Auchan Revealed as No. 2 Retailer

VedomostiAuchan’s revenue figures put it second only to X5 on the Russian market.

French retailer Auchan, which hasn't revealed its financial success in Russia, was forced to do so in a court battle with tax officials. It turned out that, by retail sales volume, Auchan is the second largest company on the market.

The operator of the Auchan chain of hypermarkets is disputing the decision of the Federal Tax Service's Interregional Inspectorate, which is seeking 739.7 billion rubles ($25.2 billion) in taxes, fees and penalties. In mid-March the company filed a suit in the Moscow Arbitration Court, asking the court to reverse the tax service's decision and prevent the taxes from being immediately levied.

The court sided with the company, according to a court decision granting the company's request to delay the seizure of the taxes, a copy of which was obtained by Vedomosti. Accounting figures are included in the document for nine months in 2009, though the company has never released this data. As indicated in the court's decision, Auchan's average revenues stood at 15 billion to 20 billion rubles per month. At that rate, its revenues throughout 2009 likely stood at 180 billion rubles to 240 billion rubles.

With such figures, Auchan is second on the Russian market only to X5 Retail Group, which operates the Perekryostok and Pyatyorochka chains and whose net revenues in 2009 stood at 275 billion rubles. And Auchan outpaces X5 in terms of revenues per square meter of shop space.

The French retailer operates 36 hypermarkets in Russia, including Auchan hypermarkets, which are up to 20,000 square meters, and Auchan City stores, which are about 5,000 square meters. Since their total area is slightly more than 300,000 square meters, the revenues per square meter are about 600,000 to 800,000 rubles. For comparison, X5 last year was able to reach 258,884 rubles per square meter, while Magnit operates at 161,000 rubles per square meter.

An Auchan spokesman refused to comment on the figures. But an executive at a supplier of Auchan said the cause for such a level of efficiency was its high capital turnover, which stands at more than 30 days, compared with the average 40 to 45 days on the Russian market.

"This is achieved first of all by knowing how to keep prices low, by its large number of products — more than 40,000 — by its ability to generate buyers that come from different social groups," said Dmitry Potapenko, managing partner of Management Development Group.

One Moscow branch of Auchan is able to service as many as 10,000 people on a weekend day.

By its level of net profitability, Auchan competes with the market leaders. Auchan's net margin stands at 20 percent, compared with X5's 24.4 percent over nine months in 2009, and Magnit's 23.3 percent, said Tatyana Prokina, an analyst at VTB, who made the calculation using data from the court decision. "Part of the lag in terms of net margin from the market leaders can be explained by its aggressive low-price policy," Prokina said.

Earlier, Auchan's Russia CEO Jean-Pierre Germain told Vedomosti that the company has always carried out a careful financial policy in the country, avoiding excessive indebtedness. "This strategy allows us to concentrate on optimizing the business process, and not on finding refinancing sources," he said.

According to the court documents, Auchan's biggest expenses are supplier payments, which run 16 billion rubles per month on average. Next is rent, which runs 1.7 billion rubles per month, and wages, 0.5 billion rubles per month. The company has 3,113 suppliers, and at the end of February its total debt to suppliers was 24 billion rubles.

The Russian market is strategic and one of the biggest in which Auchan operates, executives said. In 2008, revenues stood at 39.48 billion euros. Turnover in 2009 has not yet been reported, but if it stays on its former level, then Auchan's Russian units may have more than 10 percent of the market's total turnover.

See also:

New Trade Law Risks Disruption for Shops, Ombudsman Warns

Weak Ruble Pushes Japanese TV Brands Out of Russian Market

Displaced Tenants to Reassess Moscow Rental Market