The “Russian Google” could become the “Russian Amazon”. Last week, it emerged that computer giant Yandex was in talks to buy upscale grocery chain Azbuka Vkusa, which is a symbol of affluent living in Moscow. It was The Bell who first reported Yandex’s flirtation with offline retail, a move market insiders likened to Amazon’s 2017 purchase of the Whole Foods grocery chain.
- There is some truth in the comparisons between Yandex and Google. Since Yandex was founded in 1997, it has made most of its money from search engine advertising. However, for several years it has been actively investing in other areas, including food technology and e-commerce. For the first time, ad revenue was less than half of Yandex’s revenue this year.
- Retailing is currently the focus of Yandex’s preoccupations, prompting comparisons to Amazon. Recently, Yandex announced its intention to become one of the top three retailers in Russia.
- Azbuka Vkusa is an upscale grocery store based in Moscow and the surrounding region. Its products are expensive, and an Azbuka Vkusa platinum card is somewhat of a status symbol for Muscovites. The company prides itself on being a seller of “European” products, but a 2014 embargo on food imports from the West and falling wages halted previously rapid growth. Now analysts estimate Azbuka Vkusa at $ 300 million (excluding debt).
- So why does Yandex need a high-end grocery chain? For two years, the company has been experimenting with the delivery of groceries and ready meals. Its Yandex.Lavka service is already very popular in Moscow (in the last three months of 2020 it generated around $ 55 million in revenue) and is actively looking to expand into other major cities. Yandex also wants to export the Yandex.Lavka concept abroad, with similar services slated to open in London and Paris.
- There are obvious synergies between Azbuka Vkusa and Yandex.Lavka. Both companies work in the high-end market and Azbuka Vkusa has a historically strong prepared food market (which Yandex.Lavka is actively targeting). In addition, a merger could reduce the cost of purchasing Yandex.Lavka, as it takes advantage of economies of scale.
- “Yandex is trying to determine its place in the market: search engines and taxis are established businesses, but the rest is experimental. This includes the grocery segment, where it is impossible to be successful without detailed industry knowledge, ”said Alexei Krivoshapko, Retail Analyst at Prosperity Capital Management. “After getting one foot in the door with Lavka, now Yandex is putting its shoulder to the test with the purchase of a premium niche player.”
- However, Azbuka Vkusa and Yandex share something beyond an interest in the premium market: they have a common shareholder. Billionaire Roman Abramovich’s asset management firm Millhouse Capital acquired a minority stake in Yandex last year. Abramovich and his partners also own over 40% of Azbuka Vkusa.
Why the world should care: Fast delivery of food and groceries (within 15-20 minutes of ordering) is the next big goal of e-commerce. Yandex was one of the first large companies to embark on this rapid delivery revolution, but there is still a long way to go to make it a reality in Russia.