X5’s 2029 vision: digital transformation and last mile delivery

Date : 31 October 2019

In October 2019 we attended X5 Retail Group’s capital market day in London to learn about its plans for the future of the business. The retailer announced ambitious targets to double its market share to around 20% by 2029, with 50% of its revenue being generated in its digital businesses.

X5’s 2029 vision is to almost double market share

The retailer plans to reach a market share to 20% by primarily outgrowing its competition in terms of like-for-like sales. This will be achieved through continuing the development of its customer value proposition to grow store traffic.

The retailer will also overhaul its pricing and promotional methodology with shopper data analytics to help grow basket spend. This will mean prices will be benchmarked to local incomes, demand and affordability parameters, which will involve greater localisation in prices and more personalised promotions to attract shoppers with more relevant ranges and robust pricing.

Source: X5 Retail Group

Up to 50% of revenue will be generated through digital channels

Digital transformation of the total business is part of X5’s three- to five-year plan to automate key parts of its operations. This will include the development of its last-mile delivery services, such as 5Post lockers. It will also establish a retail ecosystem and marketplace, which will unlock shopper data to give both itself and its suppliers better understanding of their shoppers, to drive engagement and generate new streams of data.

Unlocking shopper data to boost business performance

X5 will look to unlock data from various facets of its business to increase shopper loyalty, grow traffic, increase store sales density and improve margins. Data collection is currently sourced from the retailer’s online business, Perekrestok.ru, and the 40m active users in its loyalty programme, which operates across its three retail banners.

The potential for data collection will be even greater with the development of its own retail ecosystem by 2022. Greater data collection capability will help it make more informed decisions to adapt its stores’ assortment to local needs and shopping missions and replace blanket promotions with personalised ones.

X5 plans to compete in the last mile delivery space…

The retailer announced plans to create its own platform for the express delivery of groceries, food-to-go (FTG) and ready-to-eat (RTE) meals from its stores. In 2020 it will trial 30-minute delivery of ready-to-eat goods in a small number of stores.

During the Capital Markets day, it was also said it would test even shorter delivery times, of 10 and 15 minutes, by 2022. These services will be supported by the spread of 5Post lockers across the network of stores.

Source: IGD Research

…but it has competition

X5 will face intense competition considering the presence of pure online players such as Yandex’s Yandex.Eda and Mail.ru’s Delivery club, who are already established in the market. In terms of grocery delivery, X5’s Pyaterochka and Perekrestok have the advantage of using their stores as mini fulfillment centres, which will help it in busy mega cities, such as Moscow. However, Russia’s FTG and RTE delivery market is a challenge considering the dominance of existing competition that has extensive expertise and data on shoppers.

Investment in private label, FTG and RTE to expand delivery assortment

X5 will continue to grow private label and RTE share of sales, with plans to increase the share of private label products to over 10%, from 6.5%, by 2022. The FTG and RTE proposition will be expanded with the opening of a smart FTG kitchen factory in 2021, which will adjust its production based on daily shopper needs.

2020 targets set for further expansion and transformation of the Karusel banner

X5 announced it will open 2,000 new Pyaterochka and Perekrestok stores in 2020, and it will decelerate the number of openings by 2022. It will focus on these two banners and reduce the hypermarket network, Karusel, from 91 to 37 stores by 2020. It was also announced that 34 hypermarkets will be converted into large Perekrestok supermarkets, while 20 units will be closed. There will be an ongoing review of the remaining 37 stores, which will either be closed on converted into the Perekrestok banner.

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