Digitalization of retail (Russian market)

2023 - 2024

Results of 2023 for digitalization of retail

In 2023, multidirectional trends were noticeable. According to some data, rather restrained consumer sentiment, a tendency to lean consumption, sensitivity to rising prices, and a desire to increase the share of purchases of stock goods were recorded. On the other hand, there was an improvement in the purchasing power of the population in a number of regions, which may be associated with an increase in salaries at enterprises of the military-industrial complex and with social payments to participants and families of participants in the military-industrial complex.

Departure of foreign suppliers

The departure of Western retailers pushed Russian players to occupy the vacated market share, which, in turn, required additional IT resources. So, for example, the volume of online trading increased by 10-15%, which imposes additional requirements for continuity.

Foreign FMCG companies and chains of stores of various segments completely curtailed or froze Russian business. The owners in the local divisions of some global retailers have changed. The departure of foreign suppliers of cloud products - pricing and marketing platforms - has become tangible.

Large players transferred most of the processes to the figure until 2023. Those who did not have time to do this are now facing serious restrictions due to the departure of vendors. Large integrators can help them, but not everyone manages to find a good service partner. Some are trying to service the IT infrastructure on their own. Most foreign automation tools are subject to service restrictions, and Russian companies are forced to make changes on their own or involve contractors.

In addition to software, deliveries of American and European cash registers were interrupted. Retailers switched to new IT platforms, replaced systems of all levels of IT infrastructure. In addition to domestic, the equipment of Asian manufacturers was in use. Some skillfully took advantage of the opportunities that have opened up, which is especially noticeable in the field of fashion retail and in the segment of household goods.

Alexey Vedeneev, First Deputy General Director of Luxe Retail:

Here, domestic retail chains were able to take the place of foreign competitors both in the literal sense of the word - in the form of successful locations in shopping centers, and in terms of changing their concepts, expanding the product range, and technological development. Retailers form a new customer experience, improve loyalty programs, establish omnichannel communications, and invest in the appropriate IT infrastructure.

The new owners of Western networks conducted an audit of the IT infrastructure and drew up IT strategies for the coming years. Including, they decided what to do with Western products that come to the end of the life cycle, and what to change them to in 1-2 years. By this time, new large projects can be expected to appear on the market.

Alexander Zarzhetsky, Head of the Directorate for the Implementation of Integration Projects 1C-Rarus:

The main factor in changes in the field of digitalization of retail in Russia is the "redistribution of the market," which began in 2022 and continues to this day. New companies are entering the market, and experienced players are significantly expanding their presence. The process is very dynamic.

Review IT strategies

If the second half of 2022 was characterized by the suspension of large projects for the implementation and reduction of IT costs, then 2023 was the year for retail companies to revise the goals and long-term strategies for the development of IT, active import substitution and new opportunities for Russian suppliers of IT solutions.

If in 2022 retail companies rushed to change the accounting ERP systems, because they store all the financial statements of the organization, in fact - all the money, then in 2023 the turn reached the process-oriented systems BPM, CRM, SRM.

More than half of Russian retailers increased budgets for the development of IT infrastructure in 2023.

Companies with effective management revised their target architecture and IT strategies (both in general and in individual areas - logistics, finance, HR), formed a demand for consulting and complex projects. Preparations for the implementation of programs of complex solutions went all year 2023.

The company's business strategies, especially market leaders, were also forced to revise by a decrease in the purchasing power of the population. New discount areas are launched, work with the assortment is being rebuilt, costs are being optimized and approaches to pricing are changing.

Personnel problem, onboarding

Retailers faced a growing shortage of personnel, especially low-skilled: in warehouses, in stores. When a company grows and enters new regions, it becomes an obstacle to business development and makes management think about how to improve efficiency with fewer employees. As a result, the percentage of robotization in warehouses and distribution centers increased up to the creation of darksters, the practice of which began to be addressed with renewed vigor.

Supply chains were optimized, stores tried to partially unload cashiers by automating their tasks (by the way, until 2022, large retail chains, trying to comply with global standards, actively introduced world-class professional WMS systems in their logistics centers).

Back offices were looking for routine operations that can be done faster and thereby improve efficiency, conducted additional training for new employees in order to bring them to work faster.

Companies will continue to simplify processes, improve the speed and quality of work of each back office employee, create their own knowledge bases for accelerated entry of personnel into the course.

