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bne November 2020 Cover story I 33
work. The corporate chain of command doesn't work well here, where an
idea is discussed, approved and implemented. We need to do 20-50 small things and [see] what works
and what not,” Salakhutdinov said.
But the IT goes way beyond just getting packs of pasta or blocks of cheese to the store on time. In the past food
retail was an operational challenge of sourcing and delivering a product to a store where a customer could come and buy it. As organised retail that offered
a wide selection of goods was a new thing to post-Communist Russia, getting the punters to come was not hard.
But things have changed now, as when the customer arrives with his or her shopping list they have already made most of their purchasing decisions and the store doesn't really “sell” anything, but simply acts as a fulfilment centre.
its new strategy, is not traditional retailing. It is a new way of thinking about customers and Salakhutdinov claims the Russian companies already have had some ideas and made some innovations that Western European companies can learn from.
Targets
At the moment X5’s on- and offline businesses are separate businesses, albeit the biggest in their respective niches. Over the next few years these two channels will be integrated into a complete “ecosystem,” which is rapidly becoming a buzzword in the industry.
Despite being the dominant player in the market Salakhutdinov says there is still
a lot of growing room left. “The market is still not consolidated. We are the market leader but we still only have 12% market share and the top five players’ share is less than 25%. If you compared that to
X5’s main online services
Perekrestok Vprok: an online supermarket with its own “dark stores” in the city centres of Moscow, St Petersburg and Nizhny Novgorod for now; essentially warehouses where shoppers
can pick up orders or have them delivered by truck.
Express Delivery: a unique
service launched in January that is
a hyperlocal delivery aggregator.
It makes express deliveries from Pyaterochka stores and has seen orders skyrocket from 20 per day
in February to over 12,000 per day during the lockdown in May and now more than 20,000 per day in October. A delivery aggregator sends the order to the customer’s nearest store, where it is assembled and then delivered by a third-party courier.
Okolo: X5’s delivery aggregator that powers express delivery from Pyaterochka and Perekrestok.
In addition, X5 is starting to pilot deliveries from other businesses like local drugstores, restaurants and cafes as part of building
a food ecosystem.
“Retail focuses on the customer fulfilment. Now we are re-engineering all our frontline processes to turn them to the customer’s point of view”
The goal of the new strategy is to go back to the beginning of the process where those purchasing decisions are made and be present at all stages on that journey in some form.
“Our approach to the customer is changing. Retail focuses on the customer fulfilment. Now we are re-engineering
all our frontline processes to turn them
to the customer’s point of view,” says Salakhutdinov. “That means we are opening new channels to reach the customers and not organise this centrally. We used to have 15 channels that we could use to reach the customer, with TV being the most important one to provide information about food. Today there are a lot more, using social media and the like.”
And Salakhutdinov says they have already made a lot of progress. The “transformation,” as X5 dubbed
the leading international markets then the top five players often have more than 50% of the market and the leader will command between 20% and 25% market share. It means there is still a lot more growth available,” says Salakhutdinov.
The X5 group already own several retailers targeting different types of shopper. The Pyaterochka chain is a “proximity” retail of smaller shops that are close to home, whereas Perekrestok are bigger supermarket you have to drive to. Both these businesses are expected
to expand over the next three years, but the fastest growth will be with the online business, up from RUB145bn ($1.9bn) this year to RUB605bn by 2023, according to estimates from the market research company Infoline. At the same time the digitisation effort is expected to add RUB20bn ($250mn) to the company's EBITDA by 2023.
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