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Frisco.pl reported a 37% increase in sales in 2018 to reach PLN96.5m (US$25.6m). This continues the double-digit growth rates it has been reporting since 2015. The pure online retailer is set to grow at above the rate for the channel, which we estimate to be around 15% between 2019 and 2023.

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Joint ventures and partnerships by some of Russia’s leading ecommerce retailers is evolving the channel’s service levels. Alibaba and Yandex are forming partnerships with various companies to develop their online shopping offer and improve their services. Such a move is encouraging competing ecommerce retailers in Russia, such as Ozone, to enhance theirs too.

Alibaba signs strategic partnership…

Alibaba signed a joint venture in Q3 2018 with Mail.ru Group, MegaFon and the Russian Direct Investment Fund to create a single platform for shopping, social communications and gaming. The partnership combines the expertise of ecommerce, technology, and telecommunications companies, and the support of state funds. The joint venture will be called AliExpress Russia, with Alibaba owning the largest share, at 48%.

…to benefit from mutual expertise

Alibaba and Mail.ru will benefit from their mutual expertise, with the former offering knowledge in operating an ecommerce business and the latter leveraging its 100m internet users across its social media, messaging, email and online games platforms.

Alibaba and Mail.ru will create Russian ecommerce ecosystem…

The partners in the joint venture aim to integrate the ecommerce business with Russian social media and communication platforms. They will utilise VKontakte (VK), Russia’s equivalent of Facebook, to develop a social shopping platform with the support of its own payment tool VK Pay. Mail.ru could use its instant messaging service, TamTam, with its seven million registered users, to develop a social payment method akin to WeChat Pay in China.

…and develop group buying on social networks

Alibaba’s Tmall (AliExpress) is already encouraging group buying on its Russian website under the tagline S Dryzyemi deshevle (With friends cheaper). It encourages shoppers to buy in groups with discount offers and free delivery for orders. The joint venture will help transfer and expand the shopping concept on to the Russian social network.Source: Tmall Russia

Yandex and Sberbank also sign their own ecommerce joint venture…

Russian search engine firm, Yandex, and state-owned bank, Sberbank, set up a joint venture in Q4 2017. This led to the launch of two ecommerce services, Beru (I’ll take it) and Bringly, in Q4 2018. These are in addition to Yandex’s search engine shopping platform and price comparison site, Yandex.Market.

…to offer a domestic and cross-border shopping platform

Beru and Bringly are business-to-consumer shopping platforms, with the former fulfilling orders from within Russia only, and the latter dedicated to cross-border shopping for shoppers in Russia. Orders from Beru are processed in a fulfilment centre in Moscow and dispatched to homes or pick up points in Sberbank branches across Russia. Bringly fulfils orders from its Latvia-based warehouse to expedite shipping through customs.Source: Beru.ru

Source: Bringly.ru

Alibaba is improving cross-border delivery times…

The ecommerce company signed an agreement with Russia Post to upgrade the latter’s fulfilment service centre. This will improve cross-border purchases by processing same-day orders and reducing average delivery times from the current of 10 days.

…while Yandex builds on ranging

Yandex.Market announced it will be selling JD.com goods in Russia through its ecommerce platforms. This will strengthen Yandex’s ranging and share of cross-border trade, which is currently dominated by Alibaba’s AliExpress and Tmall.

Marketplace competition heats up with new (re-)entrants

As Russia’s ecommerce evolves, local companies like Ozon are investing in their businesses to keep up with the competition. Ozon has launched its own third-party business-to-consumer shopping platform, Ozon Seller, in Q3 2018. This is the second attempt by the pure online retailer to launch such a business concept. It announced plans to double its fulfilment infrastructure in 2019 to accommodate the additional trade. It is also differentiating its service with its consumer-to-business lending platform, Ozon Invest. Shoppers can grant loans to small and medium-sized businesses with a return on investment.Source: Ozon.ru

Subscribers can read the latest news about the Russian grocery retail market here.

