Retailer interview: X5 Group’s Anton Mironenkov
RTIH discusses cool tech in a fast changing, Covid-19 hit omnichannel world, with Anton Mironenkov, Head of X5 Technologies at X5 Group, Russia’s largest food retailer.
RTIH: Tell us about yourself and your work at X5 Group.
AM: I’m head of a fairly new business unit at X5 Group, X5 Technologies, where a team of 3,000 specialists create complex digital solutions for the company.
X5 Group has a rapidly growing e-business, operates more than 18,000 stores in seven of Russia’s eight federal districts spanning 11 time zones, and generated net retail sales of RUB 1.97 trillion in 2020.
I joined the company’s M&A department in 2006 and worked in mostly business development leadership roles until 2018, when I became head of the Big Data department, which quickly grew from a handful of employees to a team of more than 500. This led to the development of the X5 Technologies business unit.
We have a lot of really cool tech developments, but broadly, we develop technology to support the continued development of X5’s fast-moving consumer goods offering, with a focus on fresh food sourced and delivered in a sustainable manner, all supported by an ecosystem of digital customer services.
We aim to begin our customer interaction before they enter a store or start an online order – at the phase where they’re meal planning and finding recipes – and to continue to be present throughout the customer journey via our digital platforms and services, including payment and subscription services.
Given that X5 Technologies has been a separate business line for a year already, we can take stock of what we’ve accomplished.
During this time, we’ve learned to develop digital streaming solutions, solutions that increase the efficiency of our offline and online businesses as well as our back office, and that also contribute to our EBITDA.
We created a single team of top level specialists who are responsible for the digitalisation of the entire company. Our experts are currently implementing 46 digital products and 109 projects.
To make the way X5 works with its retail networks more efficient, the company decided to abandon the traditional IT-as-a-service model and moved to a domain approach, whereby digital specialists become part of the retail network’s business team and shift to more seamless interaction.
RTIH: How would you describe the current state of the omnichannel retail sector (biggest challenges, opportunities etc)?
AM: Covid has changed the food retail industry. While we have had to overcome serious challenges, we have also seen new opportunities emerge.
Safety became a key element of the customer experience and remains so in the wake of the active phase of the epidemic. The low risk of infection when visiting a store or having contact with a delivery courier are new drivers of customer loyalty that continue to this day.
Interaction with customers now begins long before they enter a store or place an order for delivery. Most of our customers essentially live in a digital environment regardless of whether they do their shopping online or offline. This digital environment is critical to shaping customer preferences, experiences and feedback.
To further grow our business and maintain profitability, we aim to expand our presence to interact with our customers at all stages – from meal planning and finding recipes to using our payment platform and subscription services at all our stores.
These digital platforms and services will help attract and retain customers through X5’s core business – retail.
A big challenge for many countries, including Russia, is the issue of finding workers. For our industry, these are primarily core staff: store employees, couriers, warehouse workers, drivers.
This situation is the result of a confluence of factors: a decline in immigration, an increase in the Covid-19 infection rate and growing competition to attract core personnel – workers at the same skill level can now choose higher-paying jobs.
The level of industry development today is determined to a large extent by how mature a business is in terms of working with technologies, whether it is prepared and whether it knows how to use them to become more efficient.
In general, Russian retail is at an early stage of digitalisation, and it is going to change a great deal in the near future.
The main limitations are expertise and the availability of personnel who understand business and technologies well enough and who are able to find innovative solutions at the intersection of these areas.
RTIH: How is X5 addressing these challenges and opportunities?
AM: Digital products are becoming a new challenge and an area of opportunity for retail.
For X5, the pandemic period saw the rapid scaling of new digital services: self-service systems, express delivery, contactless payment systems using biometrics and express scan.
X5 is one of the largest employers [in Russia]: we have 339,000 employees, and our primary objective is to automate processes and to help our employees working at offline points and at our other infrastructure.
We are taking steps to automate processes in our warehouses – for example, we are piloting the use of robots to stack pallets. A large number of activities are associated with automating transport operations – from calculating effective loads for our trucks through monitoring driver fatigue to using AI technologies to prevent accidents.
For our ecosystem to function effectively around customer needs, X5 needs its own reliable, high-quality service for identifying, storing and using customer data.
Today, X5 has accumulated 64 million unique customer IDs, which enable us to take a data driven approach and incorporate Big Data-based solutions such as assortment management, demand forecasting, A/B testing and others.
Our retail networks remain the backbone of X5’s operations, and we pay particular attention to this area. The retail networks continue to develop solutions aimed at improving the quality of service and the freshness of produce, and also to optimise internal processes.
We are also introducing innovative solutions for staff at offline points: mobile workplaces, analysis of work efficiency, video analytics of in-store processes, etc. All this helps save time and enables staff to spend more time working with customers.
