“Lenta” is looking for a shelf with cosmetics – Newspaper Kommersant No. 66 (7511) of 04/17/2023

Another contender has appeared for the Smile of the Rainbow network of cosmetics and care products, which Magnit began to take an interest in a year ago. According to Kommersant, billionaire Alexei Mordashov’s Lenta is exploring the possibility of buying the chain’s business. Lenta, whose main format is grocery hypermarkets, has experienced a serious decline in traffic and the average check. Entering the drogerie segment, according to experts, will make it possible to achieve more active business development.

One of the distributors and a source in the retail market told Kommersant that Lenta is negotiating the purchase of the Smile of the Rainbow network of cosmetics and care products. Lenta declined to comment. In “Smile of the Rainbow” they did not answer the request of “Kommersant”.

According to a Kommersant source in investment circles, even before the crisis, the business of drogerie chains (perfume, household chemicals and household goods stores) was estimated at two sizes of annual revenue, now it is a maximum of 1.5 sizes. Drogery Retail LLC, which operates the Ulybka Raduga chain, does not disclose consolidated financial data.

According to Infoline-Analytics, in 2021 the company’s revenue could amount to 23.2 billion rubles. Estimates for 2022 are not yet available. Based on the available data, the Smiles of the Rainbow business can be estimated at about 35 billion rubles.

Lenta is not the only company interested in buying Rainbow Smile. At the beginning of 2022, Interfax, citing its sources, reported that Magnit was considering acquiring Rainbow Smile. On Friday, April 14, Magnit refused to comment on this topic.

Lenta, where Alexey Mordashov’s Severgroup is the main shareholder (ranks fifth in the Forbes rating with a fortune of $13.2 billion), at the end of 2022 managed 259 hypermarkets and 561 small format stores throughout Russia. Last year, the retailer managed to increase sales by 11.1% to 537.4 billion rubles, but this did not help to maintain net profit, which decreased by 64.5% yoy, to 4.85 billion rubles.

The reason for the decline in profits may be that Lenta continues to develop the hypermarket format, which, as Anastasia Volokhova, director of strategy and network transformation, said in October 2022, “shows a drop in traffic and sales.” According to Infoline-Analytics, in the fourth quarter of 2022, sales of Lenta hypermarkets decreased by 0.8% against an increase of 1.8% in the third quarter. Therefore, according to Ms. Volokhova, Lenta is faced with the task of transforming the business.

One of the ways of such a strategy could be to enter the drogerie segment by purchasing Rainbow Smile, Olga Sumishevskaya, One Story partner, believes. A possible entry into this segment will allow Lenta to achieve more active business growth and increase the value of the company, Marat Ibragimov, a senior analyst at Gazprombank, agrees.

At the same time, joining a large FMCG retailer will allow Smile Raduga to support its business in the face of economic instability, independent expert Irina Bolotova believes. The drogerie industry came under pressure last year, she said, as the range of international brands dwindled and surges in consumer rush followed by a sharp decline in purchases last year, she said. In 2022, the turnover of the Russian market of cosmetics, perfumery and care products, according to Infoline-Analytics, decreased by 3.6% year-on-year, to RUB 810 billion, while products increased in price by an average of 30%.

At the same time, Irina Bolotova calls the drogerie segment highly competitive. According to her, federal players compete not only with each other, but also with strong local networks.

Alina Savitskaya, Khalil Aminov