Background. Problem defenition

Background

Pyaterochka is a chain of stores, which shops are characterized by low prices of products, self-service in the shops and goods that are included in a consumer basket (the majority of basic goods). Pyaterochka is presented in more than 26 cities of Russia and has almost 4000 shops, 224 of them are situated in St. Petersburg.

The owner of this chain is one of the biggest Russian retailor X5 Retail Group. It is running «soft» discounters Pyaterochka, supermarkets Perekrestok, hypermarkets Karusel, Internet-channel «E5. RU» and many other small shops. Today's share of Pyaterochka in this retail is about 14, 4%.

Previously X5 Retail Group was the leader on the Russian market of retailors, according to the amount of its sales. But in the summer of last year this company ceded the leadership to its main competitor Magnit. And now X5 Retail Group is only on the second place of this market.

Problem defenition

X5 Retail Group has always had a consistent growth of revenue that was reinforced by perspective market trends, such as

· The real wage growth is supported by consumption expansion;

· Growth in modern retail substantially prevails overall market growth in past five years;

· Governmental support focuses on social spending;

· Improved commercial terms strengthened by strong purchasing power;

· Positive legislative changes – The level of tax deductibility shrinks.

Moreover, there is a tendency of Russian retail market increasing as it can be seen from the picture 1.

Pic. 1. Russian retail market 2009-2013 Pic. 2. Selling space breakdown of X5 Retail Group

Also despite the brand’s ‘Pyaterochka’ results of the financial activity and development are quite promising – it is showed on the pictures 3, 4 and 5 – the number of stores in the range of 5 years has increased by 73%, net retail sales rate also goes up, in the summer of 2013 this company ceded the leadership to its main competitor ‘Magnit’. The rating of Russian food retails after this change is illustrated on the picture 6. As the ‘Pyaterochka’ brand comprises the greatest fraction of X5 Group’s selling space (Picture 2), it can be considered as the main determinant of competitive positions of the company.

Pic. 3, 4, 5. Growth rates of the brand ‘Pyatetochka’

As a result of the leadership loss, the company can lose potential customers and, subsequently, a significant amount of sales.

Thus, the research is being carried out to define the reasons, why the company has lost its original competitive positions and then to develop new strategy of the market share expanding.

Pic. 6. Russia’s leading food retailers

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