'Now there are more and more 'digital housewives' who feed the family by buying online'

E-commerce market players discussed the great digital migration

The e-commerce industry in Russia has grown by 40% over the year, and it may grow by another third in 2021. For the first time, digitalisation has strongly penetrated into the “conservative” segment of food and essential goods trade: for housewives, express delivery has become an analogue of going to a supermarket, the average online ticket eventually fell. “Hard discounters” also began to switch to online. This was announced at the AERO online conference dedicated to the results and forecasts of trading on marketplaces with the participation of key Russian and global players. Most of them believe that the role model is not American companies, but Chinese and Asian marketplaces in general. Moreover, Asian online platforms were the first to quickly help SMEs to go digital in the pandemic, even farmers and fishermen.

E-commerce industry in Russia has grown by 40% over the year, and it may grow by another third in 2021

The online industry conference dedicated to online trading AliExpress Russia Overview (AERO) has recently been held. In the lead-in to the business event, its organiser, AliExpress, noted that if anyone should be grateful in every possible way for 2020, it is the Russian e-commerce:

“The industry has grown by 40% in monetary terms in 12 months and is not going to stop — they say that it will grow by another 30% in 2021.

In addition to AliExpress itself, the conference was attended by the main players of Russian e-commerce market: representatives of Ozon, X5 Retail Group, Lamoda, Sbermegamarket, Magnit, Russian Post, J.P. Morgan, VTB Capital, Sova Capital, and Renaissance Capital. They discussed the current trends in online trading and the further transformation of this market, caused, among other things, by the coronavirus epidemic with lockdowns around the world, which hit offline retail.

For the first time, digitalisation has penetrated so much into food segment

Dmitry Sergeev, CEO of AliExpress Russia, recalled how a year ago it seemed to almost everyone that the pandemic was about to end. It was hard to imagine that it would continue in 2021.

“There was a feeling that the restriction regime would end and the customers [who were forced to try online retail] would return to offline, but buyers and sellers on marketplaces and goods there continue to become more and more, the growth of the industry continues," he noted.

At the same time, as it turned out, the rest of the civilised world, including the West, was in the catching-up role… China, where the penetration of digital channels into retail has reached a share of 50% by 2021.

Maksim Akimov, the director general of Russian Post JSC, one of the key logistics players in Russia, believes that these trends can no longer be reversed. The penetration of digitalisation into retail has become particularly striking in the food segment. According to the director general of Sbermegamarket, Solomon Kunin, players here previously could be counted on the fingers. But in 2021, the product segment, which includes everyday goods (or essential goods), showed an “explosive growth”.

“This 'new pie' has not yet been divided. We see rather the dominance of traditional players. And this is a significant turn. E-commerce has really come to this product segment," Kunin concluded.

“For housewives, express food delivery has become an analogue of going to a supermarket”

And it came not only to the capitals and cities with millions of people, but also to the regions: for millions of Russians, online has become one of the main channels for buying goods. In the capitals, the demand of customers has increased — “delivery in two days” is no longer interesting to anyone, says Alexander Shulgin, CEO of Ozon. However, according to Vladimir Salakhutdinov, the director for strategy and development at X5 Retail Group, these trends had already formed shortly before the pandemic, which only “accelerated them”.

“During the pandemic, many of our customers were forced to use delivery services. Eighty percent of these customers remained after the restrictions were lifted. They realised that it is convenient. We see an increase in demand for online purchases and express delivery — almost every buyer wants to try to make such purchase at least once," Salakhutdinov shared his company's experience with other speakers, and in fact, competitors, too.

Andrey Lukashevich, the director of e-commerce of Magnit retail chain (the main competitor of Pyaterochka in the regions in the format of “neighbourhood stores”) agrees with him. Many Magnit customers wanted to “try” or “pamper themselves” during the pandemic, which led to a natural decrease in the average purchase ticket:

“The buyer is changing. Now there are more and more 'digital housewives' who feed the family by buying online. Consumption is being rationalised. For housewives, express food delivery has become an analogue of going to a supermarket or to a neighbourhood store. Moreover, we see an overall increase in revenue per customer both in the ready-made food segment and in the food segment — both of them are growing.”

Demand for express delivery has grown, and “hard discounters” have also begun to switch to online

Maksim Akimov, the head of the Russian Post, agreed with his colleagues: the share of not just online buyers is growing, but online buyers who require delivery of goods on the same day or at least the next one. As a result, players who are not able to carry out high-speed delivery are gradually leaving the market. Dmitry Sergeev from AliExpress Russia drew attention to the vast territory of Russia, in a number of regions of which it was in the last year that expectations for the speed of delivery began to grow: maybe not like in Moscow — “in two hours”, but still demanding. For comparison, in Brazil, where the territory is also rather big, the delivery of goods in a week is considered normal today. For Russian cities with millions of people, at least, this delivery time is already considered “bad”.

Vladimir Salakhutdinov, the representative of X5 Retail Group, shared his surprise at the online conference: “hard discounters”, who previously related to online quite indirectly, entered the e-commerce market. He said that this is why in the previous autumn the owners of Pyaterochka announced the launch of “hard discounters” under the brand Chizhik, with which they have high expectations. Salakhutdinov also notes that people with higher incomes “than those of the democratic segment” have also become sensitive to the price in the post-pandemic period.

“Client's path begins long before offline in the 'digital field”

Certainly, the pandemic and the explosive growth of online commerce have affected not only the segment of essential goods. According to Jerry Kalmis, CEO of Lamoda (part of Global Fashion Group), one of the largest online stores in Russia that sell branded shoes and clothing, an interesting feature was the changes in demand for the range. The demand for formal office suits fell sharply when people began to work from home for months. Even in the post-pandemic period, the demand for comfortable clothing “oversize” (the term used in the fashion world to refer to loose-fitting clothing) continues to grow. However, this trend has not yet reached Russia. Just as the trend for video bloggers and the interest of manufacturers in the quality of content for advertising in online stores.

