The battle for market share between Russia’s two leading supermarket chains Magnit and the X5 Group saw a strategic shift after Magnit acquired control of high-end supermarket chain Azbuka Vkusa (The ABC of Taste).

Russian retail giant Magnit has agreed to acquire a controlling stake in the high-end supermarket chain Azbuka Vkusa in a deal estimated at RUB35-40bn ($370-420mn), RBC reported on April 29, marking a significant step in Magnit’s bid to narrow the gap with X5 Group and retake the lead as Russia’s biggest supermarket chain.

According to RBC, Magnit will purchase a majority stake in Gorodskoy Supermarket, the operator of Azbuka Vkusa, gaining control of 170 premium supermarkets, five factory kitchens and three distribution centres. The deal values the company at roughly 3.5 times EV/EBITDA, a steep discount compared to global peers, The Bell reports.

“RUB35bn is an extremely attractive price, given that public analogs are trading at their historical minimums,” said Marat Ibragimov, a retail market analyst quoted by RBC.

Azbuka Vkusa closed 2024 with revenue of RUB101.2bn ($1.06bn), up 17.3% year on year. Its net profit grew more than fourfold to RUB3.6bn ($38mn), with over 20% of its revenue generated by in-house prepared foods. Despite its niche focus, the chain has long attracted interest from major players. Negotiations with Russian internet giant Yandex took place in 2021, and steel mill Severstal, owned by billionaire Alexey Mordashov, reportedly made an offer of RUB40bn in 2019 and early 2025, The Bell reports.

An RBC source close to the negotiations said Magnit ultimately prevailed by offering more “comfortable” terms to Azbuka’s shareholders, which previously included oligarch Roman Abramovich.

Azbuka Vkusa's current ownership structure is fragmented. Co-founders Maxim Koshcheenko and Oleg Lytkin control 42.5%, while 41.1% is held by Bavero Group JSC, a company with undisclosed shareholders that acquired its stake from Abramovich and his partner and fellow oligarch Alexander Abramov in 2023. Another 10.64% is owned by V.H.M.Y. Holdings, a Cypriot vehicle linked to former Expobank shareholders, two of whom have been convicted of fraud.

Magnit back in the game

Magnit has a storied history. Opening its first store in 1998 by Russian retail legend Sergei Galitsky and headquartered in his native city of Krasnodar, the chain originally focused exclusively on expanding in Russia’s far-flung regions and ignored the twin megacities of Moscow and St Petersburg. The financial crisis of that year destroyed the so-called virtual economy based on barter and re-monetarised the system leading to a boom in retail, albeit at lower prices. Magnit’s downmarket offering was amongst the pioneers to build a multi-billion-dollar business from catering to the needs of the average Russian and over the next decade it grew into the dominant force in the emerging Russian organised retail segment, becoming an investor darling in the process.

It all went wrong in 2018 when the company lost its way and then its lead to its main rival the X5 Group, which is part of Mikhail Fridman’s Alfa Group and includes several famous supermarket brands, including Pyaterochka and Perekrestok supermarket as well as the Chizhik discount stores. X5 overtook Magnit as the biggest retailer by market capitalisation, topping $10.05bn to Magnit’s $9.9bn in February 2018. Sergei Galitsky sold a 29% stake to the state-owned VTB Bank. The stake was later sold to Alexander Vinokurov’s Marathon Group, who previously ran A1, the Alfa Group’s corporate takeover business, and now focuses on retail investments, including its stake in Magnit.

Since then the company has slowly been reorganising and preparing to take the fight for pole position back to X5. The company hired Jan Dunning at the end of that year, a dyed-in-the-wool retail professional. He spent 10 years working for the German discount supermarket chain Aldi, was operations director of Metro Cash & Carry Russia and then general manager of Metro Cash & Carry Ukraine before taking over as CEO of Russia’s second tier chain Lenta and eventually was hired to be president, a non-executive position, which was introduced in 2019.

He told bne IntelliNews in an exclusive 2020 interview how he is turning the business round.

“The decline started in the last two years before Galitsky left. He was tired and was not paying attention. He was looking for a successor and wanted to sell,” Dunning told bne IntelliNews speaking from his office in Krasnodar by video link. The previous management team left and Dunning brought in some fresh blood and went back to focusing on the core business: thousands of physical stores spread across the entire country. He also pushed the online sales which quickly tripled as the e-grocery boom swept the country. He also invested heavily into IT to get to know his customers better and move closer to the front of the purchase decision and not just wait until the punters showed up in the store.

Magnit’s acquisition of Azbuka Vkusa marks a strategic shift from Galitsky’s earlier position of avoiding the premium segments and resisting expansion in Moscow. Following Galitsky’s 2018 exit the retailer previously acquired discount chain Dixy for RUB93bn in 2021, another leading supermarket chain, which helped it bolster its presence in the capital. In 2024, Magnit reported revenue of RUB3 trillion ($31.6bn), trailing X5 Group’s RUB3.9 trillion ($41.1bn).

Retail sector growing thanks to the war

The acquisition highlights the ongoing consolidation of Russia’s grocery sector, as large retailers seek growth in saturated markets. Russia’s retail sector has been an unexpected winner from the conflict in Ukraine, which has pushed up nominal wages far faster than sticky high inflation thanks to a chronic labour shortage. Real disposable incomes up to a record 9.6% last July and a positive for the first time in almost a decade. After a dip in retail turnover in 2022 and stable growth in 2023, last year saw a consolidation of the sector, with large domestic players acquiring smaller chains and expanding into underserved regions.

In 2022 retail turnover totalled RUB39.2 trillion ($625bn at the average 2022 exchange rate), up 2.0% y/y nominally. However, in real terms, retail turnover fell by about 6.7%, reflecting declining consumer demand.

In 2023 retail turnover rose to RUB 44.5 trillion ($491bn in dollar terms, boosted by a sharp devaluation in the ruble), a 13.5% nominal increase. Much of this was driven by inflation, particularly in food and essential goods.

In 2024 the estimated retail turnover is expected to exceed RUB 48 trillion, with year-on-year nominal growth of around 8%, according to forecasts from the Ministry of Economic Development. However, the average ruble exchange rate weakened further, putting dollar terms closer to $460-470bn.

Magnit will likely grab the interest of investors with access to the Russian market as it has long been a well-liked bluechip, partly because of the apolitical nature of its business. After the war in Ukraine began, Magnit was one of the few Russian firms to offer to buy out its international investors at knock-down prices, whose shares in the company have been blocked due to sanctions-related capital restrictions.

Magnit said in June 2023 its indirect subsidiary is offering to buy as much as 10% of the company shares at a price of RUB2,215 per share ($26.4), "for the purpose of providing liquidity to investors." That price is a 50% discount to the previous six months weighted average of Magnit’s shares at the time. The buyout was capped at 10% of the shares, worth a total of RUB22.57bn ($269mn) at the time.