UBS: Russland digital auf dem Vormarsch

E-commerce remains an underpenetratedmarket, has strongpotential but near-termchallenges

E-commerce accounts forapproximately 4% of total retail salesin Russia, meaning it is comparativelyunder-penetrated when measuredagainst other emerging markets likeChina (c.17%), and 9%, on averageglobally according to GoldmanSachs, and our interviewees expecthealthy growth in the coming years.

Indeed, e-commerce or online salesin Russia are growing at a healthyrate, our interviewees estimatedthat growth was around 20% y-o-yin 2017 and at a faster rate thanoverall retail sales, which have beenrecovering recently as economicmomentum has gathered pace.That said, we learned that growthfor domestic companies could bechallenging due to a lack of sufficientlogistics infrastructure, as well ascompetition from Chinese peers.

E-hailing has structuralunderpinnings for growth

Poor infrastructure, including a lackof public transport, plus the highcost of car ownership, means Russiahas robust structural underpinningsfor growth of its e-hailing market.

Yandex Taxi and Uber, now merged,cover approximately 75 million to80 million Russian users – c. 55%of the population – yet only 8%of taxi rides are currently boughtonline, according to GoldmanSachs. During our interviews, welearned that profitability shouldimprove, particularly as companiesare expected to reduce the rate ofsubsidies for passenger rides.

Many companies working todevelop a 'superapp'

Tencent's success in developingits Wechat superapp is promptingmany Russian internet companiesto build an app with a similar onlineecosystem of their own. Such anoffering would include payments,games, taxis, food delivery,messenger services etc, to bothincrease engagement and theirpotential to monetize their user base.

An internet ecosystem whichfavors local players

While Russia's market is not hostileto players from the US or China,during our visits and interviewswe felt that foreign companieswon't be allowed to dominate themarket. In fact, Russia is one of thefew markets where Google andFacebook don't dominate searchand social media – even thoughFacebook is present in Russia, ourresearch shows its user base is only1% of the total user base, whileGoogle's revenues are less than 1% of its total.

Longer-term outlook:Consolidation and lesscompetition are likely

Our interviewees told us thatconsolidation and less competitionin the industry is likely. Companieswith large offline user bases, such asMTS and potentially even Sberbank,want to take a share of the digitalbusiness. Similarly, online playersrealize that a successful e-commercemodel is probably a mix of onlineand offline.

Lesen Sie hier, in englischer Sprache, welche Erkenntnisse unser Emerging Markets Team bei seinem letzten Besuch gewonnen hat.