The pandemic has had an unprecedented impact on retail and delivery markets. In Russia, e-grocery was among the most impacted industries: the number of orders in this segment increased by 174% y-o-y in the first half of 2021, according to Data Insight. Fast delivery has become one of the main trends in the food sector and e-commerce in general: 35% of Russian stores already offer their customers same day delivery and 49% promise at least next day delivery.
The current trends in retail, logistics and delivery in Russia, as well as concrete industry cases, were discussed in late September during the Seamless Middle East 2021 summit in Dubai by Leonid Dovladbegyan and Danil Shelekhov. The former is the managing director of Vprok.ru, an online hypermarket of X5 Retail Group; the latter heads Yandex.Routing, a Yandex business unit that provides a SaaS solution for delivery management.
The moderator of the discussion was Shailen Shukla, Chief Logistics Officer at Mohamed Hareb AI Otaiba Group.
Shailen Shukla: What makes retail and delivery in Russia different?
Danil Shelekhov: One of the main market features is that we have very demanding consumers who have been spoiled by VC-funded startups with the best possible level of customer service. As a result, clients want their orders to be delivered in 15-40 minutes, or at least know the exact time of their same day or next day delivery.
On the other hand, we have bigger traditional players in the grocery sector going online. Their logistics units remain very conservative and slow. Digital transformation and adopting modern technologies for them may take a long time, since it means rethinking the role of logistics specialists. There is a lack of new kinds of professionals who know and value the economic potential of technology.
Finally, logistics in Russia is challenging due to the large territory. In metropolises such as Moscow, the main obstacle is high levels of traffic. It is successfully addressed with precise ETAs. When we talk about remote territories and smaller cities, long distance becomes the main challenge. It requires more warehouses and routing automation systems that are able to take truck limitations, complex work/rest schedules for drivers and other issues into consideration.
Leonid Dovladbegyan: The pandemic has had a significant impact on the e-grocery industry in Russia and on e-commerce in general. Many of those customers who started buying online during lockdowns are now used to all of the benefits of fast delivery: extensive product ranges, neatly arranged goods, and polite couriers and call center operators. And they are not ready to give up these benefits in the future.
Hyperlocal and express delivery that takes 15-40 minutes is on the rise in Russia. Higher customer expectations make speed one of the main competitive advantages in the market.
This trend made e-commerce players switch to more convenient warehouse formats such as mini dark stores. Their key benefit is faster order assembly, since there are no customers inside the facility. In addition, this format allows companies to ensure delivery within 10 to 15 minutes, which is crucial now.
Shailen Shukla: Leonid, what were your main business goals in the last two years and how did logistics affect them?
Leonid Dovladbegyan: One of the biggest goals for us from the very beginning was to expand rapidly. To achieve this, we had to implement pickup point delivery in most cities.
Our partner 5POST allows us to get orders to pickup points at a cashier desk at the nearest Pyaterochka [a grocery retailer with over 16,700 stores all over Russia, part of the X5 Retail Group – editor].
This model suits us perfectly as our primary operational model is based around dark stores. However, establishing them requires a lot of time and investment, so if we were to build a dark store in every city, we would never achieve our goal.
Shailen Shukla: What other delivery methods do you use at Vprok.ru Perekrestok and why?
Leonid Dovladbegyan: We deliver orders of up to 500 kg on the same or next day. Our range of goods now exceeds 70,000 SKUs, and an average offline store has around 16,000 SKUs. The size of assortment is directly proportional to the speed of delivery, so to accommodate our customers’ needs we do not use an express delivery service or hyperlocal model just yet.
However, we are already optimizing the speed of delivery. Yandex.Routing allows us to send our drivers to 4 or 5 more delivery points. If we counted for all our drivers, it would already be 2000 points per day.
Shailen Shukla: Danil, what kind of scenarios can Yandex.Routing support in terms of optimization? Which one is most in demand now?
Danil Shelekhov: We support all scenarios, however most of our clients choose same day or next day delivery over on-demand, since it allows them to stay profitable in a very low margin sector like e-grocery.
Our data shows that technology affects 80% of P&L in e-grocery. In unit economics, last mile delivery accounts for up to 20% of costs. If you optimize it, you can literally make your business profitable.
