2016
Annual Report

Climb Higher!

In 2016 X5 achieved the highest rate of revenue growth since 2011
+27.8%
year‑on‑year

We worked very hard in 2016 to deliver yet another year of market-leading, sustainable growth while maintaining, and even improving, margins.

As of 31 December 2016, we were the fastest-growing among Russian publicly traded peers for five consecutive quarters, and we have become Russia’s #1 food retailer — a position we intend to maintain by continuing to focus on sustainable and high-quality growth, offering customers the best value proposition at every single store we operate.

In the course of the year we opened over 2,000 stores, bringing our total number of retail outlets in Russia to 9,187 as of 31 December 2016. This rate of growth is sustained by our robust and efficient operations, our focus on quality execution, solid financial position, and successful strategy that aims to further develop our successful multi-format food retail business that puts the customer at the centre of our success.

Key
Highlights

Revenue increased 27.8 % year‑on‑year
to RUB 1,034 billion, primarily due to organic growth

Selling space grew by 29.1 % year‑on‑year
by 968.6 thousand m², including 906.6 thousand m² of new Pyaterochka stores

Like-for-like sales improved by 7.7 % year‑on‑year,
increasing across all major format

Like-for-like traffic increased by 2.5 % year‑on‑year
up from 2.3 % growth in 2015

The adjusted EBITDA margin was 7.7 %
(vs. 7.3 % in 2015) X5’s highest margin since 2010

Net debt/EBITDA was 1.8x
The lowest level in X5’s public history

The 968,600 m² of selling space we added in 2016 is equivalent to
We delivered 29.1% selling space growth, adding 968.6 thousand square metres of retail space during 2016, with 2,167 new stores added during the year
135 football fields*
Only taking into account the playing area of a standard football field which equals 7,140 m² according to official FIFA rules
Strategic
Highlights

Russia’s #1 food retailer:
27.8% year-on-year revenue growth, above the top 10 and the sector.

Rapid expansion:
2,167 new stores added; 968.6 thousand m² of new selling space added, with stores in new regions, including the Siberian Federal District.

New store formats:
94% of Pyaterochka stores and 52% of Perekrestok stores operating under the new concepts.

Robust systems for efficient and sustainable growth:
full rollout of GIS system for optimising store opening process.

Enhanced logistics:
seven new DCs in Moscow, St. Petersburg, Adygea and Orenburg and the purchase of 976 new trucks, bringing our total fleet to 2,318 as of 31 December 2016.

Implementing best practices in EDI:
EDI document traffic increased by 40.3% in 2016, with transition to EDI in lease, transport, non-commercial procurement and intercompany transactions.

Continued improvements in customer satisfaction:
Net Promoter Score (NPS) improved in Q4 2016 compared to Q3 2016: 34.4 vs. 31.7 for Pyaterochka; 15.2 vs. 9.9 for Perekrestok; 26.4 vs. 18.4 for Karusel.

Intelligent & sustainable growth
X5 Retail Group's revenue rose at its fastest pace since 2011, increasing 27.8% year-on-year to over RUB 1 trillion. As we continue our rapid expansion, we are implementing systems that support efficient, intelligent, and sustainable growth in order to secure long-term market leadership.
Revenue totalled
1,034 bn ₽
Operating
highlights
Intelligent, sustainable growth:
Our robust in-house systems have enabled us to continue to grow at rapid pace while ensuring efficiency and sustainability of our expanding business and supporting operational excellence in stores.
Net retail sales
bn RUB
24.4
%
CAGR 2013-2016
Selling space
th. m²
24.6
%
CAGR 2013-2016
Number of stores
26.4
%
CAGR 2013-2016
Customer visits
mln
17.0
%
CAGR 2013-2016
Financial
highlights
Maintaining margins:
X5’s strategy calls for growth above the market and competition while at least maintaining margins. In 2016, we delivered even more: revenue increased 27.8% year-on-year, while our adjusted EBITDA margin expanded to 7.7%, the highest level since 2010.
Revenue
bn RUB
24.6
%
CAGR 2013-2016
Gross profit
bn RUB / gross margin
24.2
%
CAGR 2013-2016
Adjusted EBITDA
bn RUB / Adjusted EBITDA margin
27.5
%
CAGR 2013-2016
Net profit
bn RUB / net profit margin
26.6
%
CAGR 2013-2016

