We are integrating advanced data analytics and innovations at every level of our business, from strategic decision-making to tactical selection of locations for new stores, to automatic generation of personalised offers for loyalty card holders based on their shopping preferences. X5 is transforming itself into a customer-centric, data-driven, innovative company that provides modern food retail to diverse groups of customers across the regions of Russia where we operate.
As we near 2020, X5 is well on track to maintaining its position as Russia’s leading food retailer and growing faster than the market and competition.
We strengthened our position as Russia’s leading food retailer in 2017, continuing to accelerate growth, while introducing innovations and advanced data analytics, and we remain focussed on sustainability, efficiency and adapting to the changing needs of Russian consumers.
In this year’s report, we have expanded the discussion of our strategy to address the integrated approach we take to measuring our performance. In addition to financial and operating metrics, which are part of our strategy to 2020, we look at health, safety and the environment as well as governance goals that X5 Retail Group’s management and Supervisory Board also consider key to our long-term strategy.
Strategic progress
Strategic goals
What we did in 2017
Multi-format operating model
Provide diversified set of customer value propositions through portfolio of food retail formats
Efficiently manage retail operations through Corporate Centre that creates value for business
Grow presence across largest and most lucrative segments of the Russian food retail market
Grow omni-channel model to address current and future consumer preferences across local markets
Added 2,862 Pyaterochka proximity stores, 99 supermarkets and two Karusel hypermarkets
Launched Perekrestok Online in Moscow
Approved new branding and commercial model for Karusel hypermarkets
Expanded direct import operations, including opening of trading office in Hong Kong
Introduced innovative solutions to improve our business performance, which leverage advanced data analytics
Focused development on hypermarket, supermarket and proximity stores; announced plans to sell convenience store format
Constant adaptation of value propositions
Adapt each format’s distinct value proposition to changing consumer needs and expectations
Innovate and utilise advanced data analysis to unlock better and more targeted offerings
Continuously review all aspects of CVP, including format concepts, assortment and category offerings as well as store format
Rolled out Pyaterochka loyalty programme that utilises big data to automatically generate personalised promotions for customers, with share of net retail sales reaching 44%
Expanded ability to adapt assortment to local demand and worked with local producers in regions where we operate. Local assortment reached ~17% on average
Introduced new private-label and exclusive brands
Worked to maintain and improve NPS scores
Continued to develop and improve Perekrestok’s “regional supermarket” model
Intelligent growth
Leverage technology to support high-quality growth
Optimise business systems and processes to enable quick, efficient organic expansion
Engage in M&A if and when attractive opportunities arise
Refurbish stores in line with updated operating models, implement everyday improvements and other improvements on an ongoing basis
Opened the landmark 12,000th store, ending year with 12,121 stores after adding 1.2 million square metres of selling space (87% of which was organic growth)
Increased food retail market share from 8.0% in 2016 to 9.5% in 2017
Increased presence in new cities and towns, growing by 25% year-on-year
Updated and enhanced GIS system to streamline store openings, reduce cannibalisation and compete effectively against nearby competitors
Expanded presence in the Siberian Federal District
Pyaterochka refurbishment programme completed; 73% of Perekrestok stores operating under the new concept
Bought O’KEY’s supermarket business in December 2017, which should add 32 stores in 2018 in regions with developed modern retail infrastructure
Launched new partnership with Acmero and Marathon Group to expand food retail services to transport passengers across Russia
Partnership with Centrosoyuz may lead to the opening of up to 1,000 new stores under the COOP-Pyaterochka brand
Excellence in operational execution
In-store execution
Optimise distribution centre logistics and transportation
Improve shelf availability
Opened 10 new DCs in Moscow, Tyumen, Novosibirsk, Yekaterinburg, Ufa, Kuznetsk, Kirov, Orel and Perm
Purchased 1,231 new trucks; increased own fleet from 2,318 as of 31 December 2016 to 3,144 as of 31 December 2017
Goals for 2020
Deliver strong top-line growth faster than the market and competition while maintaining margins
Double the size of the business within 3–4 years after 2015
Focus on organic expansion
Continue to refine data-driven strategy in response to market developments
Enhance customer-centric decision-making based on data analytics
Support a self-regulation strategy for Russian retail
Further optimise logistics and operating expenses
Reduce shrinkage costs
What we did in 2017
Long-term goals
Our markets
Governance
Approved and presented X5’s first dividend policy
Short-listed for best communication of investment case by UK IR Society, awarded best annual report in retail sector by Moscow Exchange
Maintain constructive dialogues with investors, analysts, regulators and other market stakeholders
Continuously refine X5 Retail Group’s governance and investor relations in line with developing regulations and best practice
Risk management
Established detailed risk map and risk appetite approved by the Supervisory Board
Enhanced focus on Risk Management and Internal Control, separate from Internal Audit
Maintain an appropriate balance between business growth that creates returns for shareholders and the long-term sustainability of our business
Ensure that our business takes the appropriate steps to mitigate risks it faces as it seeks to build value for all stakeholders
Our people
Corporate culture aligned with strategic goals
Continued training and development programmes that include support for X5 values
Began transition to focus on culture-led development instead of strategy-led development
Pyaterochka and Karusel updated corporate culture models
Ensure that employees at all levels of X5 Retail Group contribute to achieving the Company’s long-term strategic goals in a productive and efficient way
Learning and opportunities
Continued programme of training to provide essential job and workplace skills
Ran career advancement and staff reserve programmes to enable promising employees to develop within X5
Retain promising and talented staff with training and advancement programmes that provide rewarding career opportunities
Health and well-being
Continued implementation and monitoring of unified Occupational Health and Safety (OHS) standards across our operations
Conducted 3,903 store audits to ensure the quality and safety of products we sell
Ensure that all of X5 Retail Group’s workforce shares responsibility for maintaining the safety of our operations
Our world
Environmental management
Implemented recycling and programmes across all of our operations to reduce the waste we produce
Purchased new, efficient trucks for our transport fleet, reducing average age of fleet to just two years
Continued installation of energy-efficient LED lighting across all of our operations
Installed systems to monitor refrigeration units and ensure they are operating at optimal use
Minimise X5 Retail Group’s impact on the environment while improving efficiency across our operations
Seek to ensure that our suppliers engage in environmentally sustainable practices.
Community commitment
New programmes and expansion of existing programmes aimed at providing food support to needy people in Russia
Leveraged Perekrestok supermarket format to encourage charitable programmes by employees
Contribute to the well-being of people in Russia by investing in initiatives that support sustainable development and protect those most in need
