What will happen to K-Rauta stores after the purchase of Leroy Merlin. Details
That the K-Rauta chain of DIY stores, owned by the Finnish holding Kesko, is leaving the Russian market. 12 out of 14 stores were sold to a direct competitor - the chain Leroy Merlin, 2 more will close by mid-summer. A week and a half after the announcement of the deal, we have collected the main facts and statements - and tell in detail how the new owners plan to proceed with the purchase.
Leroy Merlin bought 12 K-Rauta stores: 8 in St. Petersburg, 3 in Moscow and 1 in Kaluga. The company did not buy hypermarkets in Tula and Yaroslavl; they will stop operating by mid-summer 2018. The transaction cost was 12 billion rubles.
Leroy Merlin acquired only the K-Rauta buildings- neither the staff, nor the brand, nor the goods were included in the deal. By purchasing hypermarkets, the retailer expanded the area of its stores by 126 thousand square meters. m (including warehouses).
All purchased stores will be closed for reconstruction.- for up to 6 months. Exact dates The closures of the outlets have not yet been announced, but large-scale sales have already started online (and even started for goods). All stores will reopen under the Leroy Merlin banner and concept.
The new owner will lay off about 1,800 K-Rauta employees. New personnel - approximately 1,200 people in St. Petersburg - will be recruited on a general basis. "As soon as former employees“K-rauts” will finish all their business there and start looking for a new place, we are open to them. On a general basis, they will be able to go through all stages of interviews in order to become or not become an employee of Leroy Merlin,” said Alexey Lesnikov, regional director of Leroy Merlin Russia, in an interview with Business Petersburg.
The number of Leroy Merlin stores in St. Petersburg will triple after the purchase of K-Rauta- there will be 12 of them. Some of the hypermarkets after the integration of the networks will be next to each other, however, according to Lesnikov, the company does not see a problem in this. Leroy Merlin has no plans to further expand its network in the city in the near future.
The company “globally will not change” its approach to suppliers- Lesnikov also stated this. In turn, Leroy Merlin CEO Vincent Genty told reporters that the network now has 44 suppliers in St. Petersburg, almost a third of them are the same as K-Rauta’s suppliers. “Most likely, we will develop cooperation with new suppliers,” Zhanty said.
With the sale of the K-Rauta chain, the Finnish concern Kesko completely left Russia. The company began getting rid of Russian assets back in 2016 - then the concern FMCG chain K-Ruoka (for 11 billion rubles to the St. Petersburg Lenta) and the Intersport chain of sports stores. Kesko has worked in Russia for 20 years.
In 2016, K-Rauta occupied 1.1% of the building materials market in Russia; the chain’s revenue for the same year amounted to 13.1 billion rubles. After the closure of the Russian division, 170 stores in Finland, Sweden, Estonia and Latvia continue to operate under the K-Rauta brand.
Leroy Merlin is the largest DIY retailer in Russia. Before the purchase of K-Rauta, the company’s network consisted of 75 hypermarkets (market share over 16%), in 2016 the turnover of the Russian division of the retailer amounted to 186 billion rubles.
Alexey Maksimuk
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December 7, 2016 1:33 pm
Now, 11 former hypermarkets of the Finnish K-ruoka chain have opened under the banner of the Russian retailer Lenta. After praise from the FAS, the retailers closed the acquisition deal on November 30. Lenta got 10 hypermarkets and one K-ruoka supermarket in St. Petersburg and the Leningrad region and three land plots. Transaction amount – 11.4 billion rubles.
This is the largest merger and acquisition transaction in the history of Lenta, VTB Capital analysts previously noted. Lenta now operates 180 hypermarkets and 44 supermarkets in Russia with a total selling area of more than 1 million square meters. m. This deal was dubbed “a harbinger of consolidation” in the market, says Albert Avetikov, director of investor relations at Lenta. Over the past two years, in difficult macroeconomic conditions, many retail chains feel difficulties, he says.
The grand opening of the rebranded stores took place in the hypermarket on the street. Planernoy, 17 A. This is the original store that was opened by the Finnish concern Kesko under the K-ruoka brand in 2012. The queue of customers at Lenta is noticeably smaller than when K-ruoka opened. During 2017, all rebranded stores should reach medium density sales of Lenta in Russia (320,000-330,000 rubles per sq. m), and in 2018 to catch up with St. Petersburg in terms of this indicator (over 400,000 rubles per sq. m), says Avetikov. In K-ruok, sales in 2015 amounted to 205,000 rubles. from 1 sq. m, JPMorgan analysts previously indicated.