Chairman's Statement

Stephan DuCharme
Chairman of the Supervisory Board

Chairman's Statement

Stephan DuCharme
Chairman of the Supervisory Board
Dear stakeholders,
It has been just over one year since I took over as Chairman of the Supervisory Board, and I am pleased to see that the Company has continued to deliver rapid, sustainable growth. In 2016, X5 Retail Group achieved the strategic milestone of market leadership while not just maintaining, but improving margins. As a result, we have over-delivered on a goal we set in 2013, and ahead of schedule. Both the Supervisory Board and, I believe the investment community, view this performance very positively.
The achievements of X5 to date, while impressive, are just the beginning of a long journey. Market leadership is not just about being the biggest – it is also about continuing to provide our customers with the best shopping experience in every store, every day. While X5 continues its rapid growth towards the strategic goal of 15% market share by the end of 2020, the Board and I will be paying close attention to ensuring that this is sustainable, high-quality growth, and that X5’s retail chains continuously strive to be #1 in the hearts, and in the wallets, of Russian consumers.
I believe that X5 is well-prepared to deliver on these goals, and the 27.8% year-on-year top-line growth in 2016 exceeded expectations, while the adjusted EBITDA margin expanded to 7.7%. While the 2016 results are impressive, the Board and I will plan to ensure that management continues to focus on delivering rapid, profitable and sustainable growth in the years ahead.
Achieving leadership every day, on every corner
The Board and I are impressed with the record-setting growth achieved by the X5 Retail Group during 2016, and are very pleased with the fact that the Company has recaptured the position of market leader even faster than originally planned.
This feat is made even more impressive because it has been achieved against the backdrop of a volatile economic situation with increasing competition. At the same time, I continuously emphasise to all our stakeholders, including the X5 management team and Supervisory Board, that sustainable market leadership is about providing our customers with the best value proposition and the best shopping experience in every single store. We can only retain our position by maintaining a constant focus on ensuring that every Pyaterochka, Perekrestok and Karusel store seeks to be better than the competitors next door or down the road.
This is why we have focused not only on a scalable, efficient and sustainable business model as we expand our retail chains across Russia, we have also built a structure that can respond to local needs, whether through the “cluster-based” organisational structure implemented by Pyaterochka, or by piloting a new “regional model” for Perekrestok supermarkets. We implement best practices across our chains nationwide, but we always seek to address the specific features of local retail markets in Russia’s many regions.
The right model
Our results also confirm that the model we have arrived at through X5’s strategic transformation represents the best way to achieve sustainable growth over the long term. We operate in each of the three largest segments of the Russian food retail market: proximity stores, supermarkets and hypermarkets. We have implemented a decentralised model that gives autonomy to each of the chains to develop, while the Corporate Centre has enhanced efficiency and best-practice sharing across the Company. This model is key for the Corporate Centre’s aim to constantly strengthen its role as a hub for food retail expertise.
Creating value for stakeholders
We are creating value for our key stakeholders while creating a virtuous circle that supports continued development; by improving customer perception and satisfaction, we create greater customer loyalty, which supports sustainable growth and profitability. Profitable growth benefits shareholders, which has a positive effect on the entire Company and its employees. Employee satisfaction helps us achieve greater loyalty and productivity, which in turn enhances customer perception, bringing us back to the beginning of the cycle.
Motivation is key
The Board and I understand that a strong team with proper motivation systems in place is one of the keys to our long-term success. The Supervisory Board regularly reviews the short-term and long-term incentive systems in place in order to ensure that X5 Retail Group’s management is motivated to deliver strong and sustainable results that are aligned with the interests of shareholders and other stakeholders.
For example, the LTI programme, discussed in more detail in the Remuneration Report on page 174 of full report, aims to ensure that management continues to deliver on strategic goals even as we achieved market leadership as of the end of 2016.
Another element of our efforts to ensure that X5 has the right tools to deliver continued sustainable growth and to keep our high-quality team in place is the succession pool. In addition to ongoing work to identify candidates for the succession pool, we have tasked management with increasing the share of internal hiring for key positions, which we believe will help retain employees by giving them greater career growth opportunities within the Company.
Strategic continuity
As I said last year, one of our key priorities is maintaining strategic continuity and ensuring that the Company delivers on the goals set for it by the Board. Our core goal is for the X5 Retail Group to be the largest, most efficient, most attractive and most influential player in the Russian food retail market. This requires continued rapid growth while always keeping the store at the centre of our business.
Ensuring that every store provides its customers with the best possible shopping experience ultimately creates value for shareholders, who benefit as the business expands in a profitable and sustainable way.
Corporate responsibility
Corporate citizenship is an important element of X5’s operations, and we view corporate responsibility as a key condition for sustainable market leadership. This responsibility means being a good employer, establishing partner-partner relationships with suppliers, constantly offering our customers value propositions that meet their needs, and seeking ways to improve our environmental footprint to the benefit of X5’s business and society. The X5 Retail Group also supports initiatives designed to help people in need, including the Basket of Kindness programme, which we implement together with the Russian branch of the Global FoodBanking Network.
We recognise that ethics and integrity are key components in the fulfillment of X5’s sustainable health and long-term success. X5’s Code of Business Conduct and Ethics, revised at the end of 2015, was communicated throughout the Company during 2016. It describes the standards of conduct that support our commitment to integrity, and how all employees are expected to treat each other, our suppliers and our customers. In addition to regular monitoring and control throughout 2016, X5 continued to operate an ethics hotline for employees to share concerns or ask questions.
As a public company with a diverse group of investors from around the world, we carefully adhere to transparency and disclosure requirements. We strive to provide investors with full and timely information about the Company’s performance, significant transactions, management and Board decisions, as well as strategy and business developments on an ongoing basis.
Governance and the Board
Our governance model is in line with best practice, and functions well to represent the interests of key stakeholders. I am proud to say that our Supervisory Board operates as a strong, independent team, combining a variety of skills and backgrounds in retail, strategy, finance and governance. Members of the Board provide management with valuable guidance and support as they execute X’s ambitious growth strategy. Meanwhile, the Board’s profile and composition is reviewed on an annual basis, with an open eye to the evolving nature of X5’s business and activities. In May, we welcomed Andrei Elinson as a new member of the Supervisory Board, succeeding Dmitry Dorofeev, who stepped down after serving as a Board member since 2012, and as Chairman since 2013. We are grateful to Dmitry for his valuable contribution during these years.
Throughout 2016, we paid special attention to continuity, both in terms of strategic goals and in terms of our management team. We had two key changes in the executive team during the year, with Dmitry Gimmelberg joining as Chief Financial Officer and Maksym Gatsuts as the General Director of Karusel. I am pleased to say that these changes took place very smoothly.
Outlook
Long-term forecasts predict RUB 3 trillion in growth in the retail market over the next four years. With a presence in all three of the major retail formats and a strong commitment to creating value for more customers by expanding our business, the X5 Retail Group will be in a position to capture a significant portion of that growth.
At the same time, we must keep the quality of our in-store operations at the centre of our attention in a market where, despite signs of stabilisation, consumers continue to search for bargains; new government regulations will require a different approach to working with suppliers; and competition will only increase. Sustainable market leadership will only be possible if we continue to attract more loyal customers by offering them the best value proposition on the market, and I would emphasise once more that the Board and I will be paying close attention to ensuring that X5’s formats are consistently adapting their value propositions to the changing needs of our customers in line with market trends.
Thank you to all those who have contributed to the success of the X5 Retail Group, and for your continued support of our Company.
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Our Brands

We operate in all three of the major food retail segments: proximity, supermarkets and hypermarkets. This means we are well-positioned to capture a significant part of the growth in the Russian food retail market to take place between now and 2020.
Potential total market growth
+2.9tn ₽
SOURCE: Infoline
Pyaterochka
Pyaterochka operates conveniently-located proximity stores and is Russia’s leading retail brand. This chain is well-attuned to the needs of Russian consumers, offering new promotions every week and a wide assortment of fresh goods. Pyaterochka accounts for the largest part of X5’s revenue.
8,363
Number of stores as of 31 Dec. 2016
3,329 th. m²
Selling space as of 31 Dec. 2016
776 bn ₽
Net retail sales in 2016
75.6 %
% of X5’s net retail sales in 2016
4.4 tn ₽
2016
6.6 tn ₽
2020F
2.2tn ₽
Potential market growth 2016-2020F
SOURCE: Infoline
Perekrestok
Perekrestok, Russia’s largest supermarket chain, helps its customers achieve their shopping mission with a wide assortment and unique product mix, an attractive loyalty programme, and a range of goods produced in-store.
539
Number of stores as of 31 Dec. 2016
548 th. m²
Selling space as of 31 Dec. 2016
155 bn ₽
Net retail sales in 2016
15.2 %
% of X5’s net retail sales in 2016
3.2 tn ₽
2016
3.7 tn ₽
2020F
0.5tn ₽
Potential market growth 2016-2020F
SOURCE: Infoline
Karusel
Karusel is one of the leading hypermarket chain in Russia, featuring a broad selection of food and non-food products, including household goods. Karusel primarily operates compact hypermarkets located within city limits that provide easy access with convenient parking and an attractive loyalty programme.
91
Number of stores as of 31 Dec. 2016
387 th. m²
Selling space as of 31 Dec. 2016
84 bn ₽
Net retail sales in 2016
8.1 %
% of X5’s net retail sales in 2016
2.0 tn ₽
2016
2.7 tn ₽
2020F
0.7tn ₽
Potential market growth 2016-2020F
SOURCE: Infoline

