INTERVIEW: Grocery Magnit can pay dividends, expand – CEO

MOSCOW, Feb 4 (PRIME) -- The current financial condition of one of Russia’s largest retailer Magnit allows the company to combine expansion, a comfortable debt burden, and payment of good dividends, CEO Jan Dunning said in an interview to PRIME published on Thursday.

“Our financial position is in such a condition today that we are able to combine acceleration of expansion, a very comfortable debt burden, and payment of good dividends efficiently. I cannot name specific figures now, because only the board of directors gives recommendations on dividends to shareholders,” he said.

In 2020, Magnit improved its financial position and working capital significantly, reduced the debt burden and raised earnings before interest, taxes, depreciation, and amortization (EBITDA) noticeably, he said.

He also said that the government’s agreement on stabilization of prices for sunflower oil and sugar with producers and retailers would not have a significant impact on the financial results of Magnit in January–March 2021.

“Since the agreement is short-term, I see that it will not have a noticeable impact on the financial results of the company,” Dunning said, adding that Magnit fulfills its obligations under the agreement.

“Since Magnit focuses on customers with average and average minus incomes, prices for a significant part of these goods were already at the level stipulated by the agreement or even below that,” he said. “The bulk of sales in these categories are goods of the first and second pricing ranges, where our margin is minimal or even zero. Nevertheless, it means additional costs for us.”

Magnit also plans to open its own dark stores in 2021 to raise efficiency of online sales. Magnit currently has several online delivery projects, including cooperation with Delivery Club and Yandex.Eda. It launched an online pharmacy in September 2020 and a mobile app for express delivery in Moscow in November, and a separate regular delivery of goods from the stores in the Krasnodar Region.

“We will continue active scale-up of our projects into new regions and cities this year by covering more and more of our offline stores. We plan to launch our own dark stores to raise efficiency of the online segment,” he said.

The company will continue scaling up its projects into e-commerce. “In 2020, it took us six months to enter the online segment, and we were satisfied with the results. We fulfilled 7,000 orders per day at the end of the year. We see great potential in this market, and we want to be among the leading players here,” Dunning said.

He said that the company was working on three pilot formats – Magnit City, discounter stores Moya Tsena (My Price), and kiosks MagnitGo.

“All of them are complementary to the core business of Magnit and they are close to our major format of neighborhood stores. Each of them is at a different pilot stage, and the stage of City and discounters is advanced, while the kiosks are at the very beginning,” he said.

“We see great potential of this (kiosk) format, it has its own niche. This format was very popular in our country a while back, but it a disorganized format. … Russian buyers want to buy certain goods in specific locations – in parks, at the train stations, near the metro stations. Supply in this segment is either extremely limited or its quality is low,” Dunning said.

“We want to create a civilized kiosk format that will satisfy demand of a modern buyer. But we have no ambition to occupy the entire niche and squeeze out small and medium-sized businesses. Our ambitions are moderate now, as we plan to launch up to 30 kiosks in different regions this year. We will look into demand, test the operating and logistics component. After that, we will decide whether we should expand the format or not. It doesn’t need serious investment.”

He said that Magnit would remain a health and growing business whose revenue should outperform  the Russian grocery market.

“It will happen due to better quality in the existing stores in the first place, and I mean the density of sales and improvement of the customer value proposition. Expansion of the shopping  area will be an important growth factor for Magnit, because we decided to ramp up new openings in 2021 as compared with the previous year,” he said.

Magnit’s revenue and like-for-like sales remained almost flat as compared with October–December, which outperformed expectations of the company because Januaries are usually worse than Decembers. “But we saw a different scenario this year, and we are obviously happy with that,” he said.

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