The reconception of Finnish hypermarkets took seven days and did not require major capital expenditures; the main work involved integrating IT systems, hiring staff and updating stores, says Avetikov. According to him, the staff of K-ruoka stores switched to work at Lenta, and as for the office, some duplicating functions had to be abandoned. The impact of investments in renovation on the retailer's profitability (EBITDA margin) will be 0.1 percentage points in 2016, and in 2017 the impact will be zero, he adds.
All the equipment and a small inventory of goods were received from the Finnish retailer, says Avetikov. IN last days K-ruoka was holding a total sale: for example, discounts on alcohol reached 50%. In the rebranded stores, the standard Lenta assortment is completely repeated, so many K-Rook suppliers cannot be found here, says Avetikov. It is necessary to adapt to the audience - to the example, at Lenta near Krestovsky Island the share of premium wine in the assortment is growing, Avetikov answered the question of whether Lenta is afraid of losing K-ruoka customers.
The “tape” while away advertising campaign under the slogan “Are you in K-ruoku? We are for her!” Billboards with similar inscriptions stand outside stores. “Lenta” works for a mass client, the main audience of the network’s clients are people with average and below average incomes, reminds Avetikov.
There are 32 Lenta hypermarkets in St. Petersburg. There is no need for additional investments in logistics infrastructure yet, but, of course, with the development in St. Petersburg, Lenta will have to expand its logistics capacity by expanding the existing one or building a new distribution center, Avetikov reports.
Despite the purchase of the Finnish chain, Lenta’s plans for development in St. Petersburg remain unchanged, ratifies Avetikov. One to three new hypermarkets may open in 2017, plus the development of a supermarket chain. Mediocre investments in the construction of your own hypermarket - about 200,000 rubles. per 1 sq. m, and from the purchase of a plot to the launch of a store, it takes about a year and a half, says Avetikov.
E. Egorov / Vedomosti
The Finnish retailer began to prepare for the closure of stores in advance; supply volumes began to decline about a month in advance, one of the suppliers told Vedomosti. As a result, the goods remained only in the sales area
E. Egorov / Vedomosti
On November 23, the retailer announced the start of the final sale. At first, the discounts only applied to alcohol. K-Rook did not have a wholesale license to sell alcohol, so it did not enter into the deal with Lenta.
E. Egorov / Vedomosti
Alcohol shelves were the first to be empty; discounts on alcohol reached 50%. Along with alcohol, visitors also bought other goods.
E. Egorov / Vedomosti
Visitors literally swept goods off the shelves when discounts began
E. Egorov / Vedomosti
In the last two days of the network's operation, discounts on perishable products began
E. Egorov / Vedomosti
Suppliers have already concluded new supply agreements with Lenta at the addresses of the Finnish chain stores
E. Egorov / Vedomosti
E. Egorov / Vedomosti
All remaining goods are collected on several shelves
E. Egorov / Vedomosti
On the final day of work, there are few visitors in the hypermarket. The first K-ruok hypermarket appeared in St. Petersburg in 2012, and there was no crowd at the opening. The company was pleased with the number of customers and profitability in the first two years of operation
E. Egorov / Vedomosti
The Finnish holding Kesko planned to spend over 100 million euros annually on expanding the K-ruoka network. The company hoped that trade in Russia would reach 500 million euros by 2017
E. Egorov / Vedomosti
Kesko warned back in 2015 that it could suspend development in Russia. Corruption, unpredictability of officials, unexpected changes in laws and operating environment make doing business difficult
E. Egorov / Vedomosti
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Buyers of one of the Lenta hypermarkets (Photo: RBC Petersburg)
St. Petersburg retailer Lenta and the Finnish company Kesko have agreed to sell Kesko’s food business in Russia to the K-Ruoka chain. According to the companies, the transaction amount will be 11 billion rubles.
As part of the deal, Lenta is purchasing 10 hypermarkets and one supermarket operating under the K-Ruoka brand in St. Petersburg and the Leningrad region, as well as three land plots in the Leningrad and Moscow regions. Most of the hypermarkets were opened in 2012-2015, two more stores were opened in 2016.
The total retail area of the acquired stores is 42.5 thousand square meters. m, of which about 40.2 thousand sq. m are owned, and 2.3 thousand sq. m. m - for rent. Kesko's retail business is owned by six legal entities, which will be acquired during the transaction, noted in the Lenta message.
Reference
Today, Kesko, according to the company website, operates 11 food stores in Russia under the K-Ruoka brand (in St. Petersburg and Leningrad region), 13 K-Rauta stores and 19 Intersport sportswear stores. In the summer of 2016, the company's sports division was sold. The transaction amount, according to experts, amounted to 100 million rubles.
According to Kesko, the sale of the grocery chain is due to the desire to focus on business development in Finland. “We will focus on developing food trade in Finland and refuse to trade in Russia, since this business would require significant capital investment,” the company’s press service quotes Kesko President and CEO Mikko Helander as saying.
