Russian retailer O'Key expects revenue surge from discount stores

MOSCOW (Reuters) - Russian retailer O'Key Group said on Tuesday it expects its chain of discount stores will soon account for half of its overall revenues as shoppers increasingly seek cheaper goods amid economic contraction and high inflation.

Inflation surged in Russia last year and real wages fell as the economy suffered from the fallout of what the Kremlin calls its "special military operation" in Ukraine and heavy Western sanctions.

Under that economic pressure, Russians have been switching to discount stores, with leading retailers X5 Group and Magnit expecting to open hundreds more of their own low-cost shops in 2023.

O'Key, whose YES! discount stores currently account for a 26.6% share of group revenues, also noted the trend's growing importance.

"The company expects YES! discounters to remain one of the major revenue and profit drivers in the medium term, with their share in the group's revenue to reach 50%," O'Key said, without providing a more specific time frame.

In the fourth quarter, O'Key's net retail revenue from its YES! discounters rose 37% year-on-year to 14.4 billion roubles ($204.26 million), the company said as it presented results.

At its hypermarkets, net retail revenue declined by 5.3% in the quarter to 41.2 billion roubles, which the company put down to weaker consumer demand amid growing geopolitical and macroeconomic tensions.

Net retail revenue for last year as a whole rose 8.1% to 200.2 billion roubles, driven by strong results from its discounter, new store openings and increased online sales, which totalled 6.2 billion roubles, a 32.6% rise.

($1 = 70.5000 roubles)

(Reporting by Olga Popova; Writing by Alexander Marrow; Editing by Andrew Heavens)