Express grocery delivery is the buzzword in European retail at the moment, and few operators have set the bar as high as Russia's Yandex.Lavka, which promises deliveries within 10 to 15 minutes. This article first appeared in ESM July/August 2021.
As the old Andy Warhol quote goes, “In the future, everybody will be famous for 15 minutes.” What the late pop artist might not have also realised is that the same time period could soon be sufficient to place, and receive, a basket of goods from your local supermarket – at least if Russian start-up Yandex.Lavka has anything to say about it.
Yandex.Lavka is the grocery arm of Russian Internet giant Yandex, offering a range of 2,500 items delivered within ten to 15 minutes to customers in major cities across the country.
Operating via a network of locations dotted across a particular city, the platform was founded in the summer of 2019, but it has already established itself as a leading e-grocery player, with sales of RUB 24 billion (€270 million) in 2020, 370% higher than the previous year.
Building on its success, international expansion is very much on the agenda. Having already launched in Tel Aviv, Paris and London are next in its sights, and after that, who knows?
Baptism Of Fire
“This is a new way of consuming food and grocery, and at some point, it will be normal behaviour in almost every urban area across the world,” says Maxim Avtukhov, CFO and chief commercial officer of Yandex.Lavka, who adds that the platform underwent a baptism of fire, driven by the coronavirus pandemic, that few start-ups will experience.
“Prior to the first wave, we had been going quite well as a start-up,” Avtukhov says. “We were meeting our targets. However, the pandemic accelerated the shift to online, and overnight we went from being a start-up with moderate growth to becoming almost an important societal function.”
This set of circumstances, coupled with Yandex.Lavka’s super-fast order fulfilment proposition, meant that what was a one-time experience for many users soon developed into a habit, and Yandex.Lavka was rolled out to a wider range of localities – as well as Moscow and St Petersburg, Nizhny Novgorod and Kazan now also boast the service, as does Israel, where it operates under the Deli brand in Tel Aviv, Gamat Ran and Givatayim, with plans to expand to other areas.
“Customers are devoting a larger and larger portion of their wallets to this particular way of consuming things,” says Avtukhov. “I think, if there hadn’t been the pandemic, we would still be here, just a bit smaller.”
Building The Network
Unlike other grocery e-commerce operations, which may adopt a store-picking model, Yandex.Lavka uses a network of micro-fulfilment centres, or dark stores, to ensure city-wide coverage.
“Each dark store covers around 150 to 200 square metres, and they are typically located away from primary streets and high-traffic zones,” says Avtukhov.
As the group expands, it looks for locations off the beaten track – “industrial sites are our preference because as well as cheaper locations, you also have supply chain advantages,” he adds – and each dark store is constructed in a specific manner, so as to optimise picking time.
“Staff numbers are a lot lower than in a traditional store,” Avtukhov says. “You don’t need to have cashiers, you don’t need to have security guards, or staff on the floor, which all results in optimising our picking rates. We can pick an SKU in eight seconds, which means an order can be picked in two minutes. That’s 30 minutes quicker than the average order-picking time for in-store based models.”
Deliveries are typically made by bicycle or electric bicycle (or motorbikes, in more sparsely populated areas), with the typical order size around eight items. The typical shopper tends to be professional, between his/her early 20s and late 40s, although there is no specific demographic that stands out, says Avtukhov.
“It’s a daily-consumption scenario,” he says. “We are covering impulse, we are covering immediate needs. That’s why we focus so much on ready-to-eat food, and on fresh products. You can get it when you need it – you don’t have to wait for several hours.”
Cutting Delivery Charges
The real jewel in the crown, however, is the delivery charge positioning: deliveries are free of charge, even for small basket sizes, albeit with small charges applied at peak times. How has Yandex.Lavka managed to achieve this while retaining its margins?
“Because we integrate the whole value chain into our operations, it enables us to be twice as efficient as other delivery aggregators, and therefore more affordable,” says Avtukhov. “We can operate with low or even no delivery fees, and no minimum basket sizes.
“Take a typical meal delivery app: The customer uses the app, which, in turn, gets in contact with a restaurant. That restaurant will have its own profit margins to maintain, and it will have suppliers who also have their own profit margins. In our case, we control every part of the value chain and consolidate every piece of the profit margin, which you don’t get with third-party aggregators.”
