Private labels expand in Russian food retailer, large upside seen

Private labels expand in Russian food retailer, large upside seen
Magnit is one of the stores where private label sales in Russia are increasing.
By bne IntelliNews June 2, 2021

The sales of goods under own private labels (PL) by Russian retailers have increased by 12.2% year on year in May-April 2021, reaching 5.3% share in total sales, Vedomosti daily wrote, citing data by NielsenIQ. 

Notably, PL share was the highest in five years, with the growth in the reporting period being five-fold faster than sales growth in FMCG (fast moving consumer goods) in general.

bne IntelliNews already wrote in July 2020 that retailers went heavy on PL development last year, with the growth of PL in the retailers' sales mix being three times faster than that seen before the coronavirus (COVID-19) pandemic. 

The continuous growth of PL confirms the trend on rapid consolidation in Russian retail, as well as a focus on hard discounter formats that also promote PLs amid shrinking incomes of consumers. Also, the largest e-grocery players such as Yandex.Lavka are focusing on PL since 2020.

Including culinary, specialised stores and Vkusvill retailer (a 97% PL share), the share of PL is estimated at 10% for 2020, according to InfoLine. 

Still, the market remains underpenetrated compared with developed peers. Switzerland has a 50% share of PL in sales, while the UK and Germany the figure is 40%. Russia could have up to 25-30% of products sold under private label, according to InfoLine.

"This trend can be attributed to falling real disposable incomes (-3.6% y/y in 1Q21), as customers tend to shift towards promo sales and become more price sensitive," VTB Capital (VTBC) commented on June 1.

Private label is one of retailers' responses to the situation, and they are constantly increasing its share, the analysts note.

Pyaterochka chain (the market leader, part of X5 Group) had a 17.4% share of PL in 2020, which reached 20.4% in 1Q21, while the second player, Magnit, had 10% share in 2020. "Both chains have announced their targets for the category, with Magnit aiming at a 25% share in 2025, and X5 Group looking for 23% by 2025," VTBC reminds. 

"More importantly, both players have started rolling out hard discounter formats recently (Chizhik and My Price), which have a higher share of PL in their assortments than other formats (around 60%)," VTBC analysts write.

At the same time, PL also becomes an important driver in online sales of food (stocking up and express delivery), with two large express delivery operators, Samokat and Yandex.Lavka, having 65-80% of PL in certain sales categories.