Using Magnit as an example, we will look into why a large retailer needs its own marketplace, how it may differ from existing large platforms, and how to launch it in a highly competitive market
Tasks
Provide customers with an “endless shelf” online with a wider range of products than in stores.
Increase the frequency of purchases and the average bill.
Increase the lifetime value (LTV) of clients within the Magnit ecosystem.
To take a strong place in the e-commerce market.
Background and motivation
In 2020, the share of e-commerce in total retail trade exceeded 10% and has been steadily increasing since then . And the faster this growth, the more the impact of e-commerce is felt in the offline segment.
“About five years ago, the company realized that changes were needed to maintain its position in the market. Otherwise, the development of e-commerce and other players would begin to have a strong impact on the business,” says Konstantin Izmailov, CEO of the Magnit Market marketplace.
The retailer began developing the foodtech direction and launched grocery delivery from its stores. The new option became popular among customers, and the company began thinking about creating its own marketplace. At the same time, the fight for market share in Magnit was not considered a priority.
On average, customers visit Magnit offline stores seven to eight times a month. But the selection there is not as wide as on marketplaces. The store space is limited, and many items and categories of goods are not presented here. Therefore, the retailer wanted to provide its 80 million customers with an expanded selection – an “endless shelf” of goods in the marketplace format.
Konstantin Izmailov:
“If we talk about creating a classic marketplace from scratch, then the market is already too saturated for this, it is almost completely distributed between the top players. But we have a different case: for Magnit, the marketplace is a synergistic story and a continuation of the offline business. On the one hand, Magnit’s infrastructure and audience help develop the marketplace. On the other hand, opening a marketplace pickup point in stores already affects their performance, increasing traffic.”
At first, the company tried to create an online platform on its own. But the team came to the conclusion that it would take up to three years to launch the marketplace. They abandoned this idea and began to look for alternative options.
Solution
At the end of 2023, Magnit decided to acquire the KazanExpress marketplace and launch Magnit Market on the basis of this platform.
According to the results of the first half of 2023, KazanExpress’ turnover reached RUB 9.2 billion, and its market share in the marketplaces was 0.3%, which put it in sixth place among the largest e-commerce platforms in Russia.
KazanExpress had a small network of 500 pick-up points, one fulfillment center, and worked with sellers only under the FBO scheme (Fulfillment by Operator – trade from the operator’s warehouse: sellers independently ship goods to the marketplace warehouse). But Magnit’s infrastructure capabilities made it possible to quickly remove these restrictions and use the purchase of KazanExpress to speed up entry into the marketplace market.
Implementation
The integration of Magnit and KazanExpress started in February-March 2024. It included four main areas.
Pick-up points. Now they are placed in the retailer’s own stores. This allows for rapid scaling and avoids spending money on purchasing or renting premises or opening agency pick-up points. “Territorial proximity is of decisive importance for customers. No one is ready to walk to a pick-up point more than ten minutes from home or office,” emphasizes the CEO of the new marketplace.
At the time of the deal, KazanExpress was significantly inferior to its competitors in terms of the number of pick-up points, even in its home cities. Opening pick-up points in stores allowed the marketplace to be quickly made convenient, Magnit notes. The partner pick-up points left over from KazanExpress continue to operate.
Some pick-up points were opened in settlements with a population of less than 10 thousand people, including villages. Even without advertising, the flow of orders here was comparable to new points in large cities. Word of mouth worked: local cashiers told their friends about the new option, and they began to actively use the pick-up points.
Konstantin Izmailov:
“By opening pick-up points in stores and watching their results, we have gained an even better understanding of our potential in the regions. Magnit has several dozen stores inside the Third Transport Ring and another 30 thousand outside it. It is interesting to see, for example, the pick-up point in the village of Podstepki in the Samara Region among the best pick-up points in terms of the number of orders. In the future, Magnit Market will become a good way for sellers to grow their sales in the regions.”
Product integration. Magnit has a direction called Omni, which unites three verticals — a marketplace, a loyalty program, and foodtech. All of them are presented in the retailer’s main mobile application, Magnit: Promotions and Delivery.
The number of active users of this application is 20 million, it works in all regions where the retailer has offline stores. The geography of Magnit Market is still smaller (Central, Volga, Ural Federal Districts, Moscow and the Moscow Region). It is shown to users of the main application only where the marketplace is presented. This audience is about 5 million people.