Estimated general director“Tapes” by Jan Dunning, the deal will significantly strengthen the network’s position in St. Petersburg. Once the integration is completed, the stores will operate under the Lenta brand.
The transaction has already been approved by the boards of directors of Lenta and Kesko. If approved by the Federal Antimonopoly Service of Russia, the transaction will be closed on November 30, 2016. The deal will be financed from own funds company, as well as through long-term credit lines, reports Lenta’s press service.
The fact that negotiations were underway was announced last week, but then Lenta reported that an agreement had not yet been reached. According to market participants, negotiations have been ongoing since the spring of 2016. “One of the reasons is K-Ruoka’s too strict policy towards suppliers,” one of the market participants told RBC St. Petersburg. “The network offered conditions (including entrance bonuses) that not everyone was ready for.”
According to co-owner of the Real trading house Alexander Myshinsky, Kesko chose the wrong moment to enter the Russian market. “K-Ruoka entered Russia after Prisma, and under the conditions of the devaluation of the ruble and the embargo, they simply had nothing to offer to a buyer who was accustomed to Prisma,” says A. Myshinsky. — Most likely, the owners decided to exit the unprofitable business in Russia. Kesko has already sold Intersport, now K-rauta is inferior to Leroy Merlin, slowly reducing its presence in Russia.”
It is curious that a few hours before the announcement of negotiations between Lenta and Kesko Oyj, the share price of the Russian retailer jumped by almost a quarter. By 12:10 Moscow time on October 21, the price of the paper reached 606.5 rubles, which is 24% higher than the closing price of trading on October 20, while official information the proposed purchase of Kesko appeared on the disclosure site only at 17:25. At a price of 606.5 rubles. per share, the company's capitalization on the Moscow Exchange added 57.6 billion rubles from the previous day. and reached 295.1 billion.
Subsequently, Lenta’s quotes adjusted: trading on October 21 closed at 488 rubles. per share. It is worth noting that over the following days the price continued to decline and on the day of the transaction, October 26, it dropped to 472.5 rubles by 16:00 Moscow time.
Reference
Sales of the hypermarket chain K-Ruoka (part of the Finnish concern Kesko), according to the company's reporting, for the first half of 2016 were by 8.5% compared to the same period last year - up to 54 million euros, an increase in rubles - by 32.4 %. Kesko's total sales increased by 7.2% to 4.6 billion euros.
Food retailer Lenta increased revenue by 20.2% in the third quarter of 2016 compared to the same period last year - to RUB 75.4 billion. The growth of the indicator was influenced by the emergence of new stores in the network and an increase in sales at pre-existing locations, the company noted in a statement.
In the third quarter of 2016, Lenta opened eight hypermarkets; as of September 30, the total retail area of Lenta amounted to 963 thousand sq. m - 22.3% more than a year ago. In total, the retailer intends to open 40 new hypermarkets this year.
Finnish Kesko continues to sell off Russian assets. The company, having disposed of the sports brand Intersport in the summer, is now negotiating the sale of its K-ruoka food stores to Lenta. Experts estimated the potential deal at 8-11 billion rubles.
Lenta announced that it is negotiating with the Finnish retailer Kesko to purchase 11 stores operating under the K-ruoka brand in St. Petersburg and the Leningrad region. The same is stated on the Kesko website. So far, the parties have not reached an agreement on a potential transaction and its terms, the Russian company notes in a statement to investors. The Lenta press service declined to comment further. Kesko promised to separately announce the closing of the deal.
The Finnish company’s desire to sell the Russian food chain became known at the end of May, but then the retailer clarified that it had not been possible to find a buyer. As of October 1, K-ruoka operated ten hypermarkets and one supermarket with a total sales area of 49.2 thousand square meters. m, says General Director of Infoline-Analytics Mikhail Burmistrov. The company is building another large-format store and has sites in St. Petersburg and the Moscow region, he adds.
In the first half of 2016, K-ruok's net revenue increased by 8.5%, to €54 million (about 4.23 billion rubles at the average euro exchange rate during this period), Kesko reports. In rubles, the growth was 32.4%, it is noted there. In the second quarter, sales decreased by 0.2%, to €29 million (RUB 2.27 billion). The retailer will reveal its nine-month results on October 26.
Kesko President and CEO Mikko Helander has already acknowledged problems at Russian market and falling profitability. The total loss of the network in Russia in 2015 amounted to 1.98 billion rubles, the accumulated loss as of July 1 exceeded 6 billion rubles, notes Mikhail Burmistrov. The net debt as of the same date is more than 7.5 billion rubles; at the end of the year, the retailer would have to pay 400 million rubles. only interest on loans, the expert adds. In his opinion, Lenta can pay Kesko for K-ruok about 11 billion rubles. Natalya Kolupaeva from Raiffeisenbank estimates the potential deal at 8-10 billion rubles, assuming that it will be non-cash in nature, that is, the buyer will assume the debts of K-Ruok.
