Sergei Galitsky: the retailer rescuing Russian football

published 15 June 2018

Sergei Galitsky built Russia's largest private company before selling it to a state-owned bank earlier this year. Was he pushed out by the Kremlin, or did football fever drive him to it? Jane Lewis reports.

Back in the days when he ran Russia's largest private company, retail magnate Sergei Galitsky was that rare thing, says Bloomberg, "a hero entrepreneur a tough, smart, self-made businessman who didn't build his fortune on post-Soviet privatisation or shadowy ties with officials". Yet, in February, Galitsky, 50, walked away from his $8bn supermarket chain, Magnit, when it was sold somewhat controversially to the state-backed bank, VTB, at a knockdown price.

But on the eve of the Fifa World Cup, Galitsky remains a source of hope in Russia, whose "national team are widely regarded as the worst the country has fielded since the USSR collapsed", says the Financial Times. After pocketing $2.45bn from his Magnit stake, he is "devoting himself" to turning Krasnodar, the club he founded in 2008, "into a football powerhouse". Two years ago he opened a $300m new stadium in Krasnodar, an unglamorous commercial city close to the Black Sea. The club's state-of-the-art training ground "looks more like a Silicon Valley campus than a football training ground". Fabio Capello, the former England and Russia manager, has called the facilities "the best in the world".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Rising from the crisis

A tall, lean man, Galitsky is "a lifelong outsider" of Armenian heritage. He grew up near Sochi, as Sergei Arutyunyan, later swapping his Armenian surname for his wife's Russian one. After university he worked in a bank and traded cosmetics before opening his first Magnit store in Krasnodar "in the middle of the economic crisis in 1998", notes Brics Business magazine. From the outset, the company (motto: "Always low prices") grew fast by targeting cash-strapped customers outside Russia's major metropolises, says Reuters. Within a decade the chain's "red and white italicised logo" was a common sight across Russia and the group floated on the London Stock Exchange.

"Obviously we had problems all the time," Galitsky observed in 2011. After he refused to pay protection money in one city, "someone put a funeral wreath on the door of my flat". On another occasion, "someone fired a grenade at our office". But annual sales growth continued at 25%-30% and by 2013 Magnit had overtaken its struggling rival X5 to become Russia's largest food retailer by sales.

But trouble lay ahead. Billions were wiped off Magnit's market value following the Russian annexation of Crimea in 2014, when President Vladimir Putin banned most Western food imports. And sales continued to slow, says Bloomberg. By 2017, X5 (controlled by billionaire Mikhail Fridman) had overhauled the group as Russia's largest retailer. Investors began agitating. The next year, Galitsky decided he had enough and announced the sale of his 29% stake to VTB.

Bad for Russia, good for football

The decision "spoke volumes about Russia's business environment". Even though many private investors could afford the $2.45bn VTB paid, there was no one with the "chutzpah and the special skillset it takes to run an efficient discount grocery business in the most opaque, corrupt, economically hopeless corners of Russia". Some whispered that the Kremlin had forced Galitsky out, says the FT. As one businessman observed: "There's nowhere closer to voters than low-cost supermarkets in the provinces." But those who know him believe he'd become "so consumed by football that he lost interest in Magnit". Either way, grocery's loss may be football's gain.

Jane writes profiles for MoneyWeek and is city editor of The Week. A former British Society of Magazine Editors editor of the year, she cut her teeth in journalism editing The Daily Telegraph’s Letters page and writing gossip for the London Evening Standard – while contributing to a kaleidoscopic range of business magazines including Personnel Today, Edge, Microscope, Computing, PC Business World, and Business & Finance.

She has edited corporate publications for accountants BDO, business psychologists YSC Consulting, and the law firm Stephenson Harwood – also enjoying a stint as a researcher for the due diligence department of a global risk advisory firm.

Her sole book to date, Stay or Go? (2016), rehearsed the arguments on both sides of the EU referendum.

She lives in north London, has a degree in modern history from Trinity College, Oxford, and is currently learning to play the drums.