Edadeal and Russia’s cashback retail revolution

Edadeal and Russia’s cashback retail revolution
Russia's e-commerce is booming as more and more people go online to shop. / Photo: Magnit
By Ben Aris in Berlin March 15, 2018

Natalia Shagarina CEO EdadealNatalia Shagarina doesn't look like an e-commerce entrepreneur in charge of a service that is taking the Russian online retail business by storm, and is fermenting a revolution by offering punters a cashback reward for buying a product. She looks just like what she is: a middle-aged mum.

But that was the point of the app: Edadeal is designed to help mums get their shopping done quickly, cheaply and pleasantly. It helps you find the best bargains – and Russians love a bargain – but it also works out which stores are closest or are the most pleasant to shop in and suggests an itinerary that takes the least travelling, has the smallest bill, and puts you in the shops you like the best. Shagarina says that technically Edadeal is not e-commerce as 95% of the transactions happen offline. 

“I didn't set the company up because I had a good idea that I thought would make a lot of money,” Shagarina tells me over coffee in Berlin just over the road from Bahnhof Zoo where she is weekending with a friend. “I was just concerned with solving problems that affect my own personal life.”

Shagarina also happens to have a background in tech, having worked as a product manager for Russia’s internet giant Yandex for less than a year. But she also has an energy and focus on the problem she is trying to solve. A degree in journalism from Moscow State University means that Shagarina had to teach herself all the technical aspects of the job. 

Edadeal (a compound of the Russian word for “food” and the English “deal”) is still a young venture, although in 2017 the app had more than doubled its number of users to more than 5mn and was ranked the 23rd largest app in the country, according to market research company GFK.

The concept of the Edadeal site is simple. The home page looks like an online grocery store with lists of products you can buy – everyday things like groceries, cleaning products, pizzas, cosmetics – the kind of things that fills very family’s weekly shopping basket.

The clever bit is the site works with over 360 retail stores and works out what is the most valuable way to buy these things for you. That doesn't just mean saving money – although discounts and deals are a big part of the offering – but it also takes into account how far away the various shops are from you and from each other and how much you like (or dislike) going to each shop. How willing are you to walk another 500m to save that extra RUB500 on your shopping?

The route you choose is important, especially to Muscovites. Shagarina points out that the Russian capital’s legendary bad traffic means everyone has a route-planning habit. You think carefully about which shop to go to as there are parts of the city to avoid at certain times of day or some destinations are much easier to get to than they are to get back from. The order you visit stores can make a big difference to the time it takes.

Moreover Edadeal fits with a general trend in Russia where shoppers are moving away from large malls and making more use of smaller local stores that have become more refined in their product mix. After 20 years of development there are stores in every direction; Edadeal allows punters to pick through the choice to find the best combination of price, effort and pleasure.

Its clearly a site set up by a working mum and Shagarina did most of the ground work while she was on maternity leave having her three children in short succession after careers as a TV reporter for Russia’s First Channel and running the Burson-Marsteller office in Russia for a decade.

“I never considered myself to be a PR person, but a product manager. People came to us with their products and the problem of how to sell them. We were in the business of solving those problems,” says Shagarina.

The app was launched in 2013 and since then the site has been growing by leaps and bounds. Originally funded out of her own pocket, her former employer Yandex bought a 10% stake for an undisclosed sum and has given her both a work space in its building at Park Kultury in Moscow and working capital in the form of loans that can be redeemed for equity later, while Shagarina builds the business up. Shagarina loves working inside the Yandex ecosphere, surrounded by some of Russia’s brightest online entrepreneurs and engineers.

Russia has embraced e-commerce, which saw sales volumes up by a quarter in 2017 to $30bn. The sector has grown so fast in recent years it is starting to disrupt traditional retail as punters shun traditional malls for online services. E-commerce already accounts for about 8% of Russia’s entire retail turnover and is growing at twice the pace of more traditional retail services, which themselves are growing at twice the pace of the economy.

And the surprisingly advanced state of Russia’s TMT sector also lends itself to this kind of service. Russia has skipped over several stages and gone straight to state-of-the-art. The country missed out chequebooks entirely and both stores and consumers use the most modern contactless debit and credit cards by default. Smart phone penetration is high and still growing fast. And most revolutionary (as we will see in a moment) all stores in Russia have contactless card terminals, bar code scanners and cash registered hooked up to the internet, putting Russia far ahead of even the US on this score.

Discounts galore 

Discounts play a very large role in what Russians buy. The crisis that started in 2008 and got worse by many measures in 2014-2016 has seen average incomes halved in dollar terms. Shopping habits have changed dramatically. Shoppers traded down en masse to cheaper goods, Russian-made goods, while groceries have increased its proportion of the shopping basket from a boom-year low of 35% to 50-60% now. To retain customers all the leading Russian retailers launched generous discount programmes to maintain their market share and revenues. And the punters have become addicted to discounts, says Marat Ibragimov, a retail analyst at BCS Global Markets.

“There are some products that people won’t buy now unless there is a discount. Dishwasher soap tablets are expensive and I would never buy them unless there is at least 30% off the cover price, but I am willing to walk an extra 500m if I am shopping for a dinner party,” says Shagarina in English she taught herself when working for missionaries as an interpreter in the early 1990s at the age of 12.