Maxim Semirenko, Deputy General Director of Imredi:

One of the acute problems of retail is the high turnover and at the same time the shortage of linear personnel - there is an insufficient supply of labor on the market. And even in conditions of inadequacy, it is important for retailers to guarantee the operation of each outlet. To do this, companies need to learn how to quickly increase completeness, replace employees so that the business does not have significant losses in sales and service quality. Accordingly, the entire range of personnel management solutions is relevant, ranging from recruiting and onboarding to dynamic management of the workload on employees and unscheduled withdrawal of their own personnel within the exchange of shifts and/or external performers.

The industry standard for digital development has become a single mobile workplace. Previously, an ordinary store employee had to work with several applications at once, and managers - already with a dozen programs. A single mobile workplace allows you to transfer all processes to a smartphone for work directly from the trading floor.

A single interface for accessing disparate applications and data is about the convenience, efficiency and NPS of employees at the same time. In addition, requests from various departments of the headquarters to stores become manageable after digitization.

Some trends of 2023

2022 was turbulent and emotional, but by the end of the year steady trends had developed, which continued in 2023.

retail It noted a slowdown in high-quality digitalization and an increase in its cost. This process was influenced by the same factors as the industry itself.

Oleg Aksenov, Director of the Technical Department of LANIT-Integration (part of the LANIT group):

In past years, many retailers have chased the latest in the digitalization market, since even a small competitive advantage gave tangible financial benefits. Now, large players have practically no "simple" digital ways to strengthen their position in the market, increase profits and reduce business maintenance costs.

Therefore, new solutions today are being more carefully selected in the laboratories of retailers and "stores of the future," which reduces the speed of their implementation. Mass implementation occurs only if a tangible positive effect is achieved.

Another trend is the development of its own brands. The lion's share of retailers invests in this area, opens its own production, increases the share of STM goods. To do this, they need IT solutions that automate production, planning, contract manufacturing, and product lifecycle management.

Other trends in 2023: the development of payment technologies, mobile applications, CSR, focus on resiliency and information security, tightening state regulation in terms of traceability of trade. Retail is dominated by cloud services, from here, redundancy of systems and services is critical.

International payment solutions have successfully replaced Russian ones. In 2023, multifunctional payment solutions in offline retail (card, Pay, QR, biometrics) began to be actively introduced. In 2024, they, with the help of banks, will penetrate not only into large networks, but also into medium and small businesses. The main task for retail here is to simplify and accelerate the payment process and integrate with loyalty programs, authorize the buyer.

The effectiveness of promo companies is increasing, the audience's sensitivity to them has grown.

Vyacheslav Predybailo, Director of Industry Solutions at Evotor:

With the development of mini-store and convenience store formats, including the franchise scheme, the demand for controlled, easily scalable infrastructures and integration solutions is growing in IT. In addition, retail in this format is looking for cost-effective solutions and seeks to reduce the cost of the cash zone with the help of ecosystems.

The Russian software market has offered many alternatives to the products of foreign vendors, but import substitution (as a kind of final process) is still far from over.

Most companies still remain on foreign solutions and are only eyeing domestic ones, we are not talking about mass implementation.

There was a demand for localization from companies that separated from foreign parent companies, as well as from retailers who decided to keep the previous software and maintain it without the help of departed vendors.

View from retailers

As representatives of large retailers told TAdviser, networkers introduced computer vision technologies for recognizing queues at cash desks, analyzing empty shelves, and cleanliness in stores. Self-service cash desks with unique software are actively introduced, giving tips to customers who help, for example, make payments using biometric data.

In 2023, Fix Price introduced a PIM system with the functionality of a supplier's personal account (product information management) for centralized management of product information, a CDP system (customer data platform, client data platform), which allows you to more accurately understand CA preferences, personalize communications, and make better marketing decisions. Now employees sign personnel operations from the smartphone screen - electronic personnel document flow works.

Oleg Lexin, Head of IT Service Fix Price:

Also last year, a voice robot assistant was connected to help recruiters, which helps to select candidates for vacancies in stores and distribution centers of the network. For this project, the contractor and I were recently awarded.

For Lenta, the priority areas were systems related to transport logistics, planning and replenishment, visualization and analytical reporting. The company managed to automate pricing processes: now the maintenance of pricing rules, analysis of the history of the reasons for price changes and their approval take place in a "single window," after which prices are automatically loaded into the ERP system.

Director of Digital Innovation and IT Lenta Sergei Sergeyev:

In addition, we dealt with such a direction as personnel management. This is an important task, given the growth in the number of stores. We also became leaders in the field of digitalization of client experience based on the results of an independent study conducted by experts from the Foundation's analytical center. "Skolkovo

In X5, the main emphasis is on the capabilities of AI. "Pyaterochki," "Crossroads," "Chizhiki," etc. - all these stores were created using artificial intelligence. It helps to select an assortment of goods for each outlet (depending on the preferences of buyers in a particular region), to form prices, promotional offers.

