As soaring food prices and a years-long economic slump force Russians to tighten their belts, retailers are tapping surging demand for no-frills hard discount stores.

With incomes increasingly stretched, Fix Price, a discount business akin to Poundland in the UK and Dollar Tree in the US, is one of the country’s fastest-growing companies — and raised $2bn in the largest initial public offering of any Russian group for nearly a decade in March.

Now, grocers are following its lead. Svetofor, a Siberia-based chain where customers shop from cardboard boxes on the floor, lifted its revenue 39 per cent last year to Rbs189bn ($2.5bn) — a faster growth rate than any other Russian supermarket operator.

X5 and Magnit, Russia’s top two food retailers, are opening hundreds of similar hard discounters, and hypermarket leader Lenta is experimenting with the format as the companies seek to adapt to Russians’ decreasing purchasing power.

Real incomes are down 11 per cent since 2013, while as many as 20m Russians live below the poverty line. Rising food prices have added to the pressure.

During President Vladimir Putin’s annual call-in show last week, one woman dialled in from a supermarket in southern Russia to complain that even locally grown vegetables are unaffordable.

The first Russian business to catch the discount wave was Fix Price, which sells roughly 1,800 mostly non-food products for less than Rbs250 ($3.40) and lifted its revenues 33 per cent last year to Rbs190.1bn. It recently opened its 4,500th store in Russia and six other former Soviet states and is planning further expansion abroad.

“The worse the macroeconomic situation gets or the more people whose incomes fall, the better things are for us,” Sergei Lomakin, Fix Price co-founder, told the FT.


Lomakin and his co-founder Artem Khachatryan, previously shareholders in low-cost supermarket Kopeyka, launched Fix Price in 2007 after studying the low-overhead, high-margin model of dollar stores in other countries and seeing a gap in the Russian market.

“We had the right model at the right time,” Lomakin said. “The way you offer the best prices is by beating your competitors on price and offering a better service. You have to make more than you spend, sell cheaper than everyone else, and the in-store experience has to be better.”

Discount stores are a departure from major retailers’ innovations in recent years, which have focused on brightening up often drab stores, introducing online delivery and expanding ranges with previously scarce produce such as avocados and kale. Vkusvill, a chain that styles itself on Trader Joe’s, is Russia’s second-fastest growing grocer after Svetofor.

But now the largest grocers are trying to balance their portfolios.

Magnit launched Moya Tsena and aims to open 200 stores by the end of the year. The focus on own-brand goods makes it a natural fit for Magnit, which is based in Krasnodar in Russia’s farming belt and owns four farms and 13 of its own production facilities.

Yet low prices will not be enough to attract customers, according to chief executive Jan Dunning.

“Our customers trade up, they don’t trade down. They move much more in value. That doesn’t mean there isn’t space for the poor economy — as a retailer, you try to build a format portfolio that covers as much customer demand as possible,” Dunning said.

X5 launched its Chizhik format last October and plans to operate 45 of them by the end of the year.

Chizhik aims to beat X5’s own grocery store Pyaterochka — Russia’s largest supermarket chain with Rbs1.6tn in revenue last year and 16,709 stores — by 15 to 20 per cent on price through focusing on own-brand goods, which make up 70 per cent of the assortment, and limiting their variety.

“If you go to Pyaterochka, there’ll be five or six different cartons of milk. In Chizhik there’ll be two of them but they’ll be good quality,” said X5 chief executive Igor Shekhterman. “We’re helping the buyer by studying which milk is the most popular.”

X5 is also aiming to offer a better customer experience through store design. “When a customer goes to Chizhik, he’s not going to feel [like] he’s in Svetofor,” Shekhterman said. “Our concept is different. We’re trying to make the customer feel comfortable.”

Lenta, the largest hypermarket retailer, is exploring the format but has not embraced it as quickly as X5 and Magnit.

“We are much more focused on quality and service. Costs matter, but not only,” owner Alexei Mordashov, Russia’s richest man, told the FT. “If you speak about hard discounters, we still don’t know if we should move there because it’s a different segment.”

Russian consumers have become increasingly sensitive to price as they spend more time online, according to Marat Ibragimov, an analyst at Gazprombank. Popular videos on YouTube feature shoppers rummaging through Svetofor and Fix Price in search of bargains.

Meanwhile, consumers “don’t want to go to large boxes which would take several hours of their precious time and — on top of that — would force them to buy a lot of unnecessary items,” said Ibragimov.

“In that respect, hard discounters are a perfect solution for these consumers. They offer a selected range of most demanded products at a very attractive price. Plus they’re located in proximity to residential areas which guarantees reasonably short time spent on shopping.”

The internet-driven search for lower prices has pushed Fix Price to explore building an ecommerce platform having previously avoided the web. The pandemic drove a threefold increase in the e-grocery business to Rbs135bn in turnover last year, according to researcher Infoline.

But Lomakin pointed out “our logistics cost several times less than online does”.

Still, the major retailers are well positioned to move into hard discounting, said Ibragimov, as they can increase margins by using some goods as loss leaders.

“Retailers always benefit from the fact they could sell the most demanded items, which are always considered traffic builders, at the lowest price, because it simply guarantees that they would attract shoppers to their stores,” he added.

Lomakin is counting on the growth in hard discount supermarkets to benefit Fix Price.

“We have what they don’t because they don’t make money on what we have,” he said. “Our goods are mostly impulse buys that people get when they see the low price. The discounters that are appearing now are going to benefit from us being next door.”