For on-demand delivery, we help to solve dispatching tasks and optimize routes for walking couriers. Market players are still testing the waters when it comes to on-demand: they are trying to attract new audiences, stand out against competition and test their new offerings.
Shailen Shukla: As you said, last mile delivery is very expensive. Retailers are turning to technology mainly to reduce their logistics costs. How do your clients usually set their KPIs and evaluate profits?
Danil Shelekhov: Our customers usually want to deliver to significantly more locations without an increase in mileage or number of vehicles. Some of them reach up to 40% growth in locations while keeping the same transportation capacity.
Their goals can vary. They include:
- Better customer service (smaller delivery windows, additional planning on the delivery day, etc.). 40% of customers in Russia say they will not buy from a brand with a bad delivery offer. That means the better the customer service is, the more orders you can get.
- Transparency and control. Companies want to see flaws and make data driven decisions.
- Flexibility, customization and potential for scalability. The market is changing rapidly and businesses need adaptable technology that can perform all possible logistics scenarios
- Smart resource utilization and sustainability (the smaller the mileage, the less the carbon footprint).
Shailen Shukla: What are the most challenging tasks you will be working on next year?
Danil Shelekhov: We get more interest from abroad now, so our main focus for the near future is global expansion. Although the main problems that retailers are trying to solve are more or less similar, there are certainly going to be specific challenges in every country and city. Seamless integration in every new region will be one of our priorities.
Leonid Dovladbegyan: Vprok.ru Perekrestok is now evolving into a fully-fledged IT company. Time-to-market indicators have become very important in e-commerce. Nowadays, it doesn’t matter what kind of innovation the company has invented. It only matters how quickly they brought the idea to the market to benefit their customers.
Therefore, our main challenge will be to continue with and complete this transformation while ensuring the best service to our clients. We are also interested in express and hyperlocal models, so we will be working to see how we can accommodate both same day and next day delivery with an extensive assortment, and speedy delivery (within an hour) with a smaller range of products.
Shailen Shukla: What trends are you currently seeing in the market when it comes to logistics and delivery?
Danil Shelekhov: One of the main trends is insourcing deliveries, or hybrids. More and more companies are choosing to have their own fleet and courier capacity. In the US, competitors can even combine their resources to launch in-house delivery locally.
Another trend is creating urban warehouses. Different kinds of intermediaries between big warehouses and consumers will be developing, such as pickup points and postamats. City trade centers and new living districts can be redesigned to serve the demand of consumers for fast delivery.
We also see rising interest in our technologies from public transport companies, and new ideas of how public transport and parcel delivery can merge might arise. It looks like there will be more public-private collaborations in the future.
Professional logistics services, as well as the role of the driver, will be redesigned. Traditional courier service providers are not able to meet demand and deliver the required level of service for retail and e-commerce. This means new startups can be established in this field. Drivers will perform the role of customer managers.
Last but not least, new and improved algorithms for smart planning will appear.
Leonid Dovladbegyan: As I already mentioned, one of the main trends in e-commerce is hyperlocal delivery. Customers demand fast delivery, meaning market players will have to accommodate those needs sooner or later. Therefore, mini dark stores will become very popular.
Another trend is hyper-personalization. Large companies are now trying to merge all their services into one app (a super-app) to create an ecosystem where customers can receive all the assistance they need. Nowadays, it is not enough to launch an app. It is essential to speak the same language as your customers. The app should foresee every individual client’s needs and offer services and products at the most convenient time.
Vprok.ru, launched in 2017 by X5 Group is now an independent entity that provides same day and next day delivery straight to the customer’s door. Vprok.ru delivers food, household cleaning products and other everyday goods. The company’s business model is based around dark stores that also operate as warehouses. Vprok.ru currently has five dark stores in Russia: three in Moscow, one in Saint Petersburg and one in Nizhny Novgorod. All together, the company serves customers in more than 63 regions in Russia through pickup points.
Yandex.Routing is a SaaS solution for delivery management that provides smart routing for e-grocery and other logistics-based players. The platform helps businesses to navigate hundreds of thousands of deliveries every day. Its automated route planning system allows delivery costs to be reduced by 20-30% and guarantees 95-99% accuracy of arrival times.