Our Business Model

The Corporate Centre focuses on Strategy, Strategic Marketing, a Centralised Commercial Function, M&A, Partnerships, Legal, IT, Talent Management, Finance, GR, IR and Corporate Communications
Retail formats are focused on execution of distinct CVPs to meet all customer needs
Operations
marketing
category
management / buying
dc management
expansion
hr operations
Operations
marketing
category
management / buying
dc management
expansion
hr operations
Operations
marketing
category
management / buying
dc management
expansion
hr operations
X5 consists of three major retail formats and the Corporate Centre. Each of the formats is largely autonomous, running its own operations, marketing, category management, logistics, distribution¹ and expansion operations.
¹ Perekrestok and Karusel share distribution centre capacities in some regions.
The Corporate Centre is responsible for providing organisational support and strategic leadership across the Company. With the main phase of the strategic transformation complete, in 2016 we were focused on reorganisation of the Сorporate Сentre, strengthening its role as a management company while decentralising many business functions to the formats.
During the year we also launched a number of projects aimed at improving the quality of business processes in the Corporate Centre, and established a new commercial department to act as a shared purchasing function across formats, which helps strengthen bargaining power with suppliers.
This approach enables us to capture the maximum wallet by tailoring each format’s value proposition to consumer needs in Russia’s dynamic and diverse food retail market.
This business model aims to maximise shareholder value by enabling the retail formats to do what they do best: build effective and profitable businesses in each of their respective segments.
The Corporate Centre is focused on providing support for the implementation of X5's strategy and creating synergies that support efficient, sustainable growth.
The key areas of responsibility for X5's Corporate Centre include business planning and control, pooling of purchasing power, acting as an incubator and launching new projects, and supporting the exchange of best practices within X5.
  • Business execution and expansion
  • Implementation of format strategy according to CVP
  • Abovemarket growth while maintaining EBITDA margin
  • Effective operations

CEO Statement

Igor Shekhterman
Chief Executive Officer

CEO Statement

Igor Shekhterman
Chief Executive Officer
Dear stakeholders,
Looking back at my first full year as CEO of X5 Retail Group, I am happy to say that we have achieved all of the targets set out by the Supervisory Board and Company management. We are now Russia's largest food retailer — we finished the year larger, stronger, and growing faster than ever. We are creating value for stakeholders as the fastest-growing public player in Russia’s food retail market, building a stable and sustainable business that aims to benefit consumers, employees, partners and investors over the long term.
Some of the key achievements of 2016 that I would like to highlight include:
  • As of Q4 2016, X5 became Russia’s #1 food retailer, increasing its market share from 6.3% in 2015 to 8.0% in 2016;
  • Total revenue grew by 27.8% and exceeded RUB 1 trillion;
  • Like-for-like sales were positive across all major formats despite significant deceleration of food inflation from 19.1% in 2015 to 6.0% in 2016;
  • While continuing rapid growth, we improved our adjusted EBITDA margin from 7.3% in 2015 to 7.7% in 2016.
Record-setting growth in terms of square metre, 86% of which was organic, was the major contributor to top-line growth, helped by a 7.7% increase in like-for-like sales. At the same time, our continued focus on efficiency and operational excellence delivered solid profitability and a stable financial position: adjusted EBITDA rose 34% to RUB 80 billion, helping bring our net debt to EBITDA ratio down to 1.8x, the lowest level in the Company’s history.
Delivering on strategic targets
With the strategic transformation successfully completed, we are focused on execution against the targets that the Board of Directors has set before the Company. As promised in 2015, we maintained strategic continuity, stayed focused on execution, and delivered on our targets in 2016.
Effective multi-format operating model: X5 continues to develop each of its three major formats with the goal of capturing a significant 15% share of Russia’s food retail market as it continues to grow. We delivered 29.1% selling space growth, adding 968.6 thousand square metres of retail space during 2016, with 2,167 new stores added during the year. In line with our strategy, 86% of this selling space growth was attributable to organic growth.
These results are particularly impressive given that the Russian food retail market as a whole grew by just 2.2% in 2016 and that the top 10 players grew by 17.6%, illustrating just how much faster we are expanding than the rest of the market.
In 2016, we completed the reorganisation of the Corporate Centre to strengthen its role as a management company and to decentralise many business functions by handing them over to the formats. The X5 Corporate Centre plays a key role in ensuring that the Board’s strategic vision is properly implemented, in a sustainable way, across each of our formats. It focuses on establishing and enforcing standards, business planning, analysis and control functions. Other important roles played by the Corporate Centre include acting as an incubator for launching new projects and facilitating the sharing of best practices across the retail formats.
With the Corporate Centre providing overall guidance and leadership, each of the formats strives to be the best in its respective segment. This will enable X5 to maximise benefits of scale while improving efficiency across retail brands by giving them the necessary flexibility and decision-making power, as well as responsibility, to achieve goals set by the Board and the Corporate Centre.
Superior value propositions: Each of X5’s major formats addresses unique shopping missions and shopping strategies of consumers in Russia. Through continuous monitoring and adaptation of their value propositions, each of the formats seeks to capture the maximum share of wallet and expand market share in its respective segment. X5’s successful implementation of advanced IT systems has enabled us to analyse and gain deeper insight into market trends and to tailor our assortment, promotions, and new offerings to the shopping missions of our consumers.
We are also adapting to our customers’ needs by introducing day-to-day improvements in Pyaterochka stores, piloting a promising regional supermarket model for Perekrestok, developing the loyalty programmes of Karusel and Perekrestok, and preparing to launch a new online supermarket project aimed at supporting Perekrestok’s core audience.
Intelligent growth while maintaining margins: 2016 marked the completion of the full rollout of our in-house GIS system, which significantly streamlines the decision-making process for new store openings and has brought about a 4x reduction in the number of errors when choosing new locations. In order to build a sustainable market leader, we use advanced analytics to select new store locations, and X5 has built strong in-house capabilities for land acquisition and construction. Our primary focus is on organic growth, but X5 also possesses strong internal capabilities in M&A, enabling us to rapidly enter new regions or strengthen a format’s market position in an existing location.
Hand-in-hand with business growth, we managed to improve our EBITDA margin in 2016 thanks to successful cost management as a result of operational efficiency programmes, as well as the operating leverage effect.
End-to-end operational excellence: Achieving the growth we have delivered in recent years while maintaining and even expanding margins requires constant attention to operational excellence throughout the value chain. In 2016, we continued to focus on in-store operations, improving lease conditions, strengthening our transport and logistics infrastructure and enhancing our partnerships with suppliers. X5 has shown it is able to continue growing and adapting effectively and efficiently, even in Russia’s rapidly changing environment. We lead the market in terms of electronic document exchange, which has significantly improved the quality of our work with suppliers. We are constantly improving our logistics operations, opening seven new state-of-the-art distribution centres while closing down the same number, as they no longer met our increasingly ambitious efficiency criteria.
Strong leadership team: Our performance in 2016 also underscored the strength of the X5 team and the fact that we have effective systems in place to retain and motivate staff, both short-term and long-term, in alignment with the interests of our shareholders. Even as we successfully completed the transition to a new CFO during the year, X5 stayed on course for another year of excellent results. We likewise have high hopes for the new head of Karusel, Maksym Gatsuts. I am confident that the two new members of our team will make important contributions to X5’s future. Going forward, our succession planning efforts should mean that we see a larger number of internal promotions to key posts.
Operating environment
We delivered strong growth despite a continuing downturn in most key economic indicators for Russia. In this challenging macroeconomic environment, we adjusted our assortment with more lower-priced goods, optimised our promotional mechanism, offered interesting new products and focused on improving customer loyalty. This is in line with our constant focus on providing the best shopping experience, the best service and the best store in every single location where X5 operates.
Our challenges range from changing demographics to declining per capita incomes, growing competition and the spread of new technologies, and stricter regulation. These factors will affect the entire retail industry, so we seek to be better-prepared to address these issues in order to continue building a successful and profitable business. We discuss X5’s response to these key market trends in detail on pages 32–33 of full report.
One of the ways that we are adapting to the changing market environment is by focusing on building long-term, mutually beneficial strategic partnerships with suppliers. Relationships like this, built on trust, will help to improve purchasing conditions, create long-term relationships based on trust and help introduce cutting-edge solutions and products.
Outlook
While we do not expect meaningful positive macroeconomic developments in Russia in the medium term, significant growth opportunities still exist in the food retail sector thanks to consolidation among top players, increasing penetration of modern retail, the opportunity to implement modern retail features that improve customer satisfaction, and overall market growth.
Longer-term, we remain confident about X5’s potential as a leading food retailer in Russia, with forecast market expansion (see page 28 of full report) and top players expected to consolidate their positions (see page 31 of full report). As we move from the goal of being the #1 food retailer in Russia to the goal of having a target market share of 15% by the end of 2020, X5 is positioned to deliver significant growth for years to come.
Our focus will remain on organic growth while maintaining margins as we develop all three of our major formats. X5 will focus on continued growth of Pyaterochka as the country’s leading proximity store, expanding Perekrestok’s regional model and improving Karusel’s performance in the hypermarket segment.
An important element of sustainable leadership is operational efficiency and innovation. To achieve this we remain focused on implementing a logistics strategy that efficiently meets the needs of our growing business, more comprehensive coverage of our supply chain with new direct import and cross-docking facilities, and on the construction of new, efficient DCs. We also bought 976 new trucks in 2016, and plan to continue expanding our own fleet of modern, efficient trucks throughout 2017.
Putting the numbers aside, our aim is for every store to be the leader for its customers in its neighbourhood or region. With fierce competition from other federal and regional players, we are constantly looking for ways to improve our value proposition, shopping experience, and efficiency. While the increases in our key indicators tell part of the story, our goal in this report is to show how X5 Retail Group’s philosophy of leadership influences everything we do, forcing us to constantly innovate to create value for our customers in every store, which will ultimately be reflected in value for shareholders.
Credit for our success in 2016 is due to the support we received during this year from our suppliers, shareholders and the Supervisory Board. Of course, we would be nothing without our customers, who are at the core of everything we do.
I give my thanks to the excellent management team and the employees of X5 Retail Group, who put our leadership mentality into practice every day, for their hard work and dedication to achieving the challenging goals that have been set before the Company as we continue to strengthen our position as Russia’s #1 food retailer.
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Strategic Progress

