Monopolization in the field of food retail is intensifying. The manager of the Pyaterochka, Perekrestok, Karusel and Chizhik stores, the X5 Group holding, has crushed several more retail chains. Now Mikhail Fridman, Alexei Kuzmichev and German Khan own 294 stores under the signs “Purchase” and “PurchaseAlco”.
At the same time, Mikhail Fridman settled in London a long time ago and is now trying to speak out about relations with Russia from there. Alexey Kuzmichev last appeared in the media last fall – then he sought the French authorities through the courts for the opportunity to sail on his “frozen” yacht in French territorial waters (it is known that he owns a house in Paris and a villa on the Cote d’Azur). Bloomberg wrote about German Khan six months ago that the billionaire was forced to leave London, where he lived for 10 years, and moved to Moscow – now he manages the Russian assets of the LetterOne financial group (this is the international “face” of Alfa Group). Thus, it can be assumed that the expansion of X5 was the result of the management efforts of Herman Khan in the interests of his partners remaining abroad.
“Pyaterochka” and the twins
The chains being acquired by X5 Group – the Pokupochka, PokupAlko stores and the Ga-Ga cookery – belong to the Volgograd company Tamerlan. It is noteworthy that initially “Tamerlan” acted as a franchisee of “Pyaterochka”, managing the stores of this network in several regions of the Volga region. Having been doing this since the beginning of the 2000s, Tamerlan opened more than a hundred Pyaterochka stores. And after the franchise agreement was terminated, the Pyaterochkas opened by Tamerlane were renamed into Purchases.
In 2014, there was a rumor that the X5 Group would buy stores in the Samara region from Tamerlane, but this story did not continue then. Meanwhile, Tamerlane has been expanding in recent years. He absorbed, for example, the Volgograd network “MAN”. Now he has about 300 stores in the Volgograd, Samara, Astrakhan and Rostov regions, as well as in the Stavropol Territory and the Republic of Kalmykia. In 2021, the company had a revenue of 21.8 billion, a net profit of 227.5 million.
Such successes are easy to explain, given that the main beneficiary of “Tamerlane” was considered the ex-mayor of Volgograd Evgeny Ishchenko. According to local media reports, he controlled 85% of the company’s capital. At the same time, the connection between “Tamerlane” and Yevgeny Ishchenko first surfaced during the scandalous trial of the official. In 2006, Evgeny Ishchenko thundered on trial. Probably, one of the reasons for this turn of his fate was political intrigues – the mayor of Volgograd quarreled with the then governor of the region Nikolai Maksyuta. And he also moved people who controlled land issues from their homes in the mayor’s office. As a result, the court found Ishchenko guilty of possession of cartridges and illegal business. The story with the cartridges turned out to be strange – the investigation could not present them at the trial at the request of the lawyer. But as for the episodes of illegal business, it was in one of them that the Tamerlan company appeared. The prosecution argued that Ishchenko received land plots for the construction of Pyaterochka stores illegally. According to the investigation, the mayor participated in the creation and activities of this commercial organization, provided it with benefits on behalf of the municipality. As evidence of the commercial success of the official, the prosecutor’s office released the following information: “Evgeny Ishchenko had significant personal savings, a private plane and a yacht worth 3 million euros, and also negotiated the acquisition of one of the islands of the Maldives group.”
As a result, Ishchenko received a year in prison, however, taking into account the time spent in the pre-trial detention center, he was released immediately after the conviction was announced. And after some time, his name officially appeared among the co-owners of Tamerlan LLC. It is not known for certain how much Evgeny Ishchenko will replenish his wallet as a result of the sale of Volgograd stores to the X5 Group holding. Analysts estimate the market value of Tamerlan LLC at 4-6 billion rubles.
Over the barriers
Now the position of X5 Group in the regions where Tamerlane operates will be significantly strengthened. Not only will Pyaterochka and Perekrestok get new stores, they will also use Tamerlan’s distribution center in Volgograd. In some localities, the share of X5 Group in the local market as a result of the transaction will exceed 35%. And here’s what’s interesting: the FAS could not fail to notice such an opportunity. However, the department, as has happened more than once, has shown loyalty to the trading offspring of Alfa Group by agreeing on a deal to take over Pokupochek. Yes, the condition to reduce the market share of some cities to 35% was voiced. However, one must understand that the X5 Group, if desired, can easily fulfill this condition by formally rewriting the stores to a separate beneficiary.
By the way, here’s what you should pay attention to. For many years, there was a rule that retailers could not occupy more than 25% of the market. However, last year there were upheavals.
A bill appeared in the State Duma that raised the limit to 35%, but it was never adopted. At the same time, the government introduced a special procedure for the purchase of retail assets from foreigners leaving the country. It actually removes the restriction on market shares. Just taking advantage of it, X5 Group last year acquired from the Finnish holding SOK Retail Int. OY 14 Prisma supermarkets in St. Petersburg (now they operate under the signs of “Pyaterochka” and “Perekryostkov”). According to rumors, X5 Group has long intended to bring its network of Chizhik discounters to St. Petersburg, but ran into this same 25% barrier. A deal with the Finns allowed him to jump over. The new precedent with the purchase of Tamerlan shows that there are fewer and fewer antitrust barriers for the largest retailers in Russia. And questions here arise not so much for Friedman and Khan, but for the antimonopoly service.
“Our Version” has already paid attention to this trend, which is becoming more and more distinct from year to year. For example, in 2021, the five largest retail chains controlled 32% of the Russian market. In specific regions, the picture of possible monopolization may be even more pronounced. For example, in St. Petersburg, at the end of 2021, the 10 largest networks crushed 80% of the market for themselves.
Specifically
The story of the purchase of Tamerlan suggests that large networks do not always push local businesses with the help of fair competition – the administrative resource is also included. It has been repeatedly reported that some federal networks, when expanding into the regions, use a well-established tactic: they take local officials as trusted people. And in Volgograd, as we can now assume, X5 Group managed to interest the mayor himself. And the problem here is not only that thanks to such methods, corruption is growing. Even 10 years ago, it seemed that federal networks and local businesses seemed to have divided spheres of influence. The former are engaged in hypermarkets, while the latter operate in the convenience store format. But in recent years, Pyaterochka and Magnito have been actively making their way into the niche of small stores. And not only small traders, but also local producers suffer from this. After all, chains need large batches of goods with a long shelf life, which is why local producers of confectionery, deli meats or, for example, salads, cannot break into this system. Yes, sometimes the interests of regional food companies are lobbied by the authorities, forcing chains to allocate special shelves for local products. But this practice is more like temporary PR campaigns. In fact, local producers of fresh food are being forced into the markets – away from effective demand and city evening traffic. And customers in chain stores are slipped stale goods, justifying its suitability with a long shelf life. People are taught to use ready-made products made several months (!) ago.
Having squeezed competitors out of the market, networkers immediately begin to inflate prices. In 2021, X5 Group estimated its share in the Russian market at 12.7%. According to the results of the first half of 2022, it was already 13.2%. Net revenue of X5 Group last year increased by 18.3% and amounted to 2.6 trillion rubles, the average check for the year rose by 7.2%, its value amounted to 469 rubles. Joining the holding “Pokupochek” will make these figures even more impressive. And German Khan and his comrades in Alfa Group are even richer.