Amin Alkhatib

Amin Alkhatib

Senior Retail Analyst – Central & Eastern Europe

Central and Eastern Europe is a region that illustrates great growth potential for both retailers and suppliers. The region also presents opportunity for retailers to evolve their business model to widen their shopper base and draw more traffic to their stores.

This in-depth guide to Russia explores the key trends in grocery retail and the growth strategies of the leading retailers in the country.

See the latest industry news on Central and Eastern Europe.

Tesco’s loss-making operation in Poland has been a drag on the retailer’s profitability in central Europe. Tesco Poland has managed to turn around its profitability via its three-year transformation programme, which has helped boost regional profit in 2018. Tesco has done this by reorganising its logistical and store operations to introduce cost efficiencies and offer shoppers lower prices, which help it to compete against discounters.

Tesco Poland sees biggest decline in sales in 2018 in the region…

Tesco Central Europe reported a 4.5% drop in 2018 sales at constant exchange rates, to reach GBP6.0bn (US$7.6bn). This was partly explained by a 2.3% decline in like-for-like sales, due to Tesco’s non-participation in Black Thursday promotions in the region. The performance was also affected by a 9.1% sales decline in Poland, due to the loss of 25 trading days from the Sunday ban and the closure of 62 stores.

…but grows profit significantly

Although sales growth was a pain point for the central European operations, it reported an improvement in its operating margin from 1.8% in 2017 to 2.9% in 2018. A significant part of that is from the closure of unprofitable stores in Poland. But was also due to costs efficiencies introduced in the store and logistical operations. In addition to lowering costs, these efficiencies also helped to raise sales density by reorganising ranges and store operations to lower prices and attract more shoppers.

Repurposing of space in large formats stores continues

As part of the three-year transformation programme, Tesco has repurposed space by renting it out to third-party retailers. This is in line with shopper trends in Poland where they shop little and often. To help raise a revenue stream and lower costs in its larger stores in 2018, it added 22 new tenants to 14 hypermarkets. It also partnered with an insurance provider in 2019 to open 32 Superpolisa Ubezpieczenia outlets in Tesco stores. Similarly in Tesco Hungary it has added Media Markt shop-in-shops in nine hypermarkets.

Source: Super Polisa

Managing stock level and rotation

As hypermarket space shrinks so does the number of SKUs in Tesco Poland stores. The retailer is optimising its assortment by removing unprofitable categories, such as electricals, and focusing on more sustainable ones, such as baby. It introduced cost efficiencies via inventory management, which reduced stock levels and lowered replenishment frequency. This has translated into less transportation, reduced storage space, optimal use of store warehouse space and fewer out-of-stocks.

Fewer price changes and use of back-office staff

Across Tesco Central Europe it reduced the number of price changes by 28% in 2018, as many prices were reduced on a more permanent basis. Also, some back-office staff duties were moved to the shop floor to support in customer service and shelf replenishment.

Prices on food staples permanently lowered…

The retailer removed unprofitable assortments to focus on 600 basic food products, which it marked as Starlines, and promoted under the Nasz Cena (Our Price) tagline. They have had their prices permanently lowered to improve the price-quality ratio and to help Tesco become price competitive. The products were also given more shelf space. The retailer seems to be responding to market conditions in central Europe, and especially in Poland, by adopting elements of an EDLP strategy.

Source: IGD Research, Tesco Poland

…and the visibility of private label ranges raised

In some categories it is raising the visibility and shopper awareness of its private label ranges. One key example is in the baby category, where it has reduced the number of brands and assigned more space to its 200 SKU own labels, entry price Gaga and core range Fred & Flo. It is building awareness about the new brands through sampling in selected stores, special store decoration, leaflets and POS materials.

Source: IGD Research

Sunday trading ban will continue to drag Tesco sales in 2019 and 2020…

Poland is phasing in additional Sunday trading bans to reach 40 days in 2019 and extending this further in 2020 to cover all Sundays. For Tesco Poland to turnaround its sales decline, its strategy would have to be focused on recovering sales from the reduced trading days in the next two years. So far it has shown little sign on efforts to offset the loss from these trading days, like its key competitors Biedronka and Lidl.

