Magnit, Russia’s largest supermarket chain, is not allowing the financial crisis in the country prevent it from becoming even bigger. Even with the constant litany of national woe that includes sanctions, a weak ruble, falling oil prices and now a lower than investment grade rating from agencies, Magnit may be benefiting , rather than hurting, from the slowdown. Last year it boosted sales by 32% and is overtaking its nearest rival X5 retail group, run by Mikhail Fridman, who has 5% market share compared to Magnit’s 6%.
When the economy tanks, consumers are desperate to save money, and Magnit offers value. However, there is a danger the shopper will cut back even further, but everyone has to eat. Magnit will expand store locations and lease rather than buy to cut down on capital expenditures.
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Magnit CEO Sergey Galitskiy owns 42% of the company, and says he intends to expand stores at an unprecedented rate; there will be 2, 000 new locations in 2015 compared to 1, 600 in 2014. He also predicts sales will rise 26-32%. There may be a necessity to cut prices to lure consumers, but with the company’s clean balance sheet and low expenditures, Galitsikiy is confident Magnit can afford to offer products for less.
An analyst at Renaissance Capital, which has a “Buy” rating on the stock said, according to Reuters, “Magnit’s balance sheet is strong, which should allow it to add more selling space than in the previous year, while its scale should help it price competitively and take market share.”
See also: Fridman’s X5 Retail, Top Russian Food Retailers Boost Revenue Growth