High demand for home grocery deliveries in large Russian cities and the success of such services in Western countries are helping create a buzz around online grocery retailing in Russia. But the complexity and high cost of operating this model in Russia means few retailers have so far launched online sales channels. Online grocery stores that do exist tend to limit their deliveries to Moscow or St Petersburg, and emphasise their offline locations. 

"Consumers are hesitant to buy groceries online because of the absence of logistic infrastructure providing reliable delivery across the country," explains Lidia Shuktomova, analyst at market researchers Euromonitor International. "They also do not see the value of shopping online as the existing online retailers cannot offer competitive prices and same wide assortment of products."

So while online retail is growing in Russia, groceries still account for a small percentage of these sales. Food and drink made up only 2.7% of all Russian internet sales in value in 2014, according to Euromonitor.

However, Euromonitor projects food and drink internet retail will grow by 11% on a CAGR basis by 2018. 

Utkonos, Azbuka Vkusa and Sedmoi Kontinent are the main players on Russia's online grocery market. The market leader Utkonos closed all of its offline locations in 2013 and now operates in an online-only format with deliveries to Moscow and the Moscow region – the city's official population stands at 11.5 million. 

In contrast, chain retailers with offline locations tend to position internet stores as an additional service for their clients. This was the attitude adopted by Azbuka Vkusa, a chain of premium grocery stores in Moscow and St Petersburg, when it launched its e-commerce channel in 2009. 

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Azbuka Vkusa receives up to 500 orders per day from Moscow and the Moscow region through its online store. Its main clients are women, aged 25 to 40 years. 

"We wanted to get a feel of the market, to see how in demand such a service would be. In its two to three years of work, we saw that the service is in demand and has potential," said Oleg Lanko, director of distance retail at Azbuka Vkusa.

During the internet store's pilot stage, Azbuka Vkusa sourced deliveries from two of its offline stores, but as the service's popularity grew, the company started delivering from a warehouse and in November transferred to a warehouse more than triple the size of the previous one and especially equipped for online retail.

Delivery fees in Moscow depend on the distance from the buyer's home to the city centre, and the amount can influence whether the customer chooses home delivery or click-and-collect, Shuktomova said. Delivery prices at Utkonos and Azbuka Vkusa start at RUB149 (US$2.28) and some companies offer complimentary delivery when an order exceeds a set price range, such as RUB3,000. Marketing such novel services to Russians is also tough. "There is no market as such in Russia for this service, so people don't know that it's possible to order groceries online," Lanko says. "Promoting our online service is in fact equivalent to promoting the development of the market in general, forming demand, informing people that this service exists, trying to dispel their fears."

Still, other leading market players are hesitant to adopt the new format. Logistics are among the main challenges retailers encounter in setting up internet stores, particularly in Moscow where strict delivery times have to factor in routine traffic jams. 

"The business of running an internet store is one of the hardest, if not the hardest," says Lanko. "The logistics are very challenging and, at first, the business is unprofitable."

Azbuka Vkusa and Sedmoi Kontinent operate online because their delivery range is limited to Moscow, Euromonitor's Shuktomova says. But online sales accounted for just 2% of Azbuka Vkusa's total sales in 2013. Nevertheless, it wants online sales to generate 5% revenues by 2018.

Supermarket chains Magnit and Dixy Group have expressed an interest in online retail, but neither currently has plans to test its own online pilot, in large part due to the logistical complexity and project costs, Shuktomova believes.

Other leading grocery retailers, X5 Retail Group and Auchan, have established online stores but limited sales to non-food items. In fact, X5 shut its Internet store E5 in December, although a spokesperson said it "was never focused on grocery retail".

But while some established retailers are hesitant to try online sales, entrepreneurs often see the online format as the optimal way to cut costs and quickly make their start-ups operational.

Moroshka Market, which specialises in selling local wild products such as fowl and berries, launched its online store in October 2013. The store's average clients are members of the upper middle class, 27 to 50 years old, and the store's delivery range covers Moscow and the Moscow region. 

"We chose the internet store format because we were very limited in funds. An internet store allows you to start selling practically from the warehouse while traditional retail would require you to also rent store spaces and these are very very expensive in Moscow," explains Vladislav Dmitriev, Moroshka Market's co-founder and general manager. "We had some fears and doubts. Will customers buy products without seeing them first? Will they take that risk? At first we expected that the average cheque will be very small until people gain confidence in the quality of our products, but in practice, people were not scared off. Our first orders were fairly large." Against the manager's expectations, perishable items are among the most popular.

Such items also figure prominently Azbuka Vkusa's online orders. What distinguishes online customers is that they tend to include heavier and larger items in their shopping carts and buy more in general, with the average cheque of an online purchase four times higher than that of an offline purchase, Lanko nots.

Nadejda Semenova-Brullova, owner of another start-up, founder and manager of the I-MNE online grocery store that sells organic and vegan food, initially simply wanted to supply family and friends with natural products. She sought out products from local producers and made bulk orders, but the orders soon became so big that she launched a public website channelling sales. 

"The internet store format is very comfortable for starting a business. It allows to quickly test hypotheses, display your talents and to find out what you're worth as an entrepreneur," Semyonova says of the store's 2009 launch, which has fuelled offline expansion to include 22 Russian and Ukraine outlets, allowing customers to pick-up orders themselves, of which 10 are fully-fledged offline stores.

Russia's retail sector is, at present, closed to a swathe of overseas food manufacturers due to Moscow's embargo in retaliation for the West's sanctions. Even those potentially interested in building a presence in the country's nascent online grocery channel will have to watch from afar.

Within Russia, there has been a mixed reaction from major food manufacturers to the fledgling sector. 

Asked to discuss its sales and marketing strategy in the sector, Danone declined to comment. "Online food retail is so small in Russia that we don't do anything special for it," the French food giant said.

Mondelez International agrees it is early days in the development of the sector but says it is collaborating with some of the retailers in the channel.

"Mondelez Rus partners with several retailers working online like Utkonos, Azbuka Vkusa, Sedmoy Kontinent and [wholesaler] Metro Cash & Carry. At the moment, our consumers can find the exact same products and special offerings they find in physical stores. As the channel develops, we're considering offering a more focused range of products to online shops," the company tells just-food.

Nestle describes online retail as "an opportunity" for its business in Russia and outlines the marketing tactics it uses on websites like utkonos.ru.

"Nestle implements a wide range of consumer promotions that help to improve consumer loyalty and increase sales of our products: price reductions, banner campaigns, loyalty programs (including joint campaigns), direct SMS and e-mail campaigns," the company tells just-food. "These efforts allow us to improve consumer loyalty, grow sales and strengthen our partnership with Utkonos."

The Maggi owner says it does not offer specific products for sale online but it is something Mondelez is weighing up. "Our strategy is to be where our consumers are. Currently, buying groceries online is a less popular practice than, for instance, booking, buying household appliances, apparel, and computer parts. The more consumers shift to online grocery shopping, the more differentiated from offline channels our promotions and offerings will be," it says.

And while Russia's deteriorating economic situation will not help, with online retailers having to raise prices while customer purchasing power dwindles, the outlook for online retail is fairly good, I-MNE's Semenova-Brullova says. "Everything will continue to grow and develop, despite the crisis. It's just that the growth may slow down a bit, but the positive tendency will remain."

Moroshka Market's Dmitriev is even more optimistic. "There is a great future for online retail. We definitely don't want to miss out on that potential."

Mondelez, for one, is a supplier that is eyeing the sector with interest. "Regarding the growth and prospects of this channel, online food retail remains attractive to us and we're interested in its future development."