During the worst of the crisis years shoppers actively sought out deals but now the crisis is ending the habit has stuck. A Nielsen survey showed that 62% of Russian consumers pay attention to special offers and 33% seek them out, reports Reuters.

On the other side of the checkout, regional supermarket king Magnit sells 80% of its household products on a permanent special offer basis and urban rival Lenta's special offers make up 40% of total sales. The use of discounts has been so widespread that it has eaten into profit margins in the whole supermarket business, complain equity analysts.

All this has created an opportunity for Edadeal, which has imposed some order on the discounting mechanics.

Getting the coupons to the punter remains a problem. Traditionally they are printed in newspaper or on fliers posted as junk mail to households, which is an expensive and inefficient distribution system. A lot of money is spent instore as well on promotions and advertising. But one of the biggest problems is the vendor and manufacturer remain cut off from the customer using the discounts as the coupons are redeemed anonymously.

Part of the appeal of Edadeal is that it is a perfect platform to offer these deals and discounts. And as Edadeal knows its customers shopping habits, it makes the missing link so that deals can be custom built for individual groups.

“What the app does is take over the whole coupon clipping idea. Instead of cutting coupons out of a newspaper and keeping them in your purse, the companies can look for say young mothers and give them a special discount on nappies that can be redeemed using a scanned code on your smart phone. We are going to completely change the way companies offer and use discounts,” says Shagarina.

Cashback revolution 

One of the first victims of the change might be discount coupons themselves. Edadeal and many of the leading fast moving consumer goods (FMCG) companies are already moving slowly to cashback offers to promote sales: customers are paid a reward in cash for buying their product.

Moreover, in a strange twist two recent innovations by the Russian tax authorities – QR codes on all Russian shop receipts that connect to the tax authority’s database, and every store has to have a scanner to read barcodes – have empowered Edadeal to  make the cashback offer really powerful and data rich in  way that is not possible in most other countries.

The QR codes were introduced to allow customers to see what they bought and how much tax was charged. The scanners were imposed to read bar codes on bottles of alcohol after the state introduced tough rules limiting the hours when vodka and booze can be sold as part of a public health drive against alcoholism.

Taken all together and suddenly the manufacturer is in the driver seat when it comes to offering discounts on their products, a place previously occupied by the retail outlets.

In the old days a punter would clip a coupon that gave them say a 10% discount on a bottle of pop. In Russia the maker actually sells their pop to the retailer, who then on-sells it to the consumer. That means the supermarket is actually the manufacturer’s biggest customer and remains divorced from the punter that actually drinks the pop, says Shagarina.

However, what Edadeal is pushing is a scheme where the manufacturer directly interacts with the punter and pays them cash back on each purpose, paying into an electronic wallet or a service like Yandex.Money. The customer can claim their reward by scanning the QR code on their bill into the Edadeal app that connects to the tax authorities database and shows the customer has actually bought the bottle of pop. As a spin-off the tax authorities are very keen on the scheme as it forces stores to put all their bills through the internet-connected cash register and prevents them from cheating.

Getting a cash payment rather than paying less for a product is far more appealing to consumers as it feel like “free money” that they can spend on something else. For the manufacturer the scheme is an El Dorado of information about their customers they have never been able to access before.

“In retail you have to understand who your customer is and for a manufacturer like Coke that is the vendor, not the shopper as it was the supermarkets that were buying the bottles of coke and then selling them on. With cashback the manufacturer has direct access to the shopper for the first time,” says Shagarina.

Edadeal also benefits from this scheme as it opens the way to big data analysis of punters' shopping habits that will allow it to design much more targeted promotions. Why give discounts or cash to everyone when you can target only those people you want to attract? Even the store wins as they have been grappling with ways to get closer to their customers with only partial success.

“Many stores are offering customer loyalty cards, but if you go to 10 stores that means 10 cards. The Edadeal app gets round that problem as it is the only way to centralise the loyalty schemes,” says Shagarina. “It is very hard for a company like Coca-Cola to talk to you. It is very hard for them to get your data even from the stores they sell their products through. It is also very hard for the vendors to get close to you. Loyalty cards are only a partial solution.”

A raft of FMCG companies have already signed up to take advantage of the cashback promotion scheme, including: Ferrero, Mars, Henkel, Nestle, Baltika, Bonduelle Kuban, Coca-Cola, L’Oréal, Efes, KraftHeinz and Morozko.

“Cashback cuts out the noise,” says Shagarina. “When you go to a store you are flooded with offers, but when someone is putting cash on your account you focus a lot more.”

For manufacturers it is a unique opportunity to connect directly with their customers. Targeted communications encourages loyalty amongst customers and that leads directly to boosted sales.

Shagarina wants to extend the cashback idea to appeal to retailers too. A simple idea is that once a customer spends a fixed about of money with a retailer they automatically get some cash back, which will pull more customers into stores. Her app can calculate this money into the shopping itinerary automatically, changing the route depending on what and how much a punter wants to buy.

Not bad for a stay-at-home mum with a bit of spare time on her hands.

Features

Dismiss