, but apparently there are technical issues that caused a delay in considering the application. On the other hand, the “supermarket” format for O’Key is unprofitable, and its preservation is a further generation of losses, therefore, most likely, the chain owners decided to stop this endless generation of financial losses. “Apparently, supermarkets showed such large losses that it was impossible to cover even during the New Year's trade,” the expert emphasizes.

As of October 1, 2017, the O'Key chain operated 37 supermarkets, 72 hypermarkets and 59 discounters in Russia.

Earlier, O'Key reported that the sale of the supermarket business under the O'Key brand is one of the options for optimizing the asset portfolio. This will allow the company to focus on the development of hypermarkets and discounters.

Experts estimate the cost of the O'Key supermarket chain based on a multiplier of 40% of the turnover, that is, taking into account the debt of the entire company, but excluding real estate, the transaction amount could be 7 billion rubles.

For the last 2 years, O'Key Group has shown weak financial results compared to other public retailers. The owners of the network changed top managers several times, were engaged in network optimization (they sold land plots and hypermarkets), but they could not improve the network's performance.

According to the reports of O'Key Group, for 9 months of 2017, the group's net revenue increased by 2% compared to the same period last year, to 125.4 billion rubles. At the same time, revenue growth became possible thanks to Da! discounters, which the network has been developing since 2015. Net revenue in the hyper- and supermarket segment fell by 2.1% year-on-year to RUB 38.27 billion.

The decrease in revenue in the group was attributed to a reduction in the number of chain stores compared to the previous year and a weakening of the dynamics of LFL traffic growth due to increasing competitive pressure.

O'Key Group is owned by Boris Volchek (owns 29.52% through GSU Ltd), Dmitry Korzhev (15.55%, through NISEMAX Co Ltd) and Dmitry Troitsky (35.4%, through NISEMAX Co Ltd), 19 more .53% are in free circulation.