Despite the 2.6-fold year-on-year surge in online turnover to 2% of total retail sales and 3.6% of sales in Moscow, Russia's largest food retailer X5 Group continued to lose grip on e-grocery leadership in 3Q21, coming in third after Sbermarket (16% share of total e-grocery market) and Vksuvill (13%), according to Infoline.

Online food retailing is the most rapidly developing segment of booming e-commerce in Russia and is set to increase 2.50-fold to RUB380bn ($5.3bn) in 2021, according to Infoline's forecast. 

X5 had a strong head start on digital innovation and used its advantage to emerge as the largest e-grocer amid the coronavirus (COVID-19) lockdown in 2020. But in 1H21 X5 for the first time lost its leadership to VkusVill.

As followed by bne IntelliNews, in the fast-growing foodtech and e-grocery segment VkusVill is an emerging market player to watch amid news that the company is reportedly preparing for an IPO. 

The company started in the stock-up mission with Vprok.ru, which comprised 39% of its online turnover in 3Q21, while the pace of growth slowed to 48% y/y in the period. 

In express delivery, X5 Group was behind the pioneering Samokat (fourth with a 12% share in 3Q21) and Yandex.Lavka (5th, 8%), largely delivering from existing convenience outlets. 

"The service already represented 52% of online turnover for X5 Group in 3Q21 and sales surged 4.8x y/y to RUB5.5bn in 3Q21, while the low focus on establishing dark stores and incremental pressure on offline outlets raises questions," VTB Capital (VTBC) commented on November 12.

The analysts at VTBC note that in its latest strategy, X5 has cooled its plans for the e-grocery segment, now aiming to be in the top three players (it had previously targeted leadership in the respective channel, with a 20% share). X5 has planned "making rational investments" into promoting the service and targets its stock-up mission breaking even by the end of 2021 and express delivery in 2023. 

"We see much more aggressive investments by market leaders and regaining leadership in the current environment could be difficult for X5," VTBC argues. In such conditions spinning off e-grocery assets or setting up joint ventures also looks vague. X5 was previously determined to IPO its e-grocery and express delivery assets. 

X5’s global depository receipts (GDRs) are trading flat year to date at 2022 forecasted Enterprise Value/EBITDA of 6x and a 12-month dividend yield of 8%. VTBC maintained a Buy call on X5's shares as the multiples are not "overly demanding". 

But the slowing momentum in the offline business and no rapid pace online could pressure the investment case in the near term, the analysts warn.

In October bne IntelliNews published an exclusive interview with Sergei Goncharov, the CEO of X5 leading convenience formal Pyaterochka, in which he discussed some of the factors driving this revolution in the food retail ecosystem and how vendors are responding to them.