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bne November 2020 Cover story I 29
all business with room at the top for less than a handful of multi-category players.
It costs a lot to set up an online business thanks to the costs of logistics, among other things. The only way to become profitable is to achieve a scale that allows the company to drive down these costs as a share of their turnover so that they can make a profit. This turning point is where the Russian market is now.
“We think that large multi-category players like Ozon that have diversified production offerings and robust infrastructure are better positioned to benefit from the market structural growth and eventually gain market share from smaller mono-category players with sub-optimal logistics capacity,” says Mustiatsa. “And the market is ripe for consolidation.” Analysts are very focused on Ozon at the moment, which at the start of October announced plans to
IPO in New York. Sova Capital’s analysts believe the IPO could happen at the end of this year or the start of next year.
Ozon CEO Alexander Shulgin laid out the company plans to bne IntelliNews in an exclusive interview in September 2019 that predicted fast growth, and Mustiatsa also said she expects triple-digit growth for Ozon for the next couple of years.
“The volume growth this year will be up to 135% year on year to RUB190bn and it has potential to grow faster than the market this year,” said Mustiatsa.
Common middle ground
The acceleration of Russia’s online businesses has already challenged the traditional retail outlets, but many
of them have embraced the new technology too and are becoming agnostic as to which channel they use
to make a sale. It is telling that M.Video, Russia’s biggest purveyor of consumer electronics, already counts as the third- biggest e-commerce business in Russia,
as its online sales have grown so fast in recent years. To bring the point home, M.Video became the fastest growing listed retailer in Russia in the third quarter of this year, posting a 25% y/y growth to RUB110bn ($1.4bn), while
its sister company Eldorado reported 28%
growth in the same period, compared to Russia's total retail turnover, which has contracted by 4.7% over the same period.
Traditional retail that doesn't make the change is in danger of getting left behind. The e-retailer Wildberries overtook the bricks and mortar franchise Sportsmaster as the biggest seller of clothes in
Russia last year. It was the first time an e-commerce store became the biggest outlet for any product group.
Wildberries has been a smash success and saw revenues up 80% in the first half of last year to just under $1bn, while Sportsmaster, which has been around since the '90s, has seen sales stagnate.
On the other side of the fence the traditional retailers are also developing online aspects like Market Places. Detski Mir, Russia’s leading purveyor of children’s goods, is a prime example. Detski Mir has set up a marketplace that provides goods and services that are related to childcare such as paediatricians, nannies, babysitters, cleaners and the like.
Russia’s premier supermarket chain Magnit is also experimenting with online variants. Of course the chain long ago introduced a loyalty card to gather more
information about the shopping habits of its clients, but now it is developing a “super App” that will integrate the whole range of shopping services from sending messages, to buying online and financial services.
“Magnit’s super App is still well behind those in China and Vietnam,” says Galimov. “China’s internet is more isolated from the rest of the world than Russia’s, where the ad space, for example, is much more competitive.
It is easier in China to put all the stuff you need into one space. It's still early days for a super App in Russia.” But this might change too.
And X5 Retail Group, Russia’s leading supermarket chain, introduced a new strategy in the last week of October (see interview on the next page) that they are calling a “transformation”, as it will use technology to put the company at the start of the punter’s journey to buying groceries, not leave it at the end where it is now.
All these services are still in its early stages of development, but the traditional retailers and tech giants are building towards a common middle and eventually they will meet.
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