Next-Generation Convenience - ESM Meets Sergei Goncharov, CEO of Pyaterochka
Russian retailer Pyaterochka, part of X5 Retail Group, is using the COVID-19 pandemic to double down on its convenience offering, as CEO Sergei Goncharov tells ESM. This article first appeared in ESM Issue 6 2020.
When ESM last met up with Sergei Goncharov, the chief executive of Russian retailer Pyaterochka, back in 2018, he was just a few months into his tenure, and eager to build on the X5 Retail Group-owned banner’s strong proximity positioning.
“People are choosing convenience over big-box because time has become one of their biggest assets,” Goncharov told this magazine at the time.
Now, two years later, this has taken on a whole new meaning, with the COVID-19 crisis giving Russians few options other than to shop locally. As a result, Pyaterochka, the country’s largest proximity operator, has seized the opportunity to double down on its offering and redefine the meaning of convenience.
“For us, convenience means the customer journey within the store and the customer journey outside of the store,” Goncharov (pictured) tells ESM, noting that the pandemic has led many shoppers to “try out” Pyaterochka and enjoy the experience.
“Shoppers in Russia visit, on average, seven stores as part of their routine, and Pyaterochka was one of those stores that they visited some time ago and had a mixed experience,” he says. “What happened during COVID was that people went to the stores that were closest to them – in many cases, a Pyaterochka – and discovered that the service had improved, the assortment had improved, and the prices were still low, and they stayed. That’s what’s been most interesting, and helped create a virtuous circle.”
According to X5’s third-quarter results, Pyaterochka was the standout performer in the group, reporting like-for-like sales growth of 8.5%, driven by an 8.9% increase in basket size and offset by a marginal (0.4%) decrease in traffic. This compares to a 6.9% like-for-like increase at a group level.
As Goncharov explains, the fact that Pyaterochka was as prepared as it possibly could be for the pandemic helped it maintain a solid performance.
“COVID was not a huge surprise to us – of course, we don’t have a crystal ball, but we do have a strong analytics department, which was able to assess the situation in China and Italy and anticipate what was going to happen,” he says. “The ‘run’ on stores happened in the middle of March, but in January and February, I told my commercial director and supply chain teams to start piling up dry goods – toilet paper, sanitiser, pasta, buckwheat.
“At one point, we had our distribution centres full of this stuff, and some people were saying, ‘Are you crazy?’ But then, in the middle of March, we were selling 640 tonnes of buckwheat per day – we were just putting the pallets on the floor because it was selling so quickly.”
This proactive approach, coupled with a segregated working arrangement at its outlets and logistics centres – “If somebody gets sick in one of your stores, you have to close the store, but if someone gets sick at one of your distribution centres, that’s 500 stores,” says Goncharov – meant that Pyaterochka suffered a limited impact from the pandemic, and it is well poised in the event of a second, or even third, wave, as well as accelerating its shifts towards becoming a more customer-focused retailer.
A store conversion programme implemented last year, and since rolled out to around 1,800 outlets, is also helping to strengthen Pyaterochka’s positioning. The new-format stores feature what Goncharov describes as a “fresh arena”, an updated way of displaying fruit and veg. with some 50% of the floor space overall now allocated for fresh and bakery products, as well as greater focus on the customer value proposition.
“The previous Pyaterochka concept was five or six years old, which is generally the shelf life for retail formats in Russia,” says Goncharov. “So, we knew we had to refresh our stores and improve our customer value proposition. We spent a bit of time analysing our customer base, and we discovered that we did not meet all of their needs.
“We know that our customers really care about convenience, freshness, quality low prices, and community, so we set these as the four pillars of our new proposition, in order to earn the lifelong trust of shoppers.”
At its recent capital markets day, X5 Retail Group announced a number of digital projects aimed at maintaining the relationship with customers through all stages of the shopping process – in essence, building an ecosystem that reinforces the group’s traditional grocery operations. For example, it plans to transform its Perekrestok online business into a FMCG marketplace, offering both food and beverage products, as well as household goods and kitchen appliances. Elsewhere, its new express delivery service, Okolo, will offer ‘hyperlocal’ deliveries from its store network, as well as from nearby restaurants and pharmacies.
This digital upgrade is also being realised at Pyaterochka, as Goncharov explains.
“We recently launched our express delivery service and have achieved 15,000 orders per day as of October, up from 300 or 400 orders per day back in the spring,” he says. “We had been preparing for this launch for most of 2019, so by the time COVID hit, we were in the right place at the right time.”
Other technological innovations are more novel, such as Pyaterochka #naletu (literally, Pyaterochka ‘on the fly’), which is a cashier-less/unmanned concept similar to Amazon’s much-heralded Amazon Go concept. A pilot outlet opened on Moscow’s Velaskesa Boulevard in October. To enter, customers download a specific app, following which they can select from up to 900 products and pay using X5’s Express Scan payment technology – perfect for these socially distant times, in other words.
“Our plan is to have three or four more Pyaterochka #naletu stores by the end of the year, and then make a decision about a further roll-out in the spring,” says Goncharov. “For a lot of shoppers, safety in these COVID times doesn’t just mean cleanliness. It also means things like contactless payments and other digital initiatives. At Pyaterochka #naletu, you don’t have to talk to anybody or touch anything. You’re just in and out.”
Personalisation is another key tool in Pyaterochka’s arsenal. X5 Retail Group recently unveiled a new single sign-on loyalty system across its retail brands, X5 ID, which enables the business to gain a greater understanding of shopper behaviours and tailor its offering accordingly, reinforcing the brand’s convenience standpoint.
“We are the first retailer in Russia, and one of very few retailers in the world, to be able to move away from these mass promotional campaigns to a more personalised offering,” says Goncharov. “To give you a taste of what sort of complexity this entails, we had to analyse more than one billion transactions by our customers over a year, looking at every single item that was sold, and every single customer.
“The result is: we’re able to serve our customers better. If you’re going into a store and you’re given a promotion on milk when you went in to buy champagne, that’s not what you’re looking for. We would rather invest in a system that can give you a discount on champagne when you want to by champagne, and give someone else a discount on milk when they want to buy milk.”
Looking ahead, Pyaterochka sees a combination of new-store openings and ongoing conversions – not to mention further digital roll-outs – as a driving force in maintaining the solid growth that it has experienced in the past year. The retailer is on track to open around 1,700 stores this year, while the new-store concept should be rolled out across its entire store network, currently numbering 16,500 stores, by the mid part of the decade.
After all, as Goncharov puts it, when the momentum is with you, why slow down?
“We’ve had quite a good run in the past couple of years. When I joined the business, we had sales of around one trillion roubles, and that’s likely to come in at around two trillion this year. We want that to continue.”
© 2020 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.