The company has created its own analytical marketing platform - CVM (Customer Value Management). The system is built on big data technology. It analyzes customer preferences, helps you manage marketing campaigns, form personal offers, choose the right communication channel, and maximize the effect of each contact with the buyer. With the help of CVM, about 650 marketing campaigns are launched monthly for the Pyaterochka retail chain. The effect of the launches is measured using A/B tests, which confirms the contribution to business growth.

Ivan Melnik, Director of Technological Business Development Kh5 Tech:

X5 Tech has opened an AI lab based on the AI Talent Hub, which will develop AI-based products and train ML and DS AI specialists for retail. The purpose of the laboratory is to create qualified personnel capable of solving applied problems in this area.

According to the expert, 2023 showed that companies are gradually focusing more and more on the introduction of robotization, increasing the level of cybersecurity.

Changes by 2024

In 2023, many retailers increased sales rates in online channels, including through marketplaces. Now it is one of the fastest growing segments, which implies a whole pool of changes in the business of trading companies.

But despite the outstripping growth of e-commerce (estimated at up to 25%), e-com not only did not "pull the blanket over itself" from offline retail, but even contributed to its development, acted as an additional driver and stimulated the growth of the turnover of chain stores, that is, e-com increased the market itself, and did not take a share from offline.

Maxim Semirenko, Deputy General Director of Imredi: {{quote 'At the end of the year, the tendency of large players to experiment with formats is noticeable. For example, going to minimarkets, harddiscounters, specialized formats or franchises. The task is to become closer to the buyer, to increase brand coverage.

At the end of 2023, we state the optimistic attitude of retail - this business is expanding. A number of chains have returned to expansion and opening new stores after a downtime in 2022. More mergers and acquisitions have become a trend of a growing market.}}

In addition to Russian brands, Turkish and Middle Eastern players also took the place of the departed brands. Large chains have identified themselves as the main segment for the growth and development of discounters and convenience stores. In 2024, they will continue to work to improve their client experience through in-depth personalization and analytics services.

Galina Vitalyevna Mussina, Head of the Competence Center for Retail in ICL Group of Companies:

The growth and development of online commerce dictates the importance of omnichannel strategies and the provision of seamless customer experience. The active scaling of self-service lines not only in FMCG, but also in specialized retail, stimulates the growing popularity of AI-based solutions to prevent losses and improve service in trading floors.

Gennady Tarantasov, Commercial Director of Korus Consulting Group:

In 2023, FMCG networks accounted for about 60% of the total retail turnover - the demand for IT solutions in this segment will grow next year. At the same time, companies are now forced to answer several challenges at once: the need for quick import substitution and competent work to find and retain personnel. Accordingly, we also expect an increase in demand for IT solutions that allow businesses to solve these problems.

Logistics is also changing. The market is experiencing a boom in the construction of warehouse complexes, as well as an increase in the number of requests for optimizing transport logistics up to the last mile.

The focus is on the quality of management of the retail network as a whole. The effectiveness of commodity movement, logistics and relations with suppliers is important. Those IT systems that work to solve these problems, taking into account the specifics of a particular segment, are relevant.

The market is interested in an integrated approach, when the IT infrastructure is developed with the help of IT providers that provide a pool of integrated software products, a wide range of cash registers, service and technical support services.

Alexey Vedeneev, First Deputy General Director of Luxe Retail:

The approach on the principle of "software, hardware and service from one hand" becomes in demand, since it implies a single point of entry and responsibility for the functioning and evolution of the IT infrastructure, which accelerates the interaction of retailers and IT providers, brings together the work of their teams and simplifies cooperation.

So far, there are few such suppliers on the Russian market. It is likely that various IT companies will merge through strategic alliances or mergers/acquisitions, increasing expertise, strengthening teams, attracting investments.

Progress in updating the cash register fleet is also often noted. During periods of recession and pandemic, networks were reluctant to invest in this, which created pent-up demand. According to Luxe Retail, tenders for thousands of purchases of cash registers (classic and self-service) have recently been held or prepared in a number of large chains. The beneficiaries of these projects will be primarily Asian vendors who managed to enter the market, Alexey Vedeneev is sure.

Vyacheslav Predybailo, Director of Industry Solutions at Evotor:

The popularity and widespread adoption of CSR in networks requires the introduction of user-friendly technologies for scanning and payment, as well as fraud prevention systems. Small and medium-sized businesses are still afraid to introduce CSR massively, but there are already pilots.

