Magnit’s transformation programme is achieving like-for-like sales growth | Progresiv
Magnit launched a 12-month transformation programme in September 2018. A key aim of the strategy is to return its like-for-like (LFL) performance to growth, following two years of decline. It is looking to do this by developing a new customer value proposition (CVP), which puts a strong focus on the shopper, and a refined pricing and promotional structure. It reached that aim when it reported LFL sales growth in three consecutive quarters, from Q4 2018 to Q2 2019. 
The retailer reported an 11.4% year-on-year sales growth for H1 2019 to reach 643.9 billion rubles (10.2 billion dollars), which is a substantial improvement from the 7.2% increase for the same period in 2018. Most significantly was the LFL sales growth of 1.1%, driven by an increase in basket spend. The retailer attributed the LFL growth to the introduction of the customer value proposition in its core format, the convenience store.
The CVP includes the development of the stores’ assortment, price, promotional mix, location, look and feel and customer service. All these features come together to drive traffic to store and drive up basket spend by offering relevant ranges.
This involves ensuring on-shelf availability of the most popular products that fit local shoppers’ needs and income levels. Also, a new store concept is being launched in 2019 with improved layouts and on-shelf displays to help with the refined ranging. Based on the results of the pilot stores versus stores without the new CVP, the retailer expects them to generate a sales uplift of up to 30%.
The retailer launched a new convenience format store concept, Magnit City, in Moscow, in June 2019, with four more due to open this year. The aim of this concept is to bring the store closer to customers and offer them new numerous and convenient solutions. Stores will be in high traffic areas, with sales areas between 150 and 230 sq. m, and have ranges of around 2,000 SKUs that focus on top-up and food-for-tonight shopping missions.
From March 2019, new stores were rolled out under the new unified Magnit brand. A combined private label range was also introduced across all formats. It will help to expand the retailer’s production capacity and sales share of own brands, which will benefit from the efficiencies of scale. In addition, it will invest in a cross-format loyalty programme to help boost traffic growth in all four banners.
The retailer plans to open over 15,000 stores across its four formats and reach a chain of 32,000 by 2023. Based on store openings alone this is expected to make it the fastest growing leading retailer in Russia. In Q1 it showed it could meet this ambitious goal by opening 1,536 new stores to reach 19,884, which is more than double the amount for the same period in 2018. However, it has been facing a shrinking profit (EBITDA) margin since 2014, when it was 11.3%, to 7.1% in Q2 2019. This brings into question whether such an ambitious expansion plan is sustainable. (retailanalysis.igd.com)
