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UPDATE 2-Regional woes slow growth at Russian grocer X5

Published 07/10/2009, 05:52 AM

* Q2 like-for-like sales growth slows to 11% from 13% in Q1

* Net sales growth flat at 46%

* Regions weak, "trading-down trends deepen"

(Adds further details, comments)

By Maria Kiselyova

MOSCOW, July 10 (Reuters) - X5, Russia's top grocer by sales, saw a slowdown in like-for-like sales growth in the second quarter of 2009 as consumers flocked to its discount chain and eschewed pricier supermarkets and hypermarkets.

The trend was especially pronounced in Russia's provinces, where the bulk of manufacturing is concentrated and a 17 percent decline in industrial production in May has hit hardest.

"Regional store traffic remained in negative territory due to the impact the economic downturn is having on the regional economies," X5 said in a statement, referring to its supermarkets' performance.

"We saw further pressure on the average ticket size, especially in the regions, which reflects declining customer incomes."

The company saw a 2 percent drop in traffic at its supermarkets, while traffic at soft discounters rose 11 percent.

And as overall like-for-like sales growth slowed to 11 percent year-on-year from 13 percent in the previous quarter, like-for-like sales at soft discounters were up 18 percent.

X5, which operates stores in a range of formats from discount neighbourhood stores under the Pyaterochka brand to the Perekryostok supermarket chain and Karusel hypermarkets, said a shift in sales toward discounters had accelerated this month.

"In the second quarter we saw trading-down trends deepen as consumer confidence and purchasing power weakened further," Chief Executive Lev Khasis said.

X5 has also been offering lower prices in the crisis -- it said in March that it would lower prices at Pyaterochka stores in line with changes in consumer behaviour.

It has also announced a "grand sale" this month after it came in for criticism from Prime Minister Vladimir Putin, who visited a Perekryostok supermarket and railed against the price of meat.

"Sales surged beyond expectations at discounters as price-conscious consumers responded enthusiastically to Pyaterochka's "lowest price on the market" initiative, which drove exceptional traffic and market share gains," Khasis said.

As Russia has entered its first recession in a decade, official data showed a fourth consecutive month of falling retail sales deepening to -5.6 percent in May from -1.4 percent in February.

Analysts say X5 should weather the downturn better than many of its peers as it has a significant exposure to the discounter format which is benefiting amid an outflow of price-conscious customers from premium chains.

The company also said consolidated net retail sales rose 46 percent to 67.8 billion roubles ($2.2 billion at current rates), the same pace of growth as in the previous quarter.

In dollar terms, consolidated net retail sales were up 7 percent at $2.1 billion in April-June.

Proforma sales fell 8 percent in dollar terms, including a rouble devaluation effect of about 34 percent, but were up 26 percent in roubles. ($1 = 31.46 roubles) (Editing by Greg Mahlich)

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