Magnit expands at a store a day

The second biggest supermarket chain in Russia, OAO Magnit, is adding a new store every day and is likely to post a sales figure of $5.5 billion, a record, for this year. The rapid expansion is a necessity in order to keep up with growing demand in a rapidly expanding Russian consumer market.

The company concentrates on the lower end of the consumer market, operating discount stores offering a wide range of goods, and has plans to open a further 320 shops in the coming two years. The investment required amounts to $1.5 billion over the two-year period. Magnit is also looking to launch hypermarkets in order to take a foothold in the market currently cornered by foreign chains Groupe Auchan of France, Metro AG of Germany, and home outfit OO Lenta, based in St Petersburg.
    

Russian market on the rise

The Russian consumer market is undergoing a boom as the economy grows, and the head of Magnit has pinpointed over 500 towns that are ripe for the siting of new Magnit stores. Sales are forecast to climb by half in 2008, with dividend to shareholders proposed for two years time at the earliest.

With economic growth in Russia an attractive invitation for consumer names, Wal-Mart and Carrefour – major players in the US market – have outlined plans to expand their operations in the country. Retail sales are climbing fast – 25 percent in the last year – and it is forecast that food sales, 50 percent of that figure, will grow a further 20 percent to 2010.

Shareholders, who have seen stock fall by over four percent in the past year, will welcome the positive news emanating from Magnit headquarters. This compares well, however, with bigger rivals who have experienced falls of in excess of ten percent.
    

Rapid growth in ten years

Magnit first appeared in the country in 1998, a year when Russia entered a period of economic turmoil that led to the devaluing of the rouble, and in ten years the company has opened in excess of 2,300 shops across Russia.

Analysts have pointed to Magnit’s choice of small towns as sites for its stores as a sensible move given the lack of competition, a factor that has enabled the company to establish itself over a very wide area in a relatively short time.

Stock in Magnit has a positive future according to Moscow financial analysts, with the shares being given a buy recommendation after the recent announcements.