Russian retailer Magnit back in e-grocery race after buying KazanExpress

Russian retailer Magnit back in e-grocery race after buying KazanExpress
Formerly Russia's leading supermarket chain is locked in a battle with X5 for leadership of organised retail, and despite the polycirisis is making a comeback. / bne IntelliNews
By bne IntelliNews October 20, 2023

Russia’s second-largest offline food and FMCG retailer Magnit will acquire 100% of KazanExpress e-marketplace from AliExpress Russia (56.3%), the owner of Kazan holding FIX Sergey Eremeev (33.8%), as well as the founders of the marketplace Linar Khusnullin (7.8%) and Kevin Handa (2.1%), Kommersant daily and RBC business portal report.

As followed by bne IntelliNews, prior to Russia's full-scale military invasion of Ukraine, Magnit had rapidly closed the gap with market leader X5 Group by revamping its cosmetics format and buying a major retailer Dixyalmost doubling its size in the process.

On the digital front Magnit was also trying to catch up with its rival X5 that emerged as the largest e-grocer in Russia in 2020. Magnit's 2021-2025 strategy included building a leading e-grocery platform capable of handling 5%+ turnover with integration into an omni-channel consumer experience.

Post-invasion the retailers seemed to set digital ambitions aside and focused on rerouting supply channels and expanding in the traditional offline segment through acquisition of smaller regional chains. But with the KazanExpress deal Magnit could reignite the Russian e-grocery race.

"The transaction is expected to have a strong synergistic effect on Magnit's core business, as well as on the business of KazanExpress, and will allow the retailer to make a breakthrough in the implementation of its omnichannel strategy," the company said in a statement.

The amount of the deal is not disclosed, but the analysts surveyed by Kommersant estimate it at RUB10bn ($100mn). The deal includes the entire infrastructure of the marketplace: technological platform, points of delivery of orders, warehouses, car fleet, as well as intellectual property. 

Magnit will also receive a pool of 12,000 Russian sellers of the marketplace. KazanExpress will be rebranded into "Magnit Market". 

KazanExpress, according to INFOLine estimates for 2022, was Russia’s fifth largest in terms of the number of orders, having over 5mn monthly users. The marketplace also has 500 order delivery points in 120 Russian cities, which Magnit plans to leverage for e-grocery integration of its existing outlets.

A source close to the deal told RBC that Magnit will still have to get approval from the Federal Antimonopoly Service (FAS).

RBC reminds that since its founding, KazanExpress has attracted investment twice: in 2018 it attracted $2mn from FIX Holding, and in 2021 "billions of RUB" from Russia's AliExpress. The valuation of the marketplace during these deals was not disclosed. Last year, its revenue almost quadrupled to RUB2.8bn, with a net loss of RUB1.6bn, twice as much as the year before. 

The exit from Kazan Express by AliExpress also underscored how underinvested platform, abandoned by its main backers, is being left behind in Russia's e-commerce race, previously analysed by bne IntelliNews. 

As of end of 2022 Magnit's revenue totalled RUB2.35 trillion, behind only the market leader X5 Group (operates the Pyaterochka supermarket, Perekrestok proximity stores and Chizhik discounter formats). At the end of 1H23 Magnit had more than 28,300 shops in 4,100 locations in Russia, with a self-assessed market share of 12.8% of Russia’s food market. 

Magnit was founded in 1994 by businessman Sergei Galitsky in the southern Krasnodar region. In 2018, the owner sold 29.1% of shares to VTB Bank, which over the next few years gradually sold their stake to the investment Marathon Group. At the end of 2022, 66.8% of the retailer's shares were in free float, 29.2% were owned by Marathon Group, 3.7% were held by Tander JSC, and 0.3% were held by the company's management. Since summer 2023, Magnit has been buying back shares from foreign investors.

Currently e-grocery and e-commerce revenues of Magnit are negligible, with only 11,700 stores connected to online delivery. In 2021, Magnit said it will aim to increase the share of online sales in total turnover to 5% by 2025. 

According to X5 Group's operating results for 3Q23, the share of the company's digital businesses (including, express delivery, 5Post and Many Salmon services) accounted for 3.7% (or RUB29.2bn) of total net revenue, according to RBC.

Sources and market participants surveyed by RBC believe that Magnit could get two to four years of headstart on its e-grocery goals by buying a ready-made marketplace such as KazanExpress. The cost of acquiring the asset is seen as lower than launching the site from scratch. 

According to INFOLine-Analytics, in 2022 total Russia’s retail turnover totalled RUB42.57 trillion, with e-commerce accounting for 13.4%. At the end of 2023, which could grow to RUB46.5-47 trillion and 17.4%, respectively, with e-commerce turnover forecasted to grow by 45% year-on-year to RUB8.1 trillion. 

KazanExpress' share of the e-marketplaces is estimated at 0.3%, while the largest players Wildberries and Ozon Holding 28.6% and 18.4% respectively. However, despite the low market share, due to the integration with Magnit, the marketplace will gain significant growth potential and could aim to become the third largest player in the market, Mikhail Burmistrov of INFOLine-Analitika believes. 

Magnit is Russia's second-largest retailer by revenue. As of June 30, 2022, it had more than 26,700 shops, with revenues for the first half of 2022 up 39% year on year at RUB1.1 trillion. The company maintained gains on the consolidation of discount retailer Dixy that it acquired in 2021.


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