Hypermarkets Boost Sedmoi Sales

VedomostiA checkout operator at a Sedmoi Kontinent store in Moscow. The chain opened its first six hypermarkets last year.
Supermarket chain Sedmoi Kontinent said Monday that its revenues grew 32 percent last year, boosted by strong consumer demand and the opening of six new stores.

Retail analysts offered a mixed bag about the results, with some saying they reflected overall growth across the sector but others saying they had fallen short of expectations.

Sedmoi Kontinent said gross retail sales rose to $1.4 billion, from $1.06 billion a year earlier. The sales were boosted by the opening of Sedmoi Kontinent's first six hypermarkets, giving the company at total of 127 stores. Two supermarkets were closed over the same period.

Sedmoi Kontinent CEO Galina Ilyashenko said 11 more hypermarkets would be built in Moscow and other regions under an agreement with Tashir Group, a real estate developer.

She did not say when the hypermarkets would open. Analysts said they were running behind schedule.

Ilyashenko touted the year as a success, saying the company had strengthened its position in Moscow and other regions.

"This past year was very important for us in terms of establishing a foundation for the company's mid-term development strategy in supermarkets and hypermarkets." Ilyashenko said in a statement.

Sedmoi Kontinent is controlled by former Sobinbank owner Alexander Zanadvorov, who in November bought out a stake belonging to his former partner, State Duma Deputy Vladimir Gruzdev, to wholly own the company.

Late last year, Zanadvorov turned down an acquisition offer of $1.37 billion from buyout firm TPG for a 65 percent stake, Kommersant reported, citing sources familiar with the situation.

The company trades at a discount to main rivals Magnit and Pyatyorochka.

Sedmoi, like all food retailers, has seen revenues increase on the back of higher inflation.

Mikhail Krasnoperov, an analyst with Troika Dialog, said Sedmoi Kontinent's interest in building real estate rather than acquiring existing space had resulted in lower-than-expected revenues and a slowdown in its business.

"Declared revenues is below average when viewed against the backdrop of exponential growth of around 40 percent in the country's retail sector," Krasnoperov said.

"Tashir Group's slow pace of construction on shopping centers is also taking a toll on the company's expansion plans by forcing it to delay the opening of new retail outlets."

However, Ivan Nikolayev, an analyst with Renaissance Capital, said Sedmoi Kontinent was growing in line with the market, which he said grew 30 percent last year.

"Like other companies, Sedmoi Kontinent deliberately adopted a strategy not to rush its expansion plans last year in order to keep the profit margin above 10 percent," Nikolayev said.

"They are now carefully acquiring real estate and building more hypermarkets and supermarkets, which will serve as a springboard for future expansion."

The company said it increased its selling space by 7 percent to 147,000 square meters last year.

Customer numbers grew by 10 percent to 100 million people, compared to 90.6 million for 2006, the company said.