Ben Aris in Moscow -

Magnit, Russia's biggest supermarket by number of stores, is reported by the local press to be considering a new share placement worth at least $500m later this year to finance a hectic expansion as Russia's store wars gathers pace.

While the Russian economy came to a virtual standstill in 2009, Magnit not only continued its relentless expansion of new stores and hypermarkets, but actually increased the pace in an effort to grab a bigger piece of country's $200bn food market.

At the end of March, Magnit said it had saw "fantastic" like-for-like sales growth in the first two months of this year - up 18% year on year in January and up 22% in February – and predicted sales would rise by 49% this year, easily breaking through the $10bn turnover mark.

To keep pace with such growth, the company said it forecast investments in store openings, upgrades and transport this year to come in at $1.8bn, up from the earlier expected $1.5 bn, as it plans to open between 800 and 1,000 new stores in 2011 and renovate old outlets.

"The economy was growing fast, fueled by oil prices, but the share of net exports in GDP growth was constantly falling due to rising imports. Slowly over the last decade, the engine of economic growth has changed from oil to the development of the domestic economy, with food being probably the most dynamic sector," says Elena Kolchina, an economist with Renaissance Asset Managers.

Unusually the retailer, based in the south-western city of Krasnodar, has ignored Moscow completely - Europe's biggest city that accounts for a quarter of Russia's GDP by itself - and concentrated on building a discount network of stores in the far-flung regions.

Magnit was set up in 1994 as a distributor of household products and cosmetics before moving into food retail. Its well-known motto - "always low prices" - is now a mantra for the whole shopping populace following the crisis, but has always appealed to Magnit's core customers in Russia's regions.

Following a 30% devaluation of the ruble at the start of 2009, Russians changed down en masse from fancy imported food products - which make up some 40% of total value of food products on the market, according to some estimates - to the cheaper Russian-made fare that Magnit specialises in.

Magnit sales soared by a third in the depths of the crisis in 2009 and accelerated last year as the economy began to recover. Magnit sales were up by 45% in 2010 to $7.8bn and the company has opened at least 60 stores every month for the last two years, increasing its floor space by a third in 2010.

Indeed the brand has been growing so fast that this year it joined Russia's bluebloods Sberbank and Gazprom to become one of only seven Russian brands among the world's top 500 most valuable names in a Brand Finance survey released earlier this year.

Magnit went public in Moscow in 2006 and was listed on the London Stock Exchange in 2008. "We are an ugly duckling story," Oleg Goncharnov, deputy CEO, told bne in an interview at the end of last year. "We went from a wholesale operation in a small regional town 15 years ago, to one of the fastest growing retail operations, not only in Russia, but the whole world."

However, there is everything still to play for in Russia's organised retail sector. Goncharnov says the Russian retail sector has a turnover of $200bn a year and Magnit is the biggest, "but we still only have a 3% market share."

"There is enormous potential and Russia is one of the most dynamically developing retail markets in the world," he said.

And the competition is getting tougher. PepsiCo moved into Russia to become the largest food processor in the country with a $3.8bn takeover of Russia's leading dairy producer Wimm-Bill-Dann in December.

Then Magnit's arch rival X5, part of Russia's Alfa Group, bought out the discounter chain Kopeyka, the last really attractive asset in the supermarket business, also in December. That deal led to the US' Wal-Mart giving up any hope of buying its way into the fast-growing Russian market; in December, it closed its Moscow office just a few years after opening it, saying the supermarket business in Russia is now too expensive.

Indeed, X5 said this week that it has stopped buying local companies and is looking to merge with an international retailer, as competition in the sector has become increasingly fierce, according to analysts at VTB Capital.