Customer Focus

X5 operates three modern retail formats – soft discounters, supermarkets and hypermarkets – each with a distinctive value proposition. This means we can offer the right products at the most attractive prices for every lifestyle and family budget – and deploy the right format for effective competition in each local area.

2009 was a tough year for Russian consumers and X5 did its utmost to ensure product affordability.  Customers came in record numbers – nearly a billion store visits in 2009 – and this enabled us to deliver 10% like-for-like (LFL) sales growth, the highest of any Russian retailer. Our success in staying close to our customers in good times and bad underscored the resilience of X5’s multi-format business model:

	Discounters were the clear winner with 17% LFL sales growth on the back of a 10% customer traffic inflow, as consumers responded enthusiastically to Pyaterochka's brand promise of the lowest prices on the market.
	X5 also reinforced Perekrestok’s leadership in supermarkets, positioning the format to benefit from recovery  in consumer confidence among middle and higher income shoppers.
	In 2009 we re-launched Karusel as the shopping destination for typical families. We are re-positioning the format’s value proposition with changes in pricing policy and assortment, while building the brand with consumers.

X5’s "Close to the Customer" policy guides everything we do to differentiate our formats from the competition. We focus on giving people strong reasons to shop at our stores, including:

Price leadership across our formats is essential for sustaining customer loyalty and market leadership.  X5 constantly reinvests in price and is known for its powerful promotional campaigns and loyalty card rewards.  Giving customers the best price is critical for increasing traffic, basket size and sales per square metre – the key drivers of like-for-like sales growth.

X5 has a strong track record of winning customers – including 996 million store visits last year.

Consumers are looking for bargains, now more than ever – and X5 delivered even more value and the most attractive prices in the market. We are confident these investments in customer loyalty will more than pay back as the Russian economy recovers.

X5 continues to fine-tune its value propositions to ensure clear differentiation of each format and successfully serve target customer segments.

Growing private label is a key strategy for X5. We are able to price private label items at a significant discount to leading brands, while maintaining comparable quality and similar or higher margins. In the medium-term, X5 aims to increase private label offerings as a share of total assortment toward the 50% level in soft discounters, up to 30% in supermarkets and up to 10% in hypermarkets.

X5 also plans to take its customer loyalty programmes to the next level. Loyalty and bonus cards are already popular with supermarket and hypermarket customers. Implementation of a state-of-the-art customer relationship management (CRM) system by the end of 2011 will enable upgrades to X5’s loyalty programmes as a platform for enhancing each format's value propositions with targeted promotions and personalised service.

We have also begun to introduce modern retailing techniques to strengthen our formats’ customer appeals.  This includes strategic projects to develop merchandising and category management, working with supplier partners to enhance the range of assortment and price points and drive overall sales growth for entire categories of products.

Internet retailing is still in its infancy in Russia. X5 has the opportunity to develop a leading online retail brand, leveraging our store network, distribution infrastructure and marketing capabilities to drive the growth of e-commerce.  In October 2009, X5 entered into a joint project with the founders of internet retailers www.bolero.ru and www.003.ru, in order to develop X5’s online platform. X5 has a 51% interest in the newly formed subsidiary with an option to purchase the remaining stake within five years.