In 2016, the X5 Retail Group continued to move towards achieving its key strategic goals of strong growth while at least maintaining margins. We have built a business capable of rapid, sustainable and agile growth; X5 has successfully adapted to challenging market conditions while continuing to expand faster than the rest of the market in 2016.
Looking ahead, we continue to seek innovative solutions to enable us to further enhance our ability to create value for our customers, partners, employees and investors.
Anton Mironenkov
Director of Strategy
Our strategy focuses on delivering rapid, intelligent, and sustainable growth while maintaining margins. X5's multi-format business model enables us to operate in each of the largest food retail segments, capturing greater wallet share with value propositions that meet the needs of a wider range of Russian consumers. Our long-term goal is to become the undisputed market leader, with a market share of 15% by the end of 2020.
Strategic goals
What we did in 2016
Multi-
format
operating
model
Strategic goals
  • Act as a hub of customer value propositions/retail chains
  • Build a platform that enables management of a portfolio of retail chains
  • Target the largest and most profitable segments of the Russian food retail market
What we did in 2016
  • Separated functions between the Corporate Centre and the retail formats
  • Developed the responsibility matrix between the Corporate Centre and retail formats
  • Enhanced the role of the central office as a service provider and a platform for sharing best practices across the retail formats
  • Continued development of three major retail formats with the goal of maximising the share of the growing market
Constant
adaptation of
value
propositions
Strategic goals
  • Develop distinct value propositions for each format
  • Continuously adapt to evolving market conditions and customer demand
  • Execute holistically from comprehensive assortment and category reviews to store refurbishments
What we did in 2016
  • Adapted our assortment, introducing new entry-price PLUs and developing private labels
  • Optimised promotions to improve customer loyalty
  • Improved customer satisfaction metrics, with NPS scores improving across all three formats in Q4 2016 compared to Q3 2016
  • Introduced the “regional supermarket” model for Perekrestok expansion outside of Moscow and St. Petersburg
  • Began development of an online supermarket based on the Perekrestok brand (due to launch in Moscow in 2017)
  • Developed loyalty programmes for Perekrestok and Karusel
Strong
leadership

team
Strategic goals
  • Maintain the right mix of skills to execute even in a tough operating environment
  • Motivate based on long-term value creation
What we did in 2016
  • Successfully transitioned to new CFO while accelerating growth and improving margins
  • Enhanced internal talent pool
  • LTI programme has continued to align management and shareholder interests, with X5 rapid expansion while at least maintaining margins
Intelligent
growth
Strategic goals
  • Focus on organic growth
  • Engage in tactical regional M&A as a way to quickly reach critical mass
  • Improve store refurbishments and new store openings efficiencies
  • Expand partnerships
What we did in 2016
  • Opened the landmark 9,000th store, ending year with 9,187 stores after adding 968.6 thousand square metres of selling space (of which 86% was organic growth)
  • Increased food retail market share from 6.3% in 2015 to 8.0% in 2016
  • Increased presence in new cities and towns growing by 26% year-on-year
  • Completed rollout of an in-house GIS system to streamline store openings
  • Established presence in Siberian Federal District
  • 94% of Pyaterochka and 52% of Perekrestok stores operating under the new concept
Excellence in
operational
execution
Strategic goals
  • In-store execution
  • Optimise distribution centre logistics and transportation
  • Improve shelf availability
What we did in 2016
  • Made day-to-day in-store improvements: new shelf layouts; introduced new “tobacco shops” at Pyaterochka, offering tobacco and premium spirits at cash registers
  • Incorporated all planogram and layout designs into the JDA automated planning system
  • Made improvements to SG&A, including staff costs, lease costs, and other store costs
  • Improved lease conditions, reducing costs and motivating property owners to help increase traffic
  • Opened seven new DCs in Moscow, St. Petersburg, Adygea and Orenburg
  • Purchased 976 new trucks; increased own fleet from 1,561 as of 31 December 2015 to 2,318 as of 31 December 2016
Goals for 2020
  • Deliver strong top-line growth above the market and competition while at least maintaining margins
  • Double the size of the business within 3-4 years after 2015
  • Achieve a 15% market share by the end of 2020
  • Focus on organic expansion
  • Support a self-regulation strategy for Russian retail
  • Further optimise logistics and operating expenses
  • Reduce shrinkage costs
Focus on
organic growth
We are focussed on organic growth, which accounted for 86% of our selling space expansion in 2016.