Lenta will not retain the Finnish retailer’s brand, but will integrate the acquired properties into its network, Ms. Kolupaeva believes. As of September 30 Russian company managed 197 stores, of which 155 were hypermarkets with total area 963.4 thousand sq. m. Lenta's revenue in January-September increased by 21.3%, to 215.5 billion rubles. “Lenta retains its ambitions as a leader in the hypermarket segment, the organic development of which requires a lot of time; the implementation of a project for the construction and launch of a hypermarket can take 18-24 months,” explains Natalya Kolupaeva. In her opinion, Kesko is selling K-ruok on time: the market of St. Petersburg and the Leningrad region is close to saturation, while the format in which it relied on imported goods, suffered greatly after the introduction of food sanctions. Mr. Burmistrov adds that the deal with Lenta will allow Kesko to exit the Russian business with least losses. He estimates the total investment in this project at 8.5 billion rubles.
This year, Kesko has already sold the Russian business of sports retailer Intersport (26 own and franchise stores). The Johaston company, which operates the network, was bought by a group of private investors whose names have not been disclosed. According to Mikhail Burmistrov, the transaction amount could be 150-200 million rubles. If grocery stores are also sold, Kesko in Russia will only have the DIY chain K-rauta, which operates 13 DIY construction hypermarkets in Moscow, Kaluga, St. Petersburg, Tula and Yaroslavl.
Anastasia Dulenkova
Before closing, the chain announced a sale of alcohol with 50% discounts
By Thursday evening there was no longer any alcohol on the shelves; lemonade had to be put out instead
The Federal Antimonopoly Service has allowed Lenta to buy the business of the Finnish hypermarket chain K-ruoka, the agency reported. The deal will be closed on November 30, a Lenta representative added. The chain will get 10 hypermarkets and one K-ruoka supermarket in St. Petersburg and the Leningrad region and three land plots. Transaction amount: 11 billion rubles.
Lenta reached an agreement with the Finns
K-ruoka hypermarkets are open until November 30, and on December 7 they will open under the Lenta sign, say two employees of one of the chain’s hypermarkets. On Wednesday, November 23, K-ruoka announced the sale of alcoholic beverages with a 50% discount. A person who visited one of the chain’s hypermarkets in the Leningrad region that day said that there was an incredible excitement going on there. Visitors literally swept goods off the shelves. The same thing happened on Thursday in one of the stores in St. Petersburg, which was visited by a Vedomosti correspondent. Many shelves were half empty, and long lines at the cash registers stretched across the entire hall. By evening, in one of the hypermarkets, instead of alcohol, there was lemonade on the shelves. In the last two days of work - November 29 and 30, discounts will be announced on perishable and other products, said a hypermarket employee. A K-Rook representative declined to comment.
Finnish Kesko reduces presence in Russia
To transfer K-ruoka alcohol to Lenta, you need a license for wholesale trade alcohol, follows from the responses of lawyers from Kachkin and Partners and the A2 law office. But the network does not have one, according to data from the Federal Alcohol Regulatory Agency. Perhaps the owner of the brand, Kesko Food Rus LLC, did not have time to obtain a new license. The companies announced the negotiations on October 21. The general period for issuing a new license is 30 days, but it can be extended for another 30 days, says Artem Berlin, a lawyer in the corporate and arbitration practice of Kachkin and Partners. K-ruoka has been systematically reducing purchases from suppliers since the announcement of the deal, so its inventories are small, one of the suppliers said.
Discounts of 50% on alcohol mean that the retailer is selling it at a loss, says a top manager of a federal retail chain. According to him, the markup for elite alcohol can be 30–35%, maximum 40%, but this is in very rare cases. The discount is very serious, agrees Vadim Drobiz, general director of the Center for Research of Federal and Regional Alcohol Markets. But in some cases, its size may be less due to the minimum retail prices for alcohol set by the state.
17 chains account for more than 90% of food retail
Lenta has no obligation to purchase inventory and this standard practice upon change of owner shopping facility in the FMCG sector, says General Director of Infoline Analytics Mikhail Burmistrov. Lenta has a completely different product matrix, so the retailer will fill hypermarkets in a new way, says one of its suppliers. The goods will not be transferred to Lenta from K-ruok; new supply agreements have been concluded with Lenta to the addresses of the Finnish chain stores, confirms the commercial director of the Piskarevsky dairy plant, Georgy Zhitmarev.