Russian X5 Retail Group has disclosed plans to expand its Pyaterochka store network in rural regions through a co-branding franchise project together with the Central Union of Consumer Societies of the Russian Federation (Centrosoyuz). The retailer has announced its intention to open up to 1,000 franchise stores under the COOP-Pyaterochka banner at existing cooperative locations in remote rural areas of Russia. Both parties have also agreed to open 5,000 Pyaterochka shop-in-shops by 2021, complementing X5’s FMCG assortment with locally sourced fresh ranges.
X5 is well on track to reach its ambitious goal of opening 2,000 stores in 2017. The retailer’s tried and tested approach of entering into franchise agreements as a means of rapid expansion into remote parts of Russia is a shrewd approach. On this scale, it is ingenious. Not only will the group boost buying volumes and grab market share, but the retailer will also minimise financial risk while scouting for profitable locations for later buy-out.
Enhancing the low-priced FMCG assortment with local farmers’ produce is in our opinion a sure path to success and will drive footfall – given open markets in Russia still play a substantial role in day-to-day shopping – particularly in rural areas. Providing franchisees with facility management services and marketing support will not only help create a uniform market presence, but will also strengthen the bottom line through achieving synergies and therefore cost savings.
Having recently announced its ambitious store opening plans for the current year, we see this new agreement as a big leap towards X5 achieving its goals. Of course it remains to be seen if the commitments made from Centrosoyuz’s side can be implemented, given the organisation has been marked traditionally by individual interests. However given its vast network of 40,000 selling points across the country, the cooperation is without doubt an attractive proposition for ambitious X5.