Oleg Lexin, Head of IT Service Fix Price:

We continue to actively equip Fix Price stores with self-service checkouts. This year they will appear not only in new retail outlets, but also in existing ones within the framework of the renovation project. In total, CSR will be installed in about 1 thousand of our stores in Russia. CSRs are designed to reduce the burden on staff during peak hours, make the purchase process more convenient and faster for those buyers who prefer cashless payment methods.

According to the experience of KORUS Consulting Group of Companies, approximately in mid-2023, large retailers were able to afford not to live today, their planning horizon for medium-term strategies grew to 2-3 years.

The Company forecasts an increase in the share of its revenue in the segment through consulting services by about a third due to the fact that that retailers have to switch to custom development in combination with the use of Russian systems, and expects that in 2024, the priority IT tasks for retail companies should be to support new business areas, for example, opening hard discounters or launching STM, developing e-commerce channels, solutions for creating digital counterparts of supply chains. The need for digital twins will grow in the next few years.

Retailers do not reduce the high level of requirements for the functionality, performance and reliability of IT solutions as part of the import substitution strategy.

Open source solutions are used in the development, the principles of cross-platform and omnichannel are implemented. Browser solutions, android applications, support for several databases, several report editors, etc. are popular.

The market creates demand for open solutions, tools, platforms with the ability to quickly implement and flexible settings for changing business requirements, which reduces the total cost of IT ownership. Vendors that provided solutions based on systems ON Western corporations lost customers.

Alexander Zarzhetsky, Head of the Directorate for the Implementation of Integration Projects 1C-Rarus:

2023 retail in passed under the banner. import substitution For most major players, the main task was to replace the IT technology stack for its own automation. The main priority is to replace imported software with domestic software, without losing the functionality of solutions and without straying from the rhythm of development. According to my ideas, most of the companies successfully coped with this task, although this required significant efforts and did not always go "smoothly."

Dmitry Radyukin, Director of IT Solutions Practice for Retail Companies Odyssey Consulting Group:

There is a trend towards the introduction of open source systems. They can be quickly implemented and difficult to ban. In the West, such solutions for omnichannel trade, work with orders and content have developed longer, and therefore in their class they are now better than their domestic counterparts. Before replacing them, you need to think well about the advisability of such a step.

Yuri Vostrikov, CEO of BPMSoft (part of the IT holding LANCOFT):

The focus was both the convenience and functionality of the products, as well as compliance with the law, primarily the 152-FZ "On Personal Data," and information security requirements. To date, many customers have gone through the stage of finding new solutions among domestic vendors, conducted IT audits, decided on the choice of platforms and started migration projects. In 2024, there will obviously be even more of them.

In terms of import substitution, retail is not too regulated, and players are reorganizing their strategies for developing the IT landscape. First of all, this applies to dynamically developing systems and solutions, which in the current conditions cost more than until 2022. In this context, the Russian business chooses its own developments, technologies based on open source or thoroughly processes vendor solutions.

The entire retail business is built on the principle of "better than a competitor," so the issue of improving the implemented critical substitutions in 2024 will remain on the agenda.

Yuri Perestoronin, Managing Partner of the Agro-Industrial, TNP and Retail segments at IBS:

BPM, WMS, TMS, Internet trading solutions, analytics are critical, already replaced products. But now all this is imposed by increased security requirements, the development of AI, and so on.

Retail on changes by 2024

X5 notes that its own development became a key trend not at the turning points of 2022, but much earlier, when it became obvious that the speed and level of digital development of the Kh5 significantly exceeds the capabilities that the giants of the digital industry can offer in the open market.

Ivan Melnik, Director of Technological Business Development Kh5 Tech:

At a certain point, a number of world-class solutions became unavailable. And its own development has become an important factor in ensuring business continuity. This also applies to high-end enterprise solutions running on reliable technologies and with high performance. And individual groups of technologies that are vital for retail - for example, the development of a warehouse management system, an analytics management loop, a cash system. Now the Kh5 has several dozen of its own technological developments.

Fix Price reported an increase in the IT budget, which is associated with an increase in the price of equipment and services of contractors.

Oleg Lexin, Head of IT Service Fix Price:

The cost of IT services is growing. Compared to peak 2020 and 2021, the growth rate is no longer so high, but still there is. Also, the further we always step into digitalization, the more desires and expectations appear among business users. This, in turn, requires an increase in the number of IT specialists.

Prospects and long-term expectations

The departure of Western companies has created difficulties for retail. Domestic companies are not yet ready to completely replace Western products. The transition to new software that takes into account all the nuances can take 5 years. The process will be painful and will require debugging of all processes.