Growing Market Share
and Expanding to New Regions

Our geographic expansion aims to leverage the potential to strengthen our presence in regions where we already work, and to enter new regions or localities that are underserved by federal players offering modern retail formats:
  • Defend and expand core “home” regions
  • Expand in other regions and build critical mass, including with the help of tactical M&A
  • Target new regions over time (X5 entered Siberia in 2016)
  • Faster expansion in rural areas
  • Synchronised logistics expansion
26% increase in the number of cities and towns where we are present, to more than 2,100 at the end of 2016
Total stores
9,187
pyaterochka
8,363
perekrestok
539
karusel
91
express
194
Multi-Format presence in 7 Federal Districts
Share in X5's net retail sales for 2016
1
Central
Federal District
Pyaterochka
3,512 (+772)
Perekrestok
366 (+35)
Karusel
35 (+1)
Distribution centers
14
Share in X5's
net retail sales
57.0%
2
Volga
Federal District
Pyaterochka
2,348 (+615)
Perekrestok
95 (+5)
Karusel
25
Distribution centers
7
Share in X5's
net retail sales
17.4%
3
North-Western
Federal District
Pyaterochka
1,028 (+247)
Perekrestok
50 (+3)
Karusel
17
Distribution centers
5
Share in X5's
net retail sales
15.3%
4
Ural
Federal District
Pyaterochka
730 (+203)
Perekrestok
26 (+10)
Karusel
8
Distribution centers
6
Share in X5's
net retail sales
5.6%
5
Southern
Federal District
Pyaterochka
577 (+186)
Perekrestok
24 (+2)
Karusel
5
Distribution centers
3
Share in X5's
net retail sales
3.9%
6
North Caucasus
Federal District
Pyaterochka
128 (+35)
Perekrestok
8 (+6)
Karusel
1
Distribution centers
0
Share in X5's
net retail sales
0.7%
7
Siberian
Federal District
Pyaterochka
40 (+40)
Perekrestok
0
Karusel
0
Distribution centers
0
Share in X5's
net retail sales
0.1%
A platform for sustainable growth
Regions Number of stores
2012 2013 2014 2015 2016
Central 1,978 2,314 2,653 3,262 4,077
North-Western 563 644 720 845 1,095
Volga 793 1,002 1,368 1,848 2,468
Ural 252 325 405 551 764
Southern 184 201 276 418 606
North Caucasus 20 46 61 96 137
Siberian 0 0 0 0 40
Ukraine 12 12 0 0 0
Total 3,802 4,544 5,483 7,020 9,187
Note: Based on Federal Districts (for the Russian Federation only)

Pyaterochka Proximity Stores

Pyaterochka is one of Russia’s leading national brands and is currently the core source of growth for the X5 Retail Group. The brand meets the needs of Russian consumers looking for a high-quality shopping experience with a wide assortment of fresh foods, weekly promotions, reasonable prices and convenient locations.
The store’s range consists of more than 4,000 PLUs on average, with an average store size of 398 m².
Net retail sales
775.6 bn ₽
in 2016
+32.5% year-on-year
Selling space
3,329 th. m²
as of 31 December 2016
+37.4% year-on-year
Stores in operation:
8,363
as of 31 December 2016
+33.5% year-on-year
Customer visits
2.5 bn
in 2016
+27.8% year-on-year
Stores refurbished
1,185
in 2016
bringing the total share of stores operating under the new concept to 94%
907 thousand m² of selling space added:
the largest selling space expansion for any retail operation in proximity format anywhere in the world
Geographic expansion:
entered the Siberian Federal District and expanded into new cities and towns
Operational excellence:
store renovation programme nearly completed, with focus shifting to day-to-day in-store improvements
Cost optimisation:
successful ongoing negotiations to improve terms with suppliers, lease costs, and other store costs
Value proposition:
introduced new entry-price PLUs and developed private labels
Differentiation:
piloted personalisation mechanics based on advanced analytics
Number of stores
eop
Net retail sales
bn ₽
Selling space
‘000 m², eop
Customer visits
mln
Pyaterochka net retail sales by region
1
Central F.D.
56.1%
54.3%
2
North-Western F.D.
16.8%
15.8%
3
Volga F.D.
17.2%
18.7%
4
Ural F.D.
5.8%
6.3%
5
Southern F.D.
3.4%
4.1%
6
North Caucasus F.D.
0.7%
0.8%
7
Siberian F.D.
0.0%
0.1%
1
Central F.D.
54.3%
2
North-Western F.D.
15.8%
3
Volga F.D.
18.7%
4
Ural F.D.
6.3%
5
Southern F.D.
4.1%
6
North Caucasus F.D.
0.8%
7
Siberian F.D.
0.1%
Olga Naumova
General Director of Pyaterochka
We achieved another year of record-setting growth in 2016, with 907 thousand square metres of new retail space added and 2,098 stores added.
We continued our geographic expansion into smaller population centres and opened our first stores in the Siberian Federal District, where we aim to achieve continued growth in the coming years. While selling space expansion was the key driver of Pyaterochka’s 32.5% year-on-year growth in net retail sales, we also delivered an 9.1% year-on-year increase in like-for-like sales. Pyaterochka’s impressive and sustainable growth is supported by robust and efficient systems like our in-house GIS software that enable us to quickly make intelligent decisions as we continue our rapid expansion.
Strategic
priorities
for 2016
What we did
What we plan to do
Rapid,
sustainable
growth
What we did
  • 8,363 stores as of 31 December 2016, up 33.5% year-on-year
  • 3.3 million square metres of selling space, up 37.4% year-on-year
  • Completed full rollout of the GIS system for selecting optimum store opening location
  • Implemented an efficient organisational structure that enables us to adapt to local needs
Expand into
new regions

and cover all
location types
What we did
  • Entered Siberia
  • Increased our presence in new cities and towns by 27% year-on-year
Preserve value
proposition,
with selective
improvements
What we did
  • Further adapted our assortment: introduced new entry-price PLUs and developed private labels
  • Achieved average number of PLUs of more than 4,000 items
  • Improved NPS from 31.7 in Q3 2016 to 34.4 in Q4 2016
    (In 1H 2016, a new methodology of NPS estimation similar for all formats across X5 was introduced)
Differentiate
through
promo and
loyalty
programme
What we did
  • Piloting of personalisation mechanics based on advanced analytics
Optimise
efficiency
and costs
What we did
  • Negotiated improved terms from suppliers
  • Made improvements to logistics: constructed new DCs, including import hubs and cross-docking, acquired trucks
  • Made SG&A improvements: staff costs, lease costs, and other store costs
What we plan to do
Maximise the share of customers, and maximise the share of these customers’ wallet: 
  • Continue applying the current value proposition and enhance it through implementation of new initiatives
  • Support rapid, sustainable growth with development in new regions (Siberia)
  • Further adapt our assortment, introducing new categories and entry-price PLUs
  • Implement a loyalty programme and launch customised promotion
  • Further improve NPS
Improve efficiency and reduce costs:
  • Grow the share of private label to >20% during the next 3–5 years
  • Increase the share of direct import
  • Rely on a lean and agile approach
  • Further improve opex and purchasing terms