As you might expect from an offshoot of a major Internet player – Yandex is very much the Google of Russia – machine learning plays a part in ensuring that each store is tailored to its local area as much as possible.
“We understand a lot of things about our customers, based on their historic preferences – there are a lot of algorithms behind it,” says Avtukhov. “After that, it’s about replenishment, ensuring we have the particular products we want in a particular store in a particular area at a particular time.
“Of course, at times you are going to have a spike in demand, and we are able to anticipate that – put more staff on shifts, appoint more couriers, keep our dark stores well stocked – for example, if the European Championship final is on and it’s raining heavily, there is going to be a spike in demand, so we apply surge pricing. It’s the same algorithm we use in ride-hailing.”
The product offering differs from region to region – “you are always going to have Coca-Cola, for example, but there are some niche products that are tailored to a particular area,” says Avtukhov – and, again, Yandex.Lavka uses the data provided by its parent company to tailor the best-possible range to put on its shelves. With that in mind, it has also expanded into private label, with some 15% of its sales now coming from the retailer’s own brands – quite a high percentage in a traditionally brand-hungry market like Russia.
“We continue to develop our private-label assortment because we understand the need to differentiate ourselves,” he says. “Also, we understand our users better than the FMCG brands because we engage with them through so many different channels – what are they looking for? Where are they going? What are their preferences? All this data enables us to select the right products to meet the needs of a customer in a specific area.”
As the company expands, it’s likely that Yandex.Lavka will soon have a presence right across Russia – if not with its company-owned model, than through a franchise platform, which is currently in development. Similar to Ocado’s ‘Solutions’ arm, which has been rolled out to retailers such as Kroger and Monoprix, Avtukhov sees this as a natural progression for the brand.
“We are preparing to launch this in a number of cities, in partnership with retailers, where we will basically provide them with a complete tech stack,” he says. “That includes blueprints of how to open, where to open, how to operate, and the technology required to do so.
“It’s very easy to start an e-commerce grocery business, through your own store, or five stores, but when you get to 100 stores, for example, you face issues with replenishment, order dispatch, deliveries, and so forth. That has led us to develop a franchise model, so we can share our knowledge in this area.”
Looking Further Afield
As for the group’s international ambitions? Yandex.Lavka commenced operations in Tel Aviv last November. Having already operated a taxi service in the Israeli city, under the Yango brand, it was the perfect test market for the group’s new e-grocery concept.
“Tel Aviv is quite similar to European capitals, in terms of disposable income, in terms of labour regulation, and in terms of the share of people’s wallets that is spent on food,” says Avtukhov. “We decided to try to prove ourselves and our value hypotheses, and whether we could make it work outside of Russia. This has proven successful, and that is why we have decided to expand further.”
While Tel Aviv proved a worthwhile test, Paris and London, which are next on the agenda, are likely to be an altogether different proposition. Under the banner of Yango Deli, the company is expected to launch operations in Paris in Q3 and London in Q4, with Avtukhov convinced that the business’s findings are translatable to any potential market.
“We are very, very strong in tech – all our solutions are written by ourselves, and not by third parties,” he says. “We understand what we need to do business wise, process wise, and team wise. What we need to build on the ground, however, is localisation. We’re not Parisians, we’re not Londoners. We need to build a local team in those locations.”
What of the other players already in situ? As well as the mainstream players, a host of start-ups have descended on the British capital in recent months, for example, Weezy, Getir, Gorillas and Dija.
“Honestly, I don’t see any competitors now that can match our level of service,” says Avtukhov. “It’s still a blue ocean to me. We are more cost efficient, we have proven ourselves in a challenging market, and we are eager to replicate that experience.”
Just as it seemed unimaginable, before the rise of Spotify and other streaming apps, that the entire history of music could be obtained through one’s smartphone, so Yandex.Lavka could well be setting the template for how many of us shop for groceries in the future. Avtukhov certainly thinks so.
“People have consumed products in the same manner for decades,” he says. “We’re changing that habit. When you have deliveries within ten or 15 minutes, it’s actually quicker than going to the store. You actually don’t need to have a fridge because anything can be delivered to your door. It’s another layer of convenience.”