Discounters X5 stopped selling tobacco products
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Large Russian discounter chains continue to optimize the format to reduce costs and maintain low prices. Thus, the Chizhik chain, which is part of the X5 Group, refused to sell tobacco products after analyzing the ratio of operating costs and demand. The minimum retail price for cigarettes deprives discounters of an advantage over stores of other formats, although Chizhik’s competitors do not plan to withdraw tobacco from the assortment yet.
The Chizhik discounter chain, which is part of the X5 Group, has withdrawn tobacco products from the assortment, a Kommersant correspondent drew attention. A Kommersant source close to the network said that tobacco products occupied a minimal share in the turnover, but required relatively large expenses, including equipment for storing cigarettes. X5 confirmed to Kommersant that, after analyzing operating costs and demand, Chizhik decided to stop selling such products. The network’s business model is based on selling a narrow but in-demand assortment, as well as constantly reducing costs, which allows it to offer low prices, an X5 representative said.
As of June 30, 2023, X5 operated 20.2 thousand Pyaterochka stores, 956 Perekrestok supermarkets and 809 Chizhik discounters. In the first half of 2023, Chizhik’s revenue quadrupled to RUB 45.29 billion, while X5’s total revenue increased by 17.3% to RUB 1.46 trillion. year by year. In 2023, the company planned to open more than 1,000 Chizhik stores.
Maksim Korolev, editor-in-chief of the Russkiy Tabak news agency, says that the profit from the sale of tobacco products is small, and trade requires mandatory labeling. In addition, he notes, “Chizhik” could be opened not far from points with a tobacco assortment, including specialized ones, which delayed demand. Kommersant’s interlocutor on the market says that the minimum retail price for cigarettes deprives discounters of an advantage in this category over other formats. From March 1 to December 31, 2023, the single minimum retail price is set at 119 rubles. for a pack of cigarettes.
The International Tobacco Group (brands Davidoff, West, Jade) says that the discounter format is of little use for tobacco products: discounts are prohibited, retail sales are possible at the price indicated on the pack. JTI Russia (brands Winston, Camel, LD) noted that insufficient demand for tobacco products in discounters may be due to the availability of illegal products, which are significantly cheaper, since excise and other taxes are not included in prices. According to the operator of the labeling system CRPT, in the second quarter of 2023, the volume of legal retail sales of cigarettes and cigarettes grew by 4.1% year-on-year.
Marat Ibragimov, senior analyst at Gazprombank, says Chizhik’s target group of shoppers go to the store not for spontaneous purchases, but for key commodities. In the first half of 2023, the average check in Chizhik was 569 rubles. against 453.1 rubles. in Pyaterochka and 697.1 rubles. at Crossroads, according to X5 reporting.
According to Mr. Ibragimov, cigarettes are not among the goods that stimulate traffic for Chizhik customers and do not provide high profitability. He said that in some formats, such as alcohol-focused stores or gas station outlets, tobacco products can stimulate sales in related categories, but in the case of hard discounters, this marketing technique does not quite work.
Chizhik’s competitors, however, do not plan to stop selling tobacco products yet. Angela Ryabova, director of the Magnit discounter format, says that such points of the company cover all the basic needs of consumers, so they will continue to develop the tobacco category there. “We have a lot of room to optimize operating costs without compromising the interests of buyers,” she adds. The Pobeda chain notes that tobacco consumption and the share of such products in total sales have been declining in recent years. But for now, the category remains in demand among buyers, and the retailer does not plan to withdraw it from the assortment.
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