X5 Retail Group X5 puts up Perekrestok Express for sale

Sebastian Rennack (Senior Retail Analyst)
16 October 2017
The Perekrestok Express banner, prominent in the inner districts of Moscow, will soon disappear from the Russian capital.
LZ Retailytics
The Perekrestok Express banner, prominent in the inner districts of Moscow, will soon disappear from the Russian capital.

X5 Retail Group will sell all of its Moscow-based convenience stores under the Perekrestok Express banner. As revealed in a press release, the retailer sees its main growth opportunities in other channels; and will focus on its remaining three key banners: Pyaterochka proximity stores, Perekrestok supermarkets and Karusel hypermarkets.

The Perekrestok Express banner accounts for less than 1% of group revenue. The retailer’s Q3 2017 trading update disclosed that the banner has reduced its store count from 194 to 170 in the first nine months of this year, while seeing like-for-like sales falling by close to -10%.

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Sebastian Rennack (Senior Retail Analyst)
Sebastian Rennack (Senior Retail Analyst)

Opinion A Pragmatic Solution

16 October 2017

It is no surprise that X5’s announcement to sell off its Perekrestok Express stores has been published almost simultaneously with its third quarter results – which provide a positive status on Karusel’s concept review. Putting an entire banner up for sale is a potentially sensitive topic for a publicly noted company. Once the decision was taken, however, now is the perfect time to get rid of the group’s problem child – while the context of continuing market success outshines any potential strategic loss.

Considering Pyaterochka Express’ prime locations in Moscow, running costs may have been significantly too high for a format that was trundling along in the shadow of its best-in-class brethren such as Pyaterochka and the new Perekrestok concept. Operationally, the negative trend has become more pronounced, with like-for-like traffic down more than 10% for two years in a row. Strategically, the group has resigned from its head-start in the so far unoccupied convenience segment. 

The fact is that Russia will not see a pronounced economic upswing in 2017, which will inevitably delay the take-off of convenience formats, but low investment costs and high net profit could have made it a strategic cash cow in comparison to other channels. In addition, X5’s newly-established own production facilities for food-to-go and convenience items would have been an ideal base to capitalise on.

For every other retailer, the closure of a banner would be a harbinger of trouble, but for X5 it might just be a pragmatic solution to put first things first. Money is scarce, even for the number one player showing rising indicators for sales densities and net profit. The roll-out of Perekrestok’s regional model and Karusel’s revamp will require large investments. The takeover and remodelling of Monetka and Sedmoi Kontinent stores, as well as the highly likely acquisition of the Bahetle supermarket network outside of Moscow, will all demand substantial additional funds and tie up further management capacity.

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