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Dixy Group Closes Stores

Dixy Own Brand
Photo: LZ Retailytics
Dixy's medium-tier brand of the same name is strongly visible on the shelf. However, the econonomy range private label seems to lack presence.

Russian multi-format retailer Dixy Group is consolidating its store network. The current number four retailer has revealed in an investors’ presentation that the company has closed almost 100 stores during the first half of 2017. In addition, the retailer has reviewed its store opening plans and will add only 50-60 stores in 2017, down from an original proposal of 180. 



A Gap too Vast for Dixy to Bridge

Dixy loses ground in the minimarket segment. Where the market leaders X5 and Magnit each operate around 10,000 stores; Dixy’s network stands at only just over 2,500. A gap so vast, that competing by means of pricing is not an option without eroding profitability and risking operations. Market follower Magnit has recognised this over time and closed stores; controlled its pace of expansion; and swerved into market niches such as drugstores, pharmacies and the wholesale segment – while at the same time reviewing grocery sales concepts. For sure, closing stores avoids throwing good money after bad and helps refocus on the customer offer. However, with like-for-like traffic sinking constantly over the last year – touching an all-time low of -16% in the past quarter – how will Dixy win back the consumer’s favour?

The retailer has announced plans to increase its private label share of revenue from the current 15.5% up to 25% by the end of 2017. This is an ambitious target that, if reached, would correspond to a higher share of own brands than X5 has with its ‘Krasnaya Cena’ (‘Red Price’) economy label. Looking more closely, however, Dixy runs a two-tier private label strategy with the ‘Dixy’ medium-tier brand more strongly represented on the shelves, whereas the economy line ‘Pervym Delom’ (‘First Thing’) is considerably less visible. This is potentially unhelpful in times where the first decision criteria remains price.

Strategic options for Dixy are decreasing. Net margin has dipped precariously close to zero and debt levels are at the higher end of the industry average. Accordingly, the announced revamp of 30% of stores by the end of the year might be more of a visual refresh rather than full-on refurbishment. Also, revitalisation of the minimarket’s assortment will not be a short-term task. Assuming this will be combined with changes in the private label strategy, we expect the effects to only be visible towards the end of the year. A crucial time-period in which more existing customers could walk away. But perhaps all is not lost. A bright star on the horizon for Dixy could be the early signs of economic recovery, which would mean a general up-trading towards higher quality products – an opportunity to leverage Dixy’s house brand.

Topics: Dixy Group