We have delivered strong growth despite a significant downturn in most key economic indicators for Russia. This challenging operating environment will persist throughout 2016 and into 2017.
Prices for locally produced products will continue to increase, while real wage growth continues to slow or even decline. This is leading to a reduction in food expenditure as a percentage of customers’ budgets, and it is affecting behaviour in various ways: customers are spending less per visit, hunting for the best prices, trading down and delaying major purchases.
This presents a challenge not only for X5, but the retail industry as a whole; however, it is one for which we are prepared. Our multi-format operating model allows us to reach a wider group of Russian consumers, while our focus on providing the optimal value proposition has enabled us to continue to meet customers’ changing needs within each segment.
We are committed to providing our customers with a reliable supply of high-quality products at appropriate prices, and this has become increasingly critical to our success, especially for the more affected segments of the population. To this end, we are creating value for the customer by increasing our promotional offers and developing wider ranges of first price products. To help those affected most, we have initiated special offers on socially important products for senior citizens in addition to the regular discounts that they already enjoy.
Longer-term, we remain confident about the Russian market’s potential for growth, as the top players take market share from traditional trade formats and consolidate smaller regional players.
Despite a challenging environment, we outperformed the market with our results in 2015, growing faster than the retail market average and the top-10 average while maintaining profitability margins at target levels. In fact, in the fourth quarter of the year we were the No 1 company among publicly traded retailers in Rus sia in terms of net retail sales growth. And looking ahead, we are in an excellent position to continue this performance throughout 2016.
We view the current market conditions as a time of opportunity, and going forward we aim to take advantage of these opportunities to enhance our strategic growth. We have reached key milestones in the business transformation, but we have no intent to rest on our laurels or settle for the current pace of growth. Our strategic focus areas include refining our operating model, efficiency measures and value propositions, while continuing to lead the Russian retail market’s transition to modern retail.
One of my key strategic priorities going forward is to enhance the X5 corporate centre — not only to improve its efficiency in managing our banner brands, but by increasing its capacity and competencies to take advantage of opportunities that will arise in the current environment.
We have made key upgrades to our IT infrastructure and continue to implement modern IT solutions across our whole retail infrastructure. This gives us significant efficiency gains as well as insights into consumer behaviour. We will continue to build out our logistics and transportation operations, where we also see significant potential for further savings and efficiency gains.
As we grow and adapt for our customers, we aim to build value for all our stakeholders — providing consumers with the best value proposition, suppliers with the opportunity to sell through our large and growing chains and shareholders with the opportunity to participate in the sustainable growth of X5’s business.
I would once again like to thank our customers, who are central to our success, as well as our suppliers, shareholders and the Supervisory Board for the support we received during the year.
I also want to thank the excellent management team, and all of the employees of the X5 Retail Group, for their hard work and dedication. Our people are the present and the future of X5, and I look forward to working with them as the CEO as we continue to build this Company into Russia’s No 1 food retailer.