Epicentr is the absolute leader of the Ukrainian DIY retail market, one of the largest players in the retail market as a whole, as well as one of the largest agricultural holdings in the country.
At the beginning of 2021 the group operates 75 construction materials super- and hypermarkets (64 under the Epicentr-K brand, 11 under the Novaya Liniya brand) with a total sales area of more than 1.5 million m2 and total sales revenue in 2019 at the level of UAH 58 billion (including income of the New Line, but excluding income from grain exports through Epicentr-K).
The owners of the company - Alexander and Galina Gerega - began trading in construction materials a long time ago - back in 1996, when their first store was opened. The first large DIY supermarket was opened in 2003 and had a total area of 17 thousand m2. After that, a rapid expansion of the company began: in 2006 the chain already consisted of 6 hypermarkets, in 2007 - 14, 2008 - 22:
* - including Novaya Liniya
Together with Novaya Liniya (whose shareholders at that time included such companies as Dragon Capital and East Capital), Epicentr became one of the leaders in the DIY market of Ukraine.
At the same time, the market itself was developing at a very good pace (and indeed 2006-2007 were the years of a construction boom in Ukraine). Both companies were, in fact, its pioneers, so initially the competition was between them - Epicentr competed with Novaya Liniya mainly for the best hypermarket locations. European retailers - Praktiker and OBI - also entered the Ukrainian market, but for a number of reasons (probably corruption in Ukraine was an important factor), they were much less aggressive in their development.
With so little competition and good demand for its products, Epicentr was doing well: in 2008, its network already consisted of 22 hypermarkets, while Novaya Liniya numbered 13. Business was quite profitable - gross profit margin at the level of 30% vs. less than 20% in food retail where competition was much more severe. Also it was important that such an aggressive development did not lead to a significant increase in the company's debt burden.
In addition to this, Epicentr successfully negotiated with its suppliers - not just about a significant delay in payment (by 120-180 days, which significantly exceeds the delay in other segments of Ukrainian retail), but even about “payment after the sale of goods”, which allowed the company to have a wide range of products in its super- and hypermarkets.
All these factors allowed the company to continue active development. Decisions in Epicentr have been made quite quickly, since the owners themselves managed the company, while the main shareholders of Novaya Liniya were investment funds. Also the company effectively worked with local authorities regarding obtaining all construction permits (Galina Gerega herself in 2012-2014 years was the secretary of the Kyiv city council). At the same time, due to economies of scale, the company's position in negotiations with suppliers even improved.
Another characteristic feature of Epicentr was amazing speed of construction of new stores (on average, this period was less than 120 days (and in some cases less than 90 days)).
Epicentr became a dominant player in the market and began to compete with other players already on their territory, opening stores (with a wider assortment / lower prices) relatively close to competitors' hypermarkets. Competitors did not have so many options - to close their hypermarkets or sell them to Epicentr. Novaya Liniya chose the second option in 2013, while Praktiker and OBI decided to leave the Ukrainian market. The only foreign chain which remained in the DIY segment in Ukraine was Leroy Merlin.
2014 and 2015 turned out to be quite difficult for Epicentr. First, the company lost five stores in the territory of Donbass uncontrolled by Ukraine (some stores were completely destroyed), four more stores remained in Crimea. Secondly, the devaluation of the hryvnia led to a significant revaluation of the company's loan portfolio (debt portfolio of Epicentr was nominated in dollars). On positive side was the fact that debt burden of Epicentr in general was not very large, given the scale of the group's business, while good market positions allowed Epicentr to change its pricing strategy without looking at competitors.
In its further development, Epicentr changed its focus, starting to open relatively small stores in cities with a population of less than 200 thousand people (previously, the focus was mainly on large cities). Thus, over the past four years, the company has opened 17 stores, increasing its trade area by 300 thousand square meters. Also Epicentr started to open concept stores inside shopping centers (shop-in-shop departments, for example, multi-brand sportswear stores Intersport, galleries of household goods and decor named Deco, E.Pic children's goods stores). At the same time, some of these stores were opened not in Epicentr hypermarkets, but on rented premises (eight Intersport stores, three Deco galleries and one E.Pic store).
Also in Y2020 Epicentr began rebranding Novaya Liniya stores (after the change of ownership in 2013, the stores continued to operate under the old brand). So far, only three stores have been rebranded, but the company plans to unite all stores under a single brand. Among the priorities of the group is the construction of warehouses - in the next two years Epicentr is going to build two warehouses with a total area of 100,000 sq. m. As for plans for the further development of its retail network, Epicentr is now focused on opening small markets with an area of 4000-6000 sq. m in smaller towns, and also the company is considering development of its own pharmacy network and grocery retail.
With the chain's current operating cash flow of over $200M per year and low leverage, the group certainly has room for new experimentations.
Finally, let’s focus on the development of an agricultural holding, which has grown into one of the largest in the country over the past five years.
Epicentr began its activities in the agricultural market of Ukraine in 2015 and at the beginning has been quite aggressive in its growth. The first notable event was the acquisition of the Vinnitsa Agrarian-Industrial Group (with a land bank of about 40 thousand hectares) in Y2016. The following year, Epicentr acquired agricultural assets of the international trader Glencore, as well as Obolon-Agro, increasing the land bank to 110 thousand hectares:
Finally, having bought out part of the assets of the Svarog group in 2020, by the end of 2020 Epicentr concentrated under its management 160 thousand hectares of land, 14 elevators with a total storage capacity of 1.5 million tons and a seed plant.
The company's land bank is located in regions that are relatively favorable in terms of weather conditions - Vinnitsa, Khmelnytsky, Cherkasy, Ternopil and Kyiv regions, in 2018 and 2019 the yield of the main grains and oilseeds was much higher than the average for Ukraine (about 10.5 t / ha for corn and 6.4t / ha for wheat). In 2020 the yield of Epicentr-Agro crops decreased (in line with the country as a whole), amounting to about 5.5 t / ha for wheat, 7-8 t / ha for corn (5.4 t / ha in Ukraine), while the corn yield in Western cluster (Ternopil and Khmelnytsky regions) was 9-10t / ha. According to our estimates, even with a decrease in yield, the profitability of Epicentr-Agro in the current season remains very good.
The main companies of the group are the following legal entities. Epicentr-K is the main operating company of the group (operator of hypermarkets under the Epicentr brand), as well as the owner of a part of retail facilities. The group also includes the Epicentr-N company, which is also one of the main asset holders. The Novaya Liniya chain is operated by a company with the same name (which also owns part of the chain's stores). The agricultural sector is represented by the main companies Agoroholding-2012, VAGP, Interagroinvest, Khmelnitsk-Agro, as well as smaller agricultural companies.
Below we present key financials of Epicentr-K, the main operating company of the group:
Net Sales (VAT excl)
EBITDA margin, %
Inventory Period, days
Payables Period, days
Comments to key financials:
* - including Novaya Liniya stores and excluding grain exports through Epicentr-K
So, as of Y2021 beginning, financial standing of Epicentr group is good, current investments payback (for example expansion of silo capacities at Epicentr-Agro or interest to food retail where competition is much more severe vs. DIY) is quite questionable, but the company certainly has quite a good margin of safety to withstand some issues on this side.