Perekrestok Supermarkets

Perekrestok is Russia’s #1 supermarket chain. Perekrestok's value proposition focuses on fresh selection supported by the right complimentary assortment to give every customer the best products and services every time they shop.
Perekrestok supermarkets have historically been located in the largest cities across the European part of Russia, but we plan to expand further afield with the regional supermarket model piloted in 2016.
Perekrestok stores offer an assortment of 8,000 to 15,000 PLUs, with net selling space ranging from 800 to 1,600 m² depending on the location.
Net retail sales
155.4 bn ₽
in 2016
+19.4% year-on-year
Selling space
548.5 th. m²
as of 31 December 2016
+13.3% year-on-year
Stores in operation:
539
as of 31 December 2016
+12.8% year-on-year
Customer visits
350 mln
in 2016
+15.2% year-on-year
Stores refurbished
62
in 2016
bringing the total share of stores operating under the new concept to 52%
Developing a loyalty programme:
expanded personalised promotions and launched co-branded cards with Alfa-Bank
Focus on Russia’s most affluent regions,
with approximately 55% of new stores opened in Moscow, Moscow region and St. Petersburg. An additional 12% of new stores were opened in cities with populations of over one million
Regional expansion:
piloted a new “regional model”, with all new and refurbished stores in regions opened according to the new concept
Refurbishment programme:
62 stores were refurbished in 2016, with 52% of the store base operating under the new concept as of 31 December 2016 (vs. 25% as of 31 December 2015)
Service and efficiency:
made across-the-board efficiency improvements in operational expenses, shrinking costs and SG&A
Number of stores
eop
Net retail sales
bn ₽
Selling space
‘000 m², eop
Customer visits
mln
Perekrestok net retail sales by region
1
Central F.D.
72.2%
72.6%
2
North-Western F.D.
10.4%
10.4%
3
Volga F.D.
11.9%
10.9%
4
Southern F.D.
3.7%
3.4%
5
Ural F.D.
1.8%
2.3%
6
North Caucasus F.D.
0.0%
0.4%
1
Central F.D.
72.6%
2
North-Western F.D.
10.4%
3
Volga F.D.
10.9%
4
Southern F.D.
3.4%
5
Ural F.D.
2.3%
6
North Caucasus F.D.
0.4%
Vladimir Sorokin
General Director of Perekrestok
While we continue to strengthen Perekrestok’s position in the Moscow and St. Petersburg metropolitan areas, we are successfully expanding across Russia by adapting our high-quality supermarket model to local needs, which was one of our strategic targets throughout 2016.
With store openings and renovations on track, Perekrestok is working tirelessly to meet customer demands every day. We are also focused on securing Perekrestok’s position as Russia’s # supermarket for many years to come, with our priority being the introduction of a cutting-edge loyalty programme.
Strategic
priorities
for 2016
What we did
What we plan to do
Continue to
develop in
Moscow and
St. Petersburg

while reaching
critical mass
in cities with
populations
over 1 mln
What we did
  • 55% of new stores opened in Moscow, Moscow region, St. Petersburg and Leningrad region
  • More than half of new stores were opened in cities with populations over 1 million
Continue new
store openings

to preserve
foothold for future
growth
What we did
  • 539 stores, up 12.8% year-on-year
  • Opened more stores than peers operating in Russia
  • 548 thousand square metres of selling space, up 13.3% year-on-year
Trial regional
model in

2016, and start
development
in 2017
What we did
  • Successfully piloted regional supermarket model
  • All new and refurbished stores in regions were opened under the new regional supermarket concept
Continue to
implement
refurbishment
programme
What we did
  • 62 stores were refurbished in FY 2016 (>52% of stores are now operating under the new concept)
  • Decreased average refurbishment period from 45 days in 2015 to 44 days in 2016
Focus on
further
refining
service and
efficiency of
operations
What we did
  • NPS improved from 9.9 in Q3 2016 to 15.2 in Q4 2016
  • Improved opex, logistics, shrinkage costs and SG&A: staff costs, lease costs, marketing, and security
What we plan to do
Fine-tune value proposition and adapt to customer needs:
  • Maintain pace of organic growth and refurbishments
  • Roll out regional model to support future growth
  • Further adapt assortment to meet consumer needs
  • Increase loyalty card penetration, and implement personalised promotions
  • Develop online supermarket
  • Improve NPS
Improve efficiency and reduce costs:
  • Increase the share of private labels
  • Increase the share of direct import
  • Further improve logistics (forecasting, stock replenishment system)
  • Further improve opex and purchasing terms

Karusel Hypermarkets

Karusel is our national hypermarket brand and one of the largest hypermarket chains in Russia. It offers customers convenient shopping at fair prices in convenient city locations, with a wide range of quality food and non-food products.
2016 was a year of consolidation and optimisation for Karusel, during which we appointed a new General Director of the chain, built up the management team, and sought out best practices to introduce to the new commercial model. With testing of our “model hypermarkets” producing positive results, we plan to integrate the best ideas into a new commercial model for Karusel, which we plan to pilot during the first half of 2017, after which we will roll out across existing and new Karusel stores.
Karusel stores offer an assortment of up to 20,000 PLUs, with an average selling space of 4,252 m²
Net retail sales
84 bn ₽
in 2016
+7.9% year-on-year
Selling space
387 th. m²
as of 31 December 2016
Stores in operation:
91
as of 31 December 2016
Customer visits
134 mln
in 2016
Stores refurbished
7
in 2016
Short-term improvement plan
to optimise existing hypermarket operations led to positive changes in terms of availability and quality of products, which was quickly recognized by our customers. As a result we saw Karusel's NPS improve from 18.4 in Q3 2016 to 26.4 in Q4 2016
Consolidation of best practices
from successful “Model Hypermarkets” pilot into the new operational model, which will be tested and rolled out across all hypermarkets going forward
Optimised store portfolio,
closing three underperforming hypermarkets during the year, further reducing lease expenses and other costs
Introduced new private label ranges
helping to increase differentiation and customer loyalty
Loyalty programme
being further developed, by personalisation and new communication channels helped to increase the number of active users
Number of stores
eop
Net retail sales
bn ₽
Selling space
‘000 m², eop
Customer visits
mln
Karusel net retail sales by region
1
Central F.D.
47.6%
2
North-Western F.D.
21.9%
3
Volga F.D.
19.7%
4
Southern F.D.
6.2%
5
Ural F.D.
4.0%
6
North Caucasus F.D.
0.5%
Maksym Gatsuts
General Director of Karusel
This was a year of optimisation and consolidation for Karusel, during which we focused on improving our stores' portfolio. We also started developing a new approach for X’s hypermarket business. I joined Karusel as the new General Director in 2016.
I have been assembling a strong team that I am confident has the right skills to implement the best practices from the “Model Hypermarket” pilot projects. This team and I will test and roll out the new commercial model in the years ahead. The incremental changes we are already introducing at Karusel are beginning to show results, with LFL sales, traffic and basket all positive in Q4 2016, despite the challenging situation in the retail sector during that period.
Short-term
improvement
plan & strategy
Continuous measures
Development plan
Commerce
What we did
  • Optimise pricing; introduce new tools and mechanisms to improve price perception
  • Continue to adapt promotions; introduce new algorithms to boost consumer loyalty
  • Standardise selling space layout based on consumer behaviour
Efficiency
What we did
  • Better manageability: review business processes and further develop execution culture
  • Improve shelf availability
  • Strict focus on product quality
Store
portfolio
What we did
  • Review and optimise store portfolio
  • Further reduce lease expenses
  • Identify and secure promising locations for future openings
What we plan to do
  • Upgrade operating model for new hypermarkets with all best practices taken from “Model Hypermarkets” pilots
  • Further adapt assortment and optimise pricing
  • Increase loyalty card penetration and implement personalised promotions
  • Increase the share of private labels
  • Increase sales density
  • Improve logistics; reduce lease costs and shrinkage

