FX.co ★ Food retail: on what stores investors will make money in 2018

What does the Russian retail sector offer investors?

First of all, further structural growth. It is due to the low level of concentration in the industry. In the Russian market, the total share of the leading retail chains, and today there are five, is 30%, while in other countries - from 60% to 80%. The data indicate that Russian retailers retain its significant growth potential. Trading areas of key players are predicted to increase by 30-40% in the next five years.

The second pro argument on investments in Russian retail is a return of growth in the country's economy. Russia is in the early phase of the new economic cycle, which will create new favorable conditions for buyers and companies in the retail sector. This is evidenced by the so-called misery index, which is calculated on the basis of the amount of inflation and unemployment in the country. Now the misery index in Russia is at a record low level.

Thirdly, experts predict an increase in food inflation from 1% to 3-4% in the second half of 2018. The low base effect and the cost increase in the industry will push food inflation closer to normal conditions. As practice shows, the upturn in food inflation positively affects the financial accounts of retailers.

At whom you should take a closer look

As experts note, the determining factors for the company's success in the next five years will be small formats, scale effect, and successful separation.

The scale effect is always important in retail. Companies of small formats - shops outside the house and discounters - will be in a more favorable position compared with hypermarkets. This trend concerns not only Russia, it is observed all over the world. Shops outside the house find it easier to adapt to changing consumer behavior and greater competition from retailers.

Successful separation has a special point of fighting for customers. The next five years a price differentiation of retailers will be observed - an increase in the share of discounters is expected in the market. In addition, the product distribution of retail chains is going to intensify, that will allow them to increase customer loyalty.

Favorites in Russian retail

X5 Retail Group is called the main favorite. The company strengthens its leading positions in the market, demonstrating strong profit growth (an average of 24% per year). This factor, according to experts, will contribute to the upward movement of quotations of this retailer in 2018.

Experts note the potential for positive growth of the shares of "Magnit" in the next 1-2 years. "Magnit" is still one of the major players with strong competitive advantages: a well-known brand, one of the best logistics systems. The development of retail outlets is impeded by a high proportion (more than 60%) of unmodernized stores that were opened before 2015. This process can take quite a long time. Nevertheless, the modernization can have a positive impact on the company's activity.

An accelerated growth is also demonstrated by such retailers as "Alphabet of Taste", FixPrice, and "Red&White". They successfully develop strong niche concepts. In general, sales of specialized retailers grew by 28% in 2017 compared to 2% a year earlier.

X5 Retail Group and “Magnit", according to experts, will remain the strongest players in the market in the next five years. They will continue to expand their shares and outperform other players.