…and profits will be hit by possible new tax law in 2020

The Court of the European Union ruled against the European Commission’s (EC) case that the Polish government’s tax on retail  is a form of state aid. It remains the case whether the new tax structure will go ahead or not in 2020, as the EC can appeal this decision. If the tax does goes ahead then this will hit retailers with a 0.8% or 1.4% tax bill on turnover above PLN17m (US$4.4m) per month, which will also hurt Tesco’s efforts to return its Polish operation to profitability.

Subscribers can read the latest news about the Polish grocery retail market.

Over the last 12 months, Lidl has expanded its online presence from four countries to 11, including grocery ecommerce operations in five countries. With the discounter accelerating its online expansion we look in-depth at its presence across Europe and the US.

Lidl’s online presence

Since the beginning of 2019, Lidl has launched grocery ecommerce operations in three countries and a non-grocery range online in Poland. The pace of its online store openings is accelerating in Europe, aligned with its current strategy to offer more digital solutions to shoppers. Lidl uses online non-grocery, as an extension of its physical stores, providing additional ranges to its shoppers.

The map below summarises Lidl’s online presence for its grocery and non-grocery ranges across Europe and the US.

 

Partnerships for online food delivery

In most markets where it offers online food, Lidl partners with well-established online supermarkets, such as Lola Market in Spain and Boxed in the US, instead of managing the process itself. This is an efficient and safe way to offer a new service to shoppers thanks to very limited investment required.

With online supermarkets managing orders and deliveries, Lidl doesn’t have to change its supply chain or invest in new facilities as products will be picked in store. These partnerships will also provide Lidl with a better understanding of shoppers and potentially improve its ranges and services.

In Italy and Spain, Lidl partnered with companies managing online grocery for other retailers, enabling it to also compete with these retailers, online. In every market where it offers online grocery, Lidl uses the same strategy. It tests the delivery in a limited area, usually a major city, before expanding to other cities. Tests in Belgium and Italy are proving successful and there are plans to expand the services to more cities.  

Future online developments in Europe

Earlier in May 2019, Schwarz Group, Lidl’s parent company, stated that investments and developments in digital will be an area of focus in 2019. Other markets are likely to follow, Lidl France has already mentioned it has plans to expand its ecommerce operations by 2020.

Currently the UK is the only major European market where Lidl doesn’t have any online presence. With all other major retailers offering online solutions, it appears as a country to watch for Lidl’s next non-grocery online store.

On top of these online stores’ developments, Lidl also invests in digital and payment solutions. It currently tests new payment solutions such as SHOP&GO in Paris and self-checkouts in several European cities.

On the digital side, Lidl continues the expansion of its loyalty programme, Lidl Plus, now available in five countries, after being launched in 2018. Following the success of the app in the different markets, we anticipate other countries will launch it by the end of 2019 as part of the discounter’s global strategy to strengthen its relationship with shoppers.

IGD can support all your online needs. For short-term success, we can advise you on how to sell more online. For the longer-term, we can help you prepare for the future and the new opportunities e-commerce brings, such as omnichannel, rapid delivery and social commerce. For more information, get in touch with Milos Ryba, Head of Retail Strategic projects, [email protected].

Keep up-to-date with the latest discount channel developments. Sign up for our channel specific newsletter. For subscribers wanting to know more about Lidl, please have a look at our Strategic Outlook for 2019.

maxime-delacour.jpg

Maxime Delacour

Senior Retail Analyst - Discount

If you have a specific business challenge or training requirement we can put together something just for you.

As Lidl continues its rapid expansion across Europe and the US, it is looking to build stronger relationship with its shoppers. As Lidl invests in its stores and expands the ranges and services it offers, identify your opportunities with the retailer as we explore the latest strategic priorities that will influence its future performance.

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