Retail Operations Infrastructure

Our logistics, transport and IT systems are the backbone of our successful expansion, and help us ensure we provide the best shopping experience to our customers in every store, every day.
Our logistics operations have become more comprehensive, covering a wider range of services from direct import to cross-docking.
In the area of transport, we have continued to grow our own fleet to keep pace with the openings of new stores and expansion into new regions.
In the area of IT, we continue to invest in systems that make our operations more efficient, and improve our ability to meet demand across all of our formats.
Logistics
X5’s logistics operations are divided to provide the optimal service to each of the formats.
Pyaterochka operates its own logistics, while Perekrestok and Karusel share infrastructure that is designed to serve large-format stores.
In 2016, X5 opened 7 new distribution centres (DCs) with a total floor space of 212 thousand square metres, and closed seven as part of its ongoing programme to optimise DC operations.
As of 31 December 2016, we operated 35 DCs with a total floor space of 922 thousand square metres, providing sufficient coverage for the Company’s rapidly expanding operations.
Logistics
strategy
Our logistics strategy aims to provide each of X5’s formats with tailored services that meet their specific business needs.
Our logistics strategy
focuses on:
Efficiency
We consistently raise efficiency criteria for our logistics operations, closing down those operations that are no longer able to meet expectations. We also expand the vertical integration of our logistics operations to include full-scale import hubs and cross-docking stations when we see the opportunity to reduce costs on a sustainable basis.
Quality and reliability
Logistics operations must support X5’s ability to meet consumer needs every time they visit a Pyaterochka, Perekrestok or Karusel store, helping to ensure the quality and availability of goods on shelves.
Supporting expansion and regional operations
We are building out our logistics infrastructure to support continued rapid expansion, including into new regions, in order to ensure consistent ability to deliver our value proposition to customers while also adapting to regional needs.
Centralisation
Increased centralisation helps to optimise deliveries and in-store product ranging.
Efficient logistic system
to ensure flexibility of supply options
We are expanding our logistics operations by adding new links in the value chain, including import hubs and cross-docking stations.
By expanding our logistics infrastructure, we aim to support X5's continued, rapid growth while ensuring reliable and high-quality operations.
How we
manage
logistics
At the Corporate Centre level, X5 sets and monitors standards for DC operations, helps to share best practices and technologies across formats, and assists with planning investments into new DC infrastructure given the Company’s ambitious expansion plans.
Our DCs run an automated warehouse management system (WMS) featuring voice picking and weighing technology to ensure efficient monitoring of goods traffic and storage and to optimise our shipping, receiving and picking operations.
What we
did in 2016
X5 Retail Group’s company-wide SLT level (order processing based on timely deliveries) rose by 11 basis points to 91.6%, while centralisation increased from 85% in 2015 to 88% in 2016.
Among the seven new distribution centres we opened in 2016 was our first next-generation multi-format DC in Shushari near St. Petersburg (serving Pyaterochka stores in North–West Russia). This new kind of DC uses the latest available technologies to help ensure the availability and freshness of products while also cutting logistics costs. With over 27,000 square metres of space, the St. Petersburg–Yug logistics facility will supply 889 Pyaterochka stores in eight regions: the city of St. Petersburg plus the Leningrad, Arkhangelsk, Vologda, Novgorod, Murmansk and Pskov regions, as well as the Republic of Karelia. Featuring five storage zones, each a distinct temperature zone, the facility is designed to accommodate all categories of goods. At its full capacity, the St. Petersburg–Yug facility will be able to process and handle products from over 200 local suppliers.
We also opened a showcase warehouse for larger formats in Sofino in March 2016. This new facility illustrates our innovative approach to optimising logistics for the Perekrestok and Karusel chains. This 65,000 square metre DC handles over 16,000 SKUs from 680 suppliers. The advanced systems implemented at this state-of-the-art facility enable Perekrestok to increase the use of locally-produced products for nearby stores while also supplying certain goods to Perekrestok stores all across Russia.
In Adygeya, we opened two new facilities with multiple storage zones and a full temperature range for different types of goods: the Yuzhny DC to serve Pyaterochka stores and the Adygeya logistics facility for Perekrestok and Karusel. In 2016, X5 also completed upgrades to existing DCs, such as the launch of stage 2 of our Forpost DC in Chelyabinsk, with new storage zones including warehouses for storing dry goods and alcoholic beverages, and special fruit-ripening facilities.
With new, innovative IT solutions, we are constantly identifying ways to streamline our logistics operations, with systems that assist in identifying logistics conficurations that meet demand while minimising transport and storage costs, or analyse “what-if” scenarios.
Pyaterochka
Pyaterochka opened three DCs in 2016, and closed two that did not meet efficiency standards. As of 31 December 2016, the business operated 23 distribution centres. With Pyaterochka’s rapid expansion, we are building out an increasingly comprehensive and sophisticated logistics infrastructure to support the chain’s smooth and efficient operations
Key progress in 2016 includes:
  • We opened fruit and vegetable import hubs in St. Petersburg and Novorossiysk, and are in the process of opening our additional facilities in St. Petersburg, Novorossiysk and Vorsino, as well as an alcohol import hub at the Podolsk DC
  • Hub–satellite operations, with large regional DCs acting as hubs to store low-turnover items and constantly supply high-turnover goods to satellites and cross-docking stations
  • Variable delivery chains, giving suppliers greater flexibility to deliver goods directly or via Pyaterochka DCs
  • Cross-docking and cross-docking plus stations with packaging facilities to give regional DCs greater reach and keep remote stores supplied in a timely manner
Since 2015, we have been implementing lean management, or “lean logistics”, by seeking to involve every employee in efforts to identify areas for improvements and develop solutions. In 2016, we deployed teams of employees at our DCs that undertook a systematic review of inefficiencies and losses, and developed solutions aimed at simplifying operations, improving working conditions, reducing costs, and increasing the service life of warehouse equipment.
Pyaterochka is also implementing an “ongoing improvements” project across the entire logistics chain. This project entails:
  • Ongoing analysis of transport and logistics infrastructure setup to minimise costs while always meeting demand
  • Ongoing optimisation of supply chain
  • Integrated business planning
  • Optimisation of logistics personnel management with a focus on employing people who can develop and implement ideas to improve operations and efficiency
The results show that Pyaterochka’s efforts are paying off. In 2016:
  • Warehouse costs declined 12.5% year-on-year, from RUB 15.5 per box to RUB 13.6 per box
  • Increased productivity, with OWR up 39% year-on-year in December 2016, to 62.2 boxes/hour
  • Transport logistics costs were RUB 13.4/box for 2016
Plans for 2017 include:
  • Continued development of our comprehensive logistics infrastructure, expansion of cross-docking stations
  • A relentless focus on optimisation and efficiency while maintaining reliability
Perekrestok
and Karusel
As of the end of 2016, Perekrestok and Karusel operated twelve DCs, having opened four and closed five during the year.
Key progress in 2016 includes:
Inventory management:
  • Optimising store supplies with automated ordering and store supplies
  • Increasing the share of automated ordering, which helps to release shelf space during busy seasons
