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HEALTHC ARE & PHARMA NOVEMBER 19, 2020 / 12:05 PM / UPDATED 2 MONTHS AGO

COVID-19 crisis: a shot in the arm for Russian e-

commerce
By Anna Rzhevkina, Alexander Marrow 6 MIN READ

GDANSK/MOSCOW (Reuters) - The coronavirus crisis has helped fuel a surge in

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online shopping in Russia that has put even the remote icy expanse of Chukotka on the
e-commerce map.

FILE PHOTO: A Yandex.Eats food delivery courier wearing a protective face mask rides a scooter amid the
coronavirus disease (COVID-19) outbreak in Moscow, Russia April 12, 2020. Picture taken April 12, 2020.
REUTERS/Maxim Shemetov/File Photo

The windswept region in Russia’s far east, where winter temperatures can fall below
minus 50 degrees Celsius (-58F), has started to boom for online retailers since the
pandemic started keeping consumers at home.

It’s a trend playing out across Russia, spurring explosive growth for online retailers.
Traditionally unable to make speedy deliveries in the world’s largest country, where
roads become clogged with ice and snow for months, they have invested heavily in
logistics centres and delivery points.

With foreign players largely absent, Russian companies are cashing in as online
shopping surges.

“It’s very convenient,” said Alina Lunina, an English language teacher from the city of
Samara who now buys clothes, books, make-up and sometimes groceries online.

She uses Russian company Wildberries, which she says delivers to collection points in
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E-commerce accounted for just 1.4% of Russia’s economy in 2019, according to

research firm Data Insight, compared with 2.6% in the United States and 5.1% in
China.

“The Russian e-commerce market is growing significantly faster than in the United
States or in the largest EU countries, thanks to the low penetration base effect,” Data
Insight co-founder Boris Ovchinnikov told Reuters.

He put the market value in Russia for the first half of 2020 at 1.16 trillion roubles
($15.2 billion).

Analysts from market research firm Euromonitor expect annual online sales in Russia
to grow by more than 40% this year to around 2.5 trillion roubles and by 10-15% a year
over the next five years.

FRAGMENTATION

E-commerce penetration in Russia has increased from 7% of total retail sales in 2019 to
about 11% in 2020 though that is still less than in the United States, where penetration
is about 19%, said Marija Milasevic at Euromonitor.

The Russian market is also very fragmented.

Privately owned Wildberries leads with 15% of the

market, according to Data Insight, and Ozon,
which has filed for an initial public offering in the
United States, has 7%.

Behind them comes AliExpress Russia, a joint

venture between Chinese online shopping giant
Alibaba and Russian partners. Other rivals include
Russian electronics firm M.Video; Sbermarket,
Slideshow ( 3 images )
controlled by a joint venture between Russia’s
largest bank Sberbank and internet group Mail.Ru;
and internet company Yandex.

Amazon has not entered Russia, where the country’s size - it has 11 time zones - and its
competitive IT market pose challenges.

“To cover at least two major cities in Russia, the company needs to invest heavily not
only in delivery but in warehousing to have enough goods to maintain the current
quality level,” said Sergey Belyaev of Sova Capital.
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Amazon did not respond to a request for comment. Subscribe to our daily curated newsletter to
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Wildberries, which said it attracted over 12 million new customers to its website in the
first nine months of 2020 has enjoyed spectacular growth. Enter email address

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Orders in April-October rose 490% in Chukotka, a remote region located across the
Bering Strait from Alaska where winters bring endless nights and temperatures below
minus 50 degrees Celsius (-58 F).

Wildberries said April-October orders also soared by 385% in Ingushetia in the North
Caucasus, and by 239% in Buryatia, a region in eastern Siberia.

The retailer, which says it has over 34 million customers, now has 13 warehouses and
dozens of sorting and distribution centres across Russia which reduce delivery times in
the Far East and Siberia.

BIG CHALLENGES

Logistics and poor infrastructure are big challenges but door-to-door couriers have
boomed in big cities, with low labour costs helping companies keep prices down.

(GRAPHIC: Map of Russia, )

Wildberries’ customers can order items to try on in small sites dotted around cities.
Ozon operates a network of drop-off boxes for clients to pick up packages.

Ozon said in March it was spending $300 million on logistics improvements and has
opened a logistics centre in Rostov-on-Don, close to Ukraine, for same-day delivery.

In April-May, Ozon recorded an 84% increase in new active buyers year-on-year, and
regions outside Moscow account for over 55% of its gross merchandise value, company
data showed.

As in other countries, online grocery orders have soared during the pandemic and the
race is on to cut delivery times even further.

Yandex last year launched a service, Yandex.Lavka, for grocery delivery in 15 minutes.
This followed its success with a food delivery service, Yandex.Eda.

Yandex.Lavka has small warehouses across Moscow and uses couriers on bikes, electric
bicycles or motorbikes. Its monthly orders have risen to more than 1 million from
about 50,000 a year ago, the company said.

Sbermaket said its orders in cities such as St Petersburg, Yekaterinburg and Nizhny
Novgorod were 15-17 times higher in the third quarter than in the first three months of
2020.

Sbermarket expects the e-grocery sector to keep growing fast in Russia in years to
come, its chief financial officer Michael Loyko said.

Online grocer Utkonos, which reported a 65% increase in sales year-on-year in the
third quarter, also said demand for delivery services was likely to keep growing now
that consumers have a taste for the convenience of online shopping.

Additional reporting by Andrey Ostroukh, Olga Popova, Nadezhda Tsydenova and Vladimir Sadykov, Editing by
Katya Golubkova and Timothy Heritage

Our Standards: The Thomson Reuters Trust Principles.

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