The marketplace was connected to the main Magnit application already at the first stages of integration. A little later, Magnit Market was connected to the Magnit loyalty program. Now Magnit Market is already deeply integrated into the main application: for example, its main screen shows the products of sellers.
At the start, the team had a hypothesis that the profiles of purchases and users on both platforms would be similar. However, it turned out that in the retailer’s main application, the marketplace is perceived as an extension of offline stores, but with a wider selection. Here, people primarily order food and household goods. In turn, Magnit Market focuses more on other categories that people usually go to online platforms for – equipment, clothing, car products, etc. Now the company wants to increase the penetration of new categories, which has become a separate area of work for the team.
Logistics. For the new marketplace, the logistics capacities and chains of the retail network were used – in cases where it is effective and provides savings. At the time of the deal, KazanExpress had one sorting center; by the end of 2024, Magnit Market will have 11 of them.
Three months after the start of integration, the marketplace launched in Moscow, opening a network of pick-up points and an order acceptance point for sellers. According to Konstantin Izmailov, the launch in the capital allowed them to work out processes for entering new regions, as well as start working with local sellers. This is a large audience of sellers: a third of the sellers working on the marketplaces are located in Moscow and the Moscow region.
Purchasing processes. In some categories, Magnit Market works with the retailer’s suppliers, often on the same terms as those established for the retail chain. This model allows the marketplace to offer low prices on popular products, and thereby increase the efficiency of attracting new users and the frequency of purchases.
Sellers were concerned that Magnit Market would become a platform for Magnit suppliers and it would be difficult to compete with them, says Izmailov. But the main task of the marketplace is to provide customers with additional assortment. Therefore, the retailer works with suppliers only for certain categories of goods. In most categories, only marketplace sellers are represented.
The integration was fully completed in the summer of 2024.
Results
Since the beginning of the integration, the geography of the marketplace has expanded from 120 settlements to 200, and the number of pick-up points has grown fivefold – to 2.5 thousand. Previously, the site had only one sorting center, now there are four, and six more are in the process of opening.
“Our main focus is not to take some market share, but to carry out integration, to become the first choice marketplace for a significant portion of Magnit customers, to increase the network’s performance and give it an additional impetus for growth. Market share will be the result of solving these problems,” notes Konstantin Izmailov.
One of the main indicators reflecting the influence of the marketplace on Magnit’s core business is the LFL (Like for like sales) indicator. It allows assessing the dynamics of sales in retail outlets and includes turnover and traffic within the store.
“We are closely monitoring this indicator. And we see that it is starting to grow against the backdrop of the opening of a pick-up point in the store,” explains the marketplace director.
While working on the marketplace, another project was born that will also affect this indicator — Magnit Post. This is a delivery service for orders for online stores that are not represented on the marketplace. The project was launched in August 2024.
Plans and Prospects
According to Konstantin Izmailov, 2024 will be the year of preparation for the active growth of the new marketplace.
By the end of the year, another 2,000 pick-up points will open in stores, their total number will grow to 4,500. In 2025, this figure will double. In the future, pick-up points may appear in every Magnit store.
Konstantin Izmailov:
“Any marketplace needs three basic components. These are a convenient network of pick-up points, assortment, and marketing. We started with the first. Now, in those cities where we brought the pick-up point network to third place compared to competitors, we are starting to launch advertising campaigns. The growth point for us, of course, remains the assortment. We are currently working on the FBS scheme (Fulfillment by seller – sellers can sell from their own or partner warehouses) and count on it as a driver for assortment growth.”
Magnit Market emphasizes that the competition between sellers in most product categories is significantly lower here than in other marketplaces. “We do not want the buyer to see a hundred tabs with identical products in the search results for a simple request. It is important for us that the marketplace client can easily find what he needs and buy it at a good price. Just like he does on a store shelf,” comments Konstantin Izmailov.
In addition to launching FBS, the marketplace plans to expand to new regions in 2025. Magnit Market does not yet operate in Magnit’s native Krasnodar Krai. There are also enough regions in the north, south, and east of the country where the retailer’s infrastructure allows for the launch of a marketplace, the platform’s CEO concludes.