  • Increasing inventory turnover and purchasing accuracy
  • Implementing automated ordering across all product categories in all regions
  • Developing demand forecasting to improve accuracy of automated ordering
  • Further integration of JDA software across supply chain and product categories
  • Personnel development and training
Distribution centre improvements:
  • Improving the quality and efficiency of DC packaging by establishing unified standards, using electronic forklifts with in-built scales; and automated pallet optimisation
  • Adapted remuneration policies, increasing the bonus part to improve focus on quality of service, packaging and adherence to business plans
  • Employee evaluation and development systems put in place, including a “DC in DC” training zone at the Sofino DC
  • Piloting warehouse irrigation system at Sofino
  • Increased scope of multi-temperature storage zones at DCs and in transport
Plans for 2017 include:
  • Perekrestok and Karusel plan to continue expanding the reach of their DC network, including to Ekaterinburg Employee evaluation and development systems put in place, including a “DC in DC” training zone at the Sofino DC
  • The full implementation of JDA throughout the entire supply chain and across all categories is expected to be completed by the end of the year
  • Efficiency will remain a key focus, with measures to reduce the time trucks spend at DCs, further investments in training personnel, implementation of integrated business planning, and ongoing refinements to the automated ordering system
Transport
X5’s in-house transport fleet is capable of handling 60-70% of our transportation needs.
With a fleet of 2,318 trucks in operation as of 31 December 2016, we have established transport operations capable of supporting X’s formats as they expand across the Russian Federation.
Transport
strategy
Our transport strategy focuses on ensuring reliable, timely and efficient supplies to our stores, helping to support our ability to deliver consistent in-store availability and quality to our customers every single day.
The key pillars
of our transport strategy are:
Efficiency
From purchase of new vehicles to effective route management and driver incentives to reduce costs, we are constantly seeking ways to reduce transportation costs.
Quality and reliability
We implement monitoring systems across our fleet to help ensure food is properly stored while in transport and arrives at stores on time.
Supporting expansion and regional operations
When we expand into new regions, like Siberia, we utilise our own fleet for all transport needs due to a lack of third parties with the necessary vehicles to support X’s expansion.
How we
manage
transport
The Director for Transport sits in the Corporate Centre, with responsibility for implementing and monitoring performance targets and establishing strategic goals with regards to X5’s transport operations.
Starting in 2016, the X5 Corporate Centre’s Transport Department took over management of all of Pyaterochka’s third-party transport operations in the Central division. Upon completion of this pilot project, all of the Pyaterochka’s third-party transport operations are due to be transferred to the Corporate Centre during 2017.
We use modern transport management systems in order to maintain a real-time view of the location, condition and storage temperatures across the entire fleet. Thanks to GPS/GLONASS systems, store employees are able to monitor movement of shipments from DCs, helping them to plan for arrivals and be alerted to delays.
What we
did in 2016
We purchased 976 new trucks in 2016, expanding our fleet by 48% year-on-year to 2,318 vehicles.
These new vehicles have mileage monitoring, GPS and refrigeration unit monitoring systems installed, enabling us to maintain a detailed view of all transport operations. These systems helped reduce diversions from routes to just 4% in 2016, compared to 20% before implementation.
We opened sixteen cross-docking stations, with a focus on regions that don’t have enough stores to require a full DC, in order to ensure smooth and reliable logistics and improve the ability to cooperate with local suppliers. Three of the sixteen were cross-docking “plus” stations with capacity to package goods.
We continued to refine our piece-rate wage structure for drivers, introduced in 2015, and saw further improvements in pay-roll per truck of 7% year-on-year in 2016. At the same time, average salaries for drivers increased by 4%.
While we do still rely on third-party shippers for some of our transport needs, in 2016 we launched GoCargo, a proprietary solution for booking cargo transportation services online. The new service enables senders to place shipping orders and distributes these orders among registered private carriers based on the cargo’s location and the delivery address. In 2017, we aim to roll out GoCargo to all of X5’s formats and expand its use for third-party shipping orders. By the end of 2016, 40% of X5’s third-party transport needs in the Central division were handled by GoCargo.
We have developed a new form of cooperation with certain suppliers that allows them to arrange delivery of goods using X5’s own transportation fleet. Currently being piloted with ten suppliers, this form of cooperation makes it possible to improve the level of service for major partners, lower costs at cross-docking stations and increase inventory turnover.
Information Technologies
Advanced analytics and information technologies are keys to our efficient operations and to successfully meeting customer demand every single day.
it strategy
Our IT strategy, approved by the Supervisory Board in 2015, seeks to ensure that our businesses use new technologies to improve the quality and efficiency of operations, while informing our decision-making to help us manage our growth intelligently.
The strategy
focuses on:
Accelerating decision-making
By using IT systems to effectively gather, manage and analyse data, we are able to optimise business processes like choosing locations for new stores.
Better understanding our customers
Data and analytics is one of the key elements to understanding customer behaviour and adapting our value proposition to best meet their needs.
Store management
We aim to improve store management, shelf availability, and efficiency with automated data collection, analysis, and forecasting systems.
How we
manage
our IT
systems
Management of our IT systems and investments into IT infrastructure is handled by the Corporate Centre, while each of the formats is responsible for detailed requirements and customisation, customer loyalty programme management and other software they use to improve their business efficiency.
What we
did in 2016
Our main focus was on ongoing implementation of X5’s IT strategy for 2015-2017. This included two projects aimed at improving our customer-centric operations, enabling us to better analyse our customers and their behaviour, as well as develop more effective and individualised loyalty programmes.
We have also put significant focus on forecasting, supply chain management, assortment management, pricing, promo, and business planning. These systems enable us to better and more efficiently manage our business using advanced analysis of historical data and customer behaviour to better meet demand.
The corporate data warehouse was moved over to the SAP HANA platform, which provides near-real time sales reporting, enable us to quickly collect and analyse store-by-store receipts and performance data, with up to two years-worth of historical data. Daily reporting is accelerated by the new capabilities of the HANA platform.
X5’s electronic document interchange (EDI) system is one of the most advanced in our sector, and has significantly improved both the efficiency and quality of our work with suppliers and other parties. X5 is currently implementing approximately 20 different EDI projects, and electronic document traffic increased by 40.3% year-on-year in 2016, with lease, transport, non-commercial procurement and intercompany transactions all moved to our EDI platform.
Another area of focus continues to be the “IT store” project, which puts IT Department employees in stores to work as store employees. By better understanding how employees use IT systems for day-to-day tasks, we have already generated over 300 new ideas, the implementation of which is expected to save hundreds millions of roubles.