The coronavirus outbreak and the subsequent self-isolation have brought changes to business models in several food-related industries. Previously, most Russians bought their groceries in stores and preferred eating out to ordering food; now more and more customers are using delivery services. According to Yandex.Kassa, the number of online payments at online grocery stores rose by 58% in the first stay at home week alone, and the number of online orders in restaurants and cafes surged by 78%. Businesses are predictably overwhelmed by the influx of buyers – the waiting time for orders can reach several days. Participants in the food retail and food service markets have spoken about the unavoidable transformation at Forum.Digital New Business Reality, the first online forum on business digitalization during the pandemic organized by the Digital Economy Development Fund. They are preparing to develop their delivery channels and remote ordering options, including after the pandemic ends. They are also sure that the food market will not be the same then, and everyone will have to play by the new rules.
No food shortages
The self-isolation requirement has actually brought the home delivery system down. According to Managing Director of Perekrestok Online Leonid Dovladbegyan, all available delivery slots have been sold out and they simply cannot deliver more orders – the company’s home delivery service has hit capacity.
“We are challenged by a ten-fold increase in delivery orders; people don’t want to leave their homes to shop for food now, and all global players, all countries are struggling with this,” Dovladbegyan says.
Currently, the company is building up infrastructure – specifically, it is opening one more distribution center in Moscow to ensure grocery supplies to Muscovites. Perekrestok also had to improve the provision of its delivery staff and drivers with personal protection equipment and sanitizers.
Obviously, the industry was not ready for such a critical increase in the demand for groceries. While the retail food market is worth around RUR 15 tln ($203.5 bln), the share of groceries in the online delivery business was previously estimated at only RUR 50 bln ($67.8 mio), with the entire e-commerce market worth RUR 1.5 tln ($20.3 bln), Dovladbegyan noted.
“When these retail volumes went digital, the services were overwhelmed,” the top manager said.
Meanwhile, there is no shortage of food in grocery stores – everything is still on the shelves, including the notorious buckwheat and toilet paper – except customers have to actually go and pick them up themselves.
“It is quite safe to go to grocery stores. Everything is in stock; goods are sanitized. With the social distancing measures in place, people can safely buy groceries themselves, there is no problem with that,” he summed up.
Will the retail food industry return to the way it was? Seems unlikely. If we look at China now, restaurants and offline stores are the slowest to recover while remote services are doing fine, including grocery deliveries, according to Dovladbegyan.
Combo with a sanitizer
Catering companies are experiencing more hardship. It appears that restaurants in the budget segment and fast food companies are adapting to the crisis and transforming their businesses without having to shut down. For example, Dodo Pizza has expanded its delivery menu. In addition to pizza and beverages, customers can now order soap, toothpaste, sanitizer and even toilet paper.
“We are trying to adapt to the situation and have launched the delivery of household staples all across Russia,” said Dodo Pizza founder Fyodor Ovchinnikov.
The company is providing delay-free same day delivery. Before the crisis, the average waiting time in Moscow was 30 minutes, and now is 35-37 minutes, Ovchinnikov said. However, the business is going through tough times because people are spending less. According to Ovchinnikov, the sales of the network keep falling.
“The number of orders grew by 30%, but the average sum has dropped. We reduced the minimum order for a free delivery to 349 rubles, which is on the verge of profitability,” Ovchinnikov said.
Black Star Burger will have to launch their own delivery in a week, said Pavel Kuryanov, general director of Black Star Inc. According to Kuryanov, delivery aggregators are not able to provide the necessary service and have restrictions in terms of delivery areas. The company wants to deliver all across Moscow and the Moscow Region to increase sales.
“We increased sales in Moscow due to bringing our delivery to the pre-coronavirus level,” Kuryanov said.
Not everyone can offer delivery
Restaurants are hit hard by the pandemic. Vladimir Perelman, founder of the Perelman People restaurant holding, has decided to close his 13 restaurants. He believes that the reason for the disaster in the industry is the archaic nature of most of its players: up to 90% of restaurants do not even know how to use a profit and loss statement. Perelman says his restaurants are no exception: the holding started to integrate their management systems only 1.5 years ago. Now, he says, the major problem is the lack of online communication skills, with the number of customers reaching 180,000 per month.
“We find all Customer Relationship Management (CRM) systems produced by major development companies inconvenient; they do not provide data safety and we suspect that our bases are exploited. We have nothing that would allow us to efficiently work with big data,” he says.
The pandemic led to shutting down restaurants and scrapping new projects that Perelman had planned to launch together with retailers; his plans included using part of the premises as dark kitchens for delivery orders but they had to be suspended. But restaurants are having difficulties with offering food delivery services amidst the pandemic anyway, Perelman says.
“This is an ethical issue as to how food should be properly cooked amidst the lockdown and pandemic. This question is very important to me and it prevents me from launching my delivery business, with no clarity as to who will be responsible in case a client gets sick,” Perelman clarifies.
Eventually, he plans to develop such activities as making alternative foods, including vegan and gluten-free meals, and manufacturing top quality convenience food products. Talks are already underway with Azbuka Vkusa and VkusVill supermarket chains, he says.
“The most important thing now is to retain personnel’s competence and provide payments as the current customer traffic is non-existent,” Vladimir Perelman concludes.
By Olga Blinova