Alexander Kazakov, Deputy Director of the Outsourcing and System Administration Department of Jet Infosystems: {{quote 'It will take, business processes data storage according to the most optimistic estimates, at least five years to implement software that takes into account scalability, internal integration, reliability, speed of their processing. But do not forget that any transition from a debugged system to an alternative solution is painful and takes a long time. For example, it takes an average of two years to implement a new ERP system and debug all processes.}}

IT technologies are becoming an increasingly important factor in retail success. Artificial intelligence, machine learning, Big Data will be used to optimize business processes, personalize offers and omnichannel interaction with buyers.

Offline retail will transform under the influence of online trading. The competition between them will grow. Online will emphasize prices, delivery speed and intellectual loyalty. Offline will focus on personalizing and transforming the shopping experience.

Oleg Aksenov, Director of the Technical Department of LANIT-Integration (part of the LANIT group):

Competition in the field of delivery services continues to increase, a real race for speed begins. And if earlier, for example, in large cities, the courier service delivered orders within two hours, now this time period is reduced to fifteen minutes.

Sergey Tinyakov, partner of the Digital Economy League:

In general, I think the vector is still the same - personalization and the transition to mass deliveries of goods to home or to the nearest stores. But there is another aspect - real import substitution. And this gives a shift to the infrastructure component - the demand for data centers and comprehensive support services for IT solutions is increasing.

Scaling and active commissioning of digital transformation solutions are expected, which have successfully shown themselves in pilot projects in 2023. Multiple approvals of the introduction of new technologies will continue, such as, for example, virtual and augmented reality, robotization, etc.

Alexander Zarzhetsky, Head of the Directorate for the Implementation of Integration Projects 1C-Rarus:

I expect that the retail market will continue to consolidate, and IT technologies will become more complicated. Digitalization will continue to penetrate deeper into the business processes of companies, finding its place in new areas. We are waiting for the complete "digitization" of retail customers: we will know who and how often visits stores, what they prefer and to which advertising they react more. New, modern trading equipment will expand the scope of self-service, simplify the work of consultants and sellers. The "paper" will go into the past: price tags, checks, cards, document flow - everything will go into electronic form.

Retail is a field of fierce competition

Experts agree that those who are already making every effort to transform their business will benefit.

Galina Vitalyevna Mussina, Head of the Competence Center for Retail in ICL Group of Companies:

In general, the market will continue to grow, competition between retailers will only intensify. The winners will be those retailers who are already transforming their business by introducing new technologies. Those who are just eyeing AI, robotization and other innovations, adhering to "traditional" strategies, are likely to have already lost.

Sergey Mashnin, Customer Relations Director, Ferrum IT Group:

Retail is a field of fierce competition, IT is a means to improve efficiency. Let not at times, these times are over, but by interest, but retailers have no other way. As for the prospects, in the coming year (maybe two), transitional processes related to the departure of Western companies (IT and retail) will take place, within 3-5 years (according to forecasts I know) an equilibrium will be established between offline and online trading.

Instead of output

Import substitution processes are assessed by market participants as difficult. Among the positive aspects, experts often mention the fact that there are no fundamentally indispensable products on the market, and in the future, domestic IT solutions will completely close the current needs of retail chains. In addition, they are usually cheaper than foreign counterparts.

The development of the market will depend on the economic situation in the country and the possibilities for increasing the volume of consumption of goods and services.

Alexey Vedeneev, First Deputy General Director of Luxe Retail:

How the economy will develop in the context of increased sanctions and the trend of growth in state regulation, how optimistic the expectations of the population will be and what the financial capabilities of these expectations will be to realize - the state of retail will depend on these factors and, accordingly, its readiness to invest in the development of its digital infrastructure. Trade, and with it industry IT solutions, is a dependent industry that responds sensitively to the trends of the national economy as a whole.

There is an opinion that in the long term the market will develop, since the economy cannot do without retail, and there is nowhere to grow without investing in IT retail.

Yuri Perestoronin, Managing Partner of the Agro-Industrial, TNP and Retail segments at IBS:

Retail is perhaps the most seasoned industry. We survived a pandemic, uncertainty after the start of SVO, fierce competition. All these stresses have raised the level of adaptability and advancement. In my opinion, retail will be a locomotive of innovation.

Dmitry Radyukin, Director of IT Solutions Practice for Retail Companies Odyssey Consulting Group:

Expectations are positive, I hope that the market will offer a better service by buyers, will improve and grow, and this will have a positive effect on the introduction of new technologies.