Russian discount grocery chain Magnit says a coronavirus boost to revenues has accelerated its turnround and helped it resume its challenge to market leader X5.

Chief executive Jan Dunning told the FT that Magnit’s growth after several consecutive quarters of declining sales was vindication of its efforts to focus on customer experience and offer lower prices on staples.

Restaurant closures during a three-month lockdown and economic constraints forcing ordinary Russians to spend a greater proportion of household income on food have helped Magnit become the country’s fastest-growing food retailer. Profit so far this year is nearly triple that of 2019, while total revenue is up 14 per cent year on year to Rbs763bn ($10.4bn).

“There was a huge inflow of customers trying to buy basic foods. People didn’t know what to expect, and the first-quarter results were disturbed by Covid — they didn’t actually show that our performance was improving,” Mr Dunning said. 

“Now, traffic is a bit more normalised and performance is improving — we’re being rewarded by customers for the performance we showed during the Covid period.”

Retailers like Magnit — which focuses on small shops in residential areas mostly outside of Moscow and St Petersburg — were among the best placed companies to do well during the lockdown, analysts at VTB Capital said in a note last week, but growth would likely dip as Russians returned to offices and restaurants.

Even as Magnit’s traffic fell 14 per cent in the second quarter, its like-for-like sales rose 25 per cent on the back of an identical increase in the average spend as Russians made fewer shopping trips.

Mr Dunning says Magnit’s continued growth after Russia began lifting restrictions in June is vindication of the company’s shift in strategy since he became its sole chief executive a year ago. 

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After a widely praised decade at the helm of hypermarket chain Lenta, the Dutch-born executive spent an uneasy first six months in 2019 sharing power at Magnit with Olga Naumova, who had taken over a year earlier when founder Sergei Galitsky sold most of his stake to state-run bank VTB. 

Once a favourite stock among foreign investors, Magnit’s shares plummeted in recent years as Mr Galitsky focused on his football team, FC Krasnodar, and it lost its market lead to X5.

Ms Naumova left in June 2019, when Magnit’s profits were down 45 per cent year on year. Mr Dunning acknowledged a “cultural mismatch” but said the poor performance was due to a focus on expansion through store openings.

“When I arrived here, we had a continuous quarter range of [negative] like-for-likes, which means your existing base is ill,” he said. “If your existing base is ill, it’s not wise to go full speed ahead on growth. [ . . .] If you can’t even see outside because the windows are so dirty you can’t look through, then that’s not an encouraging element of care.”

Mr Dunning has pushed to improve quality at its 11 own-brand factories and four farms and launched a loyalty card which is now used by 64 per cent of Magnit shoppers.

He said the group was in a strong position should there be a second pandemic wave. “We are well positioned to deal with it. This is a different crisis than the ones we’ve had before. It hits the surface,” he said. “If the economy shrinks, we’ll see what customer behaviour is [through loyalty card data]. The reaction during Covid is clearly [in favour of] value.”

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Via Financial Times