The Magnit retail chain is testing a new model for working with farms - an aggregator for the purchase and supply of farm products with a wide range of additional services for small farms. Through the aggregator, farmers will be able to supply their products not only to Magnit stores, but also to other retail chains, as well as to HoReCa enterprises and manufacturing companies. The pilot project "Magnit" is being implemented jointly with the Government of the Tula Region since November 2022.
The target model of the aggregator implies not only the presence of a physical infrastructure for the centralized supply of farm products, but also the provision of specialized services. Products from farmers arrive at the regional hub, where they are processed (washed, packed, packaged, etc.), then they are sent either to the nearest distribution center or directly to stores.
The fundamental difference between the target model of the Magnit aggregator and solutions widely represented on the market today, including wholesale distribution centers, is support for farmers throughout the chain “from field to shelf”. In addition to centralizing procurement and supply, the aggregator piloted by Magnit advises farmers on production and marketing issues, support programs and subsidies, provides analytical data, co-finances the purchase of raw materials (seeds, fertilizers, feed) and equipment, trains farm employees, provides support in product labeling, etc.
Today, 36 farmers are already working on the basis of the first aggregator, which Magnit launched in the Tula region. Their products are consolidated and processed at a specialized site, after which they are sent to the chain stores. The range of supplied products includes milk and dairy products, meat gastronomy, fresh fish and vegetables. As part of the pilot, Magnit concludes simplified contracts with farmers. In addition, the company has established separate product acceptance processes at the distribution center and at retail outlets. Logistics of farm products is carried out by the company's transport, and special shelves are allocated for them in the stores of the region.
Together with Tula farmers, Magnit works out business processes at the stages of transportation, processing, storage and marketing of goods, develops standards for farm products. The retailer is testing IT solutions for order planning, transport management, etc. At the same time, Magnit is working to centralize the purchase of raw materials and equipment for aggregator participants, organize product sales outside the company’s perimeter, create capacities for product processing, introduce advanced management practices and new technologies.
Based on the results of the project implementation, small manufacturers, who until now have not been able to produce products of the target quality, will be able to supply their goods to Magnit shelves, other chains and HoReCa. In the near future, Magnit will sum up the results of the pilot, and then make a decision on scaling up the project.
Alexey Stepin, Minister of Agriculture of the Tula Region:
“The potential of the Russian market of farm products is huge. But farmers face many difficulties related to access to marketing channels, high cost of raw materials and equipment, shortage of working capital in the off-season, lack of qualified personnel, crop losses due to lack of storage capacity. The solution to these problems is offered by Magnit, based on its extensive experience in working with small businesses. Unlike the traditional model, the aggregator, which we are testing together in the Tula region, will provide small farms not only with a distribution channel, but also with a full range of related services - from assistance in selecting equipment, developing a range, product certification to financing the purchase of raw materials, means of production and etc.".
Egor Shumilin, commercial director for the range of fresh products of the Magnit retail chain:
“Our market research shows a high interest in farm products: 90% of the consumers surveyed are ready to buy them. At the same time, the vast majority of buyers note that they are ready to purchase farm products more often, if it costs less, is guaranteed to be of high quality and safe. It is these tasks that our new project will solve, the concept of which we are testing in the Tula region. It is aimed at really small farms that need comprehensive support. As a result of the pilot, we plan to develop an optimal aggregator service model that will significantly simplify the process of getting into retail for farmers, and will also help make their business more efficient and sustainable.”
Sergey Mitin, First Deputy Chairman of the Federation Council Committee on Agri-Food Policy and Environmental Management:
“There is no such concept as “farmer” or “manufacturer of farm products” in the legislation. Today, a farmer can be both a producer who single-handedly grew something on his own land with his own hands, and a dealer who brought vegetables from neighboring countries. This is detrimental to the development of farming and does not allow the full use of support measures for those who need them. This is also important for the pilot project of the aggregator, which was launched by Magnit. Buyers are sure that farm products are made from natural raw materials, they are the most delicious, healthy, and environmentally friendly. However, there are no clear criteria for “farm products”; manufacturers use this by using “farm” names, which misleads citizens. In this regard, I believe that determining who a “farmer” is and what are the criteria for “farm products” is a top-priority, most urgent task that the state needs to solve in the near future. Such work is now being carried out at the site of the Committee of the Federation Council on Agrarian and Industrial Policy and Environmental Management.”
Magnit actively develops relationships with farms and local suppliers. In 2014, the retailer created the format of farm shops on the premises of its stores. Today, special areas with farm products are presented in most supermarkets and hypermarkets of the company. Since 2016, Magnit has been working with domestic agricultural producers under the agro-contracting system, concluding long-term contracts with guaranteed supply volumes. The share of farm products in such supplies is 45%. In 2021, the company developed a simplified supply agreement for small agricultural producers. Dozens of Magnit's partners throughout Russia have already used it.
Currently, Magnit cooperates with more than 420 farms and small agricultural producers. In 2022, the turnover of farm products in the retail network increased by 35% and amounted to 23,5 billion rubles.
In Magnit, farm products are presented mainly in the categories of fresh products, as well as fruits and vegetables. Small farms supply the network with milk, cheeses and other dairy products, meat and poultry, meat delicacies and fish gastronomy, borscht vegetables, apples, and berries. The total number of farm products in the chain’s assortment at the end of 2022 was about 1 SKUs (+900% compared to 54).