Monetka Monetka's Moscow Franchise for Sale
Multi-format Russian retailer Monetka (subsidiary of OOO Element-Trade) may be set to lose its minimarket franchise operations based in Moscow. According to retail portal retailer.ru, Monetka’s main Moscow-based franchisee OOO Investprojekt which currently operates around 130 stores in the capital and surrounding region, is shortly expected to close a deal to sell its store network. It is a banner that has been developed since 2007 on a franchise basis in the capital, although its owners have allegedly been looking for a potential buyer for several years and entered negotiations with X5 Retail Group last autumn. According to LZ Retailytics data, the retail business of OOO Element-Trade, including Rayt hypermarkets, achieved gross revenue of more than EUR1.2bn in 2016.
Sebastian Rennack (Senior Retail Analyst)
Opinion Handed Over on a Silver Platter
Intensified competition from federal players in Moscow is weakening Monetka's operations and putting its franchise under growing pressure. While operating costs in the capital are higher than in its home territory in the Urals, the geographical distance makes it difficult to capitalise on the retailer's well-established logistics network and competence in regional assortment. With the balance shifting to the detriment of the franchised stores, the sale of the business was just a question of time.
It is evident that Monetka is fighting on two fronts and needs to decide where to focus its expansion efforts. The highly developed Moscow area offering tremendous spending levels, or its newly established Siberian foothold in the direct vicinity of its home territories. Here the retailer has already developed a network of more than 50 stores on the line Novosibirk – Kemerovo – Novokuznetsk. We believe, that Monetka will strive to extend its presence into this newly-discovered Russian retail Eldorado, which has already been drawing the attention of the likes of Lenta, Magnit and X5.
We also consider this case to be only one in a line of casualties that is accelerating Russian retail market concentration and supporting the unimpeded growth of larger and financially dominant players. A common business practice in Russia – from the early stages at the turn of the millennium up to now – is vamping up a handful of traditional shops by entering a franchise agreement, only to sell them profitably a short time later to one of the federal players. Incidentally, we believe this acquisition experience and integration ability to be one of the key strengths of X5 Retail Group, that has grown its network in the regions in particular by this method. It seems highly likely that X5 will boost its store count by this transaction in Russia’s central district, adding the next small mosaic tile to its planned 2,000 new store openings by the end of 2017.