In order to increase the speed at which we can incorporate new solutions, proprietary development is becoming our main priority.
RTIH: What have been your tech roll-out highlights of 2021?
AM: In 2021, we identified several key work streams for ourselves and tried to pursue these goals.
X5’s pace of growth requires the creation and maintenance of a flexible technical platform.
From a technological point of view, it must ensure a very reliable and highly secure system (cyberthreats are now one of the biggest challenges facing every company) and enable the development of our in-house cloud (dynamic infrastructure), data accessibility and automation (reducing the possibility of human error).
Technologies related to real-world dynamic management, demand forecasting, pricing, traffic management and predicting epidemiological risks in crowded areas are coming to the fore.
As an example of an effective combination of technology and a business product for customers, I would point to the launch of our subscription pilot this year.
The project’s MVP was completed in September of this year and showed an increase in retail turnover and traffic at our retail chains, and it also contributed to an influx of new customers.
Now we’ve moved on to the pilot, where we will test three formats.
The combined subscription, tentatively called “Package”, combines discounts on items during checkout, enhanced loyalty programmes, free services and gifts from various group businesses – retail chains, online formats, logistics services – as well as offers from our partners.
Unlike other subscriptions, our offer is aimed at covering the essentials: food, safety, comfort, everyday life, key purchases.
RTIH: Could you tell us more about X5’s decision to develop tech in-house?
AM: We divide all our developments into two major areas: commodities and projects with excellent potential make us more competitive.
And the key factor in decision-making – whether we go with our own development or involve a vendor – is precisely this division, at the foundation of which is process efficiency.
If we’re talking about a commodity, then we’re prepared to purchase a solution available in the market and to quickly incorporate it. But if we’re talking about a product that is to become the basis of a competitive advantage for us, then we turn to our own in-house development.
It took us a while to get to this point. The majority of the solutions that we develop ourselves can’t be found in the market in a turnkey form; these are unique products, and they allow the company to be much more efficient and to accelerate the time to market.
Today, already more than 70% of our solutions are the result of our in-house efforts. We have over 1,000 developers on staff, and we are betting on a lot of new ideas.
These are solutions not only for our offline formats and digital platforms; they also include, for example, solutions for the digitalisation of transport, such as for shipping between various parts of the company.
The scope of our developments includes projects such as an A/B testing platform; Dialog X5, a multifunctional tool for suppliers and partners; big data-based smart algorithms and products for pricing; and operations involving product mixes, promotions and procurement.
In the coming year, we will be faced with the challenging task of launching our own cloud.
In general, working with data is a hypersensitive area; it’s not always proper to give full access to contractors.
We also understand that solutions are being incorporated in the industry very quickly; with our in-house expertise, we can increase the speed of change considerably. You can’t take a data-driven approach if you’re outsourcing.
RTIH: Could you also talk about how you monetise in-house solutions on the global market?
AM: X5 has definitely accumulated unique experience through its own R&D, which has aroused interest and demand not only among players in the Russian market but also on the part of international companies.
This applies not only to hardware solutions – self-checkouts, digital tablets and smart scales with AI under the hood – but also software, including digital delivery platforms, self-service systems, particular algorithms, etc.
From the point of view of working with data, our multifunctional Dialog platform is our most successful product right now.
This is a unique tool that uses accumulated information on sales and customer behaviour. It enables every supplier to receive analytical reports practically in real-time and structure their business with X5 more efficiently.
Dialog X5 already includes analytical and logistical reporting, targeted advertising and a tender platform. More than 100 suppliers used our tools in 2021, and we have already created around 22,000 analytical reports for our partners.
We have developed an A/B testing platform that we are banking on – both in terms of increasing the efficiency of internal processes and for potential commercial promotion on the open market. The data related expertise that we have built up enables us to do this.
RTIH: What can we expect to see tech wise from X5 over the coming months?
AM: Our main goal is to continue to provide effective business support by introducing advanced technologies and innovations, and to speed up the time to market.
We plan to accelerate operations in our offline network. In particular, we’re talking about a transition from a monolithic PoS system to a flexible microservice infrastructure.
In 2022, we’re going to announce the launch of our own internal cloud. We decided to go with our own development, as we couldn’t find acceptable solutions on the market.
This will increase efficiency, enable us to update our solutions more quickly, while also speeding up the time to market. X5 Cloud will bring us speed, mobility and a new level of security and data protection.
We will continue to develop innovative solutions for our customers. We are betting on scaling our advanced technologies that have already proven to be effective – payments using biometrics, self-checkout, express scan and others.
In the context of our Subscription project, we have begun the pilot stage for all customers, and we are counting on seeing a considerable increase in users in 2022.
For us, proprietary development will remain a priority in 2022. We are building up our expertise internally to be able to quickly respond to any external challenges that might arise, including the main one: the security of our customers’ data, which is our top priority.