In response, Salakhutdinov noted that if the customer used to go to a store, choose a product, buy and leave, then more and more customers today prefer to first go to an online resource, choose a product in advance and only then buy and pick it up.

“Sixty percent of our customers know exactly what they want to buy. To then come to the store, pay and take the goods. The client's path begins long before offline in the ''digital field'. Why did we launch our project? If we don't do this now, we will soon be unable to work with the client! There has been a fundamental shift!” the representative of Pyaterochka network came to the conclusion.”

At the same time, more and more customers of all retail, but especially stores of neighbourhood format, plan their budgets in advance and pay attention to the speed of delivery of goods. This forces both Magnit and Pyaterochka to review the processes of quality control and online procurement for the better and more operational side. Retailers have come to the conclusion that it is necessary to develop the logistics infrastructure not only in large cities, but also in regions where they have also “tried out” express delivery and the quality of online service.

“The delivery service has become higher," said Vladimir Salakhutdinov, the director for strategy and development. “If a high level of service quality is achieved, then the barrier of customer distrust is removed. For retail, it was important to learn how to deliver a product that is 90% comparable in quality to the product ordered online. We at X5 Retail Group have reached a 97% level.”

“The level of consumer confidence in online financial instruments has also increased," agrees Alexander Shulgin, the head of Ozon. “People have become ready to pay with bank cards on the Internet, ordering products that will come to customers not immediately, but after a while. Trust in e-commerce has grown dramatically, and over 1,5 years, for example, Ozon has actually been working 'at full capacity'. What is missing is a high penetration of financial services into online trading, especially lending, but Sberbank has promised to actively develop this segment.”

“We were surprised by the willingness of businesses to enter marketplaces, including small businesses!”

It should be noted that the frequency of the publication of materials dedicated to it on the site of Realnoe Vremya newspaper is also associated with the growing demand for online trading. Just the other day we wrote about how the authorities of the Republic of Tatarstan were planning to increase the number of potential buyers from Tatarstan companies with the help of marketplaces to 2 billion people in 2-3 years with the help of e-commerce. The SMEs of Tatarstan, we quoted the Business Ombudsman and the Ministry of Economy of the Republic of Tatarstan, actively switched online precisely because of the pandemic and the restrictions associated with it. This is also confirmed by AliExpress Russia:

“We were surprised by the willingness of businesses to enter marketplaces, including small businesses!” the head of the company, Dmitry Sergeev, admitted. “But before, many representatives of SMEs were not ready to work in this environment. But now they are actively studying! They are working on improving literacy and competencies. For many sellers and buyers, the digital channel has become not the same as it was before, an additional one, but the main one!”

Role model for Russian players is not the US, but China

The Russian Post, one of the most active logistics providers in the country, also agrees: the activity of using digital channels to promote their products by Russian businesses increased by 25%. The company also notes a high degree of adaptability of the Russian market, including the flow of demand for online trading even for families with limited income in the regions.

Industry players told about another feature of the average Russian buyer: if the average American is very loyal to familiar brands (some flakes of a certain brand are bought in families for generations), then this is a novelty for Russia. The consumer, market participants say , is “not spoiled” yet by online trading, they are interested in different things, they are “unpredictable”. American Jerry Kalmis, in turn, says that the conditions for the Russian consumer are better than for Americans: there is very high competition in our e-commerce market today, there may be one company in some segments in the United States, four or five in Russia.

The main role model for many Russian players, however, is not the United States, but Asia, and personally China. If the share of digital retail penetration in the Chinese market has reached 50%, then in Russia it does not exceed 10% yet, there is room for growth. Today, many Chinese bloggers “generate” more than online sales platforms in the Russian Federation. In order to achieve a high level of express delivery, we will also have to build the entire logistics machine for this, the Ozon company admits, but it has already been built in Asia. But, for example, Sber, admiring the Asian “online leap” in recent years and previously copying the experience of their companies, today seeks not to copy the cases entirely — “we have a different geographical landscape” — but to copy their individual elements.

Asians were the first to quickly help SMEs to go online during the pandemic

By the way, representatives of these Chinese players also spoke at the online conference. In particular, John Michael Evans, the president and director of Alibaba Group (who previously worked at the well-known American investment bank Goldman Sachs), called Russia “a market with a huge consumer base”. However, he noted that the enthusiasm about the explosive growth of online commerce in the Russian Federation should be tempered — the share of online sales is still small in Russia, yes, it is growing, but this is the usual effect of a “low base”. At the same time, this is what can give Alibaba and other marketplaces huge opportunities.

It is interesting that the Chinese agglomerate, comparable in scale only to American Amazon, says a lot about supporting small and medium-sized businesses — as, we note, the authorities of Tatarstan: they reduce commissions for entrepreneurs, do everything so that small businesses can work, including for export. In this light, the speech of Chun Li, the head of Lazada, the multinational technology company specializing in e-commerce from Singapore, was also interesting. The company itself, without waiting for the requests of the authorities of the countries of Southeast Asia, where it is actively working and where it felt the “great online migration” during the pandemic, helped to open online platforms on its marketplaces to local manufacturers and sellers.

Both in Singapore, where local retail massively began to go online in the pandemic, and in Thailand, where the company helped the tenants of the closed largest shopping centre to open online stores. Players in Indonesia, Vietnam and the Philippines have adapted no less quickly. Lazada was the first to offer microloans to support the turnover of SMEs, low rates, flexible payment terms. As a result, even conservative sellers — farmers and fishermen — began to switch to online en masse.

Sergey Afanasyev