X5: five takeaways from its Capital Markets Day

Date : 09 November 2020

Amin Alkhatib

Senior Retail Analyst

X5 has discussed the progress of its strategic priorities at its Capital Markets Day on 27 October 2020.

We highlight our five key takeaways from the presentations and review the initiatives that define and will drive those priorities between 2020 and 2023.

1. X5 aiming to be present at every stage of the shopper journey

X5 is building a retail ecosystem that will engage its customers at every stage of the grocery buying process. It will assess and target them at the initial planning stage of their journey to help them find a relevant store to enable them to complete the missions they are looking to meet. This will continue throughout the shopper journey to products being received at or taken home.

Source: X5 Retail Group

To enable it to be present at all stages of shoppers’ journeys X5 will look to flex the assortments and services it offers to enable it to cover a variety of shopper missions. This will see it expand its food-to-go and food-for-now offers, adding new physical formats to attract a wider pool of shoppers and expanding its online fulfilment options through the addition of an express delivery service.

2. Cover every stage of the journey by focusing on shopper missions…

X5 will meet the needs of different shopper missions by focusing each of its banners on their individual competitive advantages and opening new formats, such as hard discounter Chizhik. Its Pyaterochka discount banner will focus on its convenience and freshness perception, whereas its Perekrestok supermarket banner will look to differentiate its offer. It will also develop its omnichannel services to integrate the process of buying groceries from planning to receiving the shopping into its retail ecosystem.

…in physical stores…

Pyaterochka is aiming to improve shoppers’ perception of the convenience it offers by:

• Rolling out more self-service checkouts to reduce queuing

• Developing its food-to-go offer, which is expected to reach 3.7% of sales by 2023

• Adding delivery pick-up points in all stores by 2022

• Raising shoppers’ perception of the freshness of its offer with the roll out of in-store fresh counters and services

 

Perekrestok, meanwhile, is looking to differentiate its offer:

• Through the increase of its food-to-go and food-for-now ranges, which are expected to account for 8.5% of sales by 2023

• It will support its food-to-go and food-for-now offer with the rollout of the open kitchen concept

• It will invest in its health-focused offer by expanding its healthy assortment, especially its private label ranges

…and with its omnichannel offer

Both banners will have an enhanced omnichannel offer with several express delivery services being made available. Pyaterochka Delivery, Perekrestok Bistro, and in conjunction with delivery aggregator, Okolo, which collects stock from over 500 of X5’s stores and offers one-hour delivery on 5,000 SKUs. The services could be extended to 17,000 stores, which would see them cover nearly 76% of households, who live in a 1 km radius of an X5 store.

Source: X5 Retail Group

The retailer also launched online marketplace, Perekrestok Vprok, which focuses on non-grocery, non-food, and bulk orders for businesses. It is a separate unit from the Perekrestok supermarket banner and will offer an assortment of over 42,000 SKUs, 40% of which are not available on Perekrestok’s existing site.

3. Business focused on Pyaterochka’s profitability

X5 is focusing its strategy on driving its profitability by growing the share of its total revenue accounted for by its most profitable business, Pyaterochka. The banner generated a profit margin of over 8% in 2020 and boosted its share of X5’s revenue to reach 81% this year.

Pyaterochka’s use of artificial intelligence to tailor the prices of each store and reduce the share of sales accounted for by promotions from 35% in 2020 to less than 30% by 2023. It is aiming to do this through the running of more personalised promotions, which it believes will put less pressure on margins.

4. Lead the market in digital transformation

X5 is developing a digital infrastructure around its core business to enhance the service it offers at every stage of the shopper journey. It will boost the speed and efficiency of its end-to-end processes and plans to increase profits by more than RUB20 bn (US$258 m) after 2021. It will do so by using artificial intelligence to calculate pricing, how to adapt its assortment and promotions and flex these for individual stores for a more targeted effect.

The retailer will also use its digital infrastructure to attract shoppers to its stores and online services through an ecosystem of new online services. It aims to generate about 5% of its revenue from its online service by 2023, up from 1% in 2020. It is aiming to do so by using digital services to attract and monetise shopper traffic.

5. Embedding sustainability targets into the business model

X5 is aiming to achieve its sustainability targets by embedding them into its core business model. Its targets focus on four areas of the UN sustainable goals: planet, communities, health, and employees.

Source: X5 Retail Group

For the planet goal, X5 will continue to increase the share of its fleet that have mixed-cycle engines, reduce the number of empty runs they carry out, economise store electricity consumption through technology solutions, reduce delivery miles by increasing the share of direct imports and private labels, increase the number of stores participating in recycling initiatives and raise awareness on rational consumption initiatives for shoppers and employees.

To meet its Communities aims, it will expand its social investments and charity programmes. These will include the Basket of Kindness foodbank and the Liza Alert service that assists lost people projects by rolling them out across the wider network.

In health it is expanding its assortment of healthy food and helping shoppers to make healthy choices by making it easy to find these options in store.

For Employees, the retailer is aiming to reduce staff turnover rates by increasing employee engagement with the business and its sustainable development initiatives, as well as providing training.

For more information on X5 Retail Group visit the retailer page on Retail analysis.