February 28, 2017 at 13:21Retail IT startups market: expectations of investors and large customers using the example of IIDF and X5 Retail Group
Another week - until March 6 - IT startups can apply for the 12th Accelerator and get a pre-seed investment. Retail is one of the industry tracks of the 12th set, in February we held an event with the participation of a partner of X5 Retail Group, where company representatives told which startups were interesting to them and how they were ready to work with them.
As a result of the event, we publish material on promising areas for investing in retail start-ups according to the IIDF, the volume of venture investments in this area, as well as about which startups are interested in X5 Retail Group, and how the company is ready to work with them.
In IIDF, I am responsible for investments in IT companies in the areas of retail, education and the Internet of things at the seed (up to 25 million rubles) and round A (up to 324 million rubles) stages, which showed good growth following the Accelerator, and the solution has competitive advantages (technological or organizational, for example, due to accumulated data). It is also desirable that the solution has international potential, and it has synergy with the current FRII portfolio.
In 2015, the global turnover of the retail industry amounted to 22.6 trillion dollars, while the investments of large companies from traditional retail in the solutions of IT startups remained low for many years. Now the situation is changing - major retail market players are turning their attention to startups in the retail-tech sector.
On the graph - investments in the in-store sector from venture investors in the early stages
According to CB Insights, the global market for investment in technology for offline retail is growing. In 2016, investments in the in-store sector as a whole exceeded the projected maximum and amounted to more than $ 800 million. Over the past two years alone, global investment in retail-tech startups amounted to more than $ 2.3 billion (according to Tracxn).
Early-stage investments in e-commerce from venture investors
Investments in e-commerce are declining, investors have "cooled off" in this area - this is because the sphere is already quite saturated. So large players have appeared on the market that launching a new e-commerce startup on the market now involves too much capital expenditure, which is why venture investors are wary of looking at new startups in e-commerce.
At the same time, the number and technological diversity of new startup projects is growing, the solutions of which can be applied in retail. Map of IT startups in retail by topic:
The most interesting segment for investments here is the services that help optimize the work in the store, there are a lot of them in the world.
Over the past few years, more than $ 3 billion has been invested in the areas highlighted on the map above. Some services help to monitor user behavior, show unwanted actions, such as theft. Another part is services that help with the placement of goods on shelves, with merchandising: they analyze according to user behavior how to correctly arrange the goods with the greatest benefit for the retail outlet. And the third part is services that help communicate with users: display advertising and advertising that adapts to user behavior.
Most of the investments were made in the following areas:
- "smart" cash registers and services integrated with POS-terminals - Lightspeed, Yunnex, Shopkeep, Fivestars;
- services that help you track online goods in the store and get information about what the visitor bought - Retail Next, PlaceIQ;
- analytics services that connect the user's online purchases with offline and user behavior in the store - Zenreach, NewStore, Fivestars;
The next stage in the development of intelligent services is not only to collect and analyze information, but also to make predictive analysis on its basis: which assortment will be of interest to the user in the near future, how to optimize the display of goods to increase sales in the coming month, and so on. Over 670 million investments have been made in startups of the Artificial Intelligence retail segment over the past few years.
Most of the investments in retail-tech are still made by technology companies, not traditional retailers. In the future, retail companies can most likely be viewed not as investors or buyers of IT startups, but as customers to whom these startups primarily sell their solutions. Technological giants like Google and Amazon are likely to invest in successful companies in this area.
Retailers need a product rather than process optimization. Retailers primarily buy turnkey solutions to integrate them into their product line. According to CB Insights, in 36% of cases, retailers consider buying startup IT solutions to actually outsource their development department.
The Russian market is not yet very developed - about 4-6 transactions a year occur in retail. But on the whole, even the Russian market is enough for retail companies and IT startups in this area to actively develop. Trade accounted for 11% of the contribution to the country's GDP in 2015, there are hundreds of thousands of small, medium and large companies in the country that startups can help optimize.
X5 Retail Group today is more than 9 thousand stores in four formats (Pyaterochka, Perekrestok, Carousel, convenience stores with various brands), about 1 trillion rubles of annual turnover.
X5 Retail Group is an IIDF partner in the industry track retail of the 12th Accelerator. We indicate startups in which areas companies are interested.
X5 Retail Group sees opportunities for innovation in five business areas. Startup solutions can be applied in the following areas.
1. Business processes in which companies may be interested in working with startups are, for example, robotics in logistics and inside the store.
2. Facilities and services - in the store and inside the supply chain.
3. Business models that can change the face of retail - such as those of Google Express and UBER. When someone enters between the retailer and the buyer and changes the business model, the retailer remains on the sidelines, large retailers would not want this.
4. Technologies - are the basis of all these areas.
If you look at the retailer’s business from the inside out, startup technologies can be implemented at one of the stages of the value chain in retail.
1. Suppliers - from the "farm" to the shelf and the buyer. In the West, everything goes to the point where the retailer wants to know where, when, and under what conditions a particular product is produced.
2. Planning - demand (to predict how much, where and what we will sell), capacities (shops, logistics), stocks.
3. Storage and delivery - distribution centers and transportation.
4. Shops / online stores, the buyer - Big Data and predictive analytics. Not only understand what methodologies and technologies for collecting analytics are, but also get data that is useful to the retailer.
Technologies that can be used at these stages of the supply chain are shown above.
1. Automation, robotization, process optimization - inside distribution centers, delivery and inside stores. So far, a huge number of retailer processes are tied to people and are expensive. In stores in the West, robot substitution is already beginning, and we will come to this soon. The company also employs and trains more than 50 thousand people a year, which is why HR solutions that optimize or automate the hiring process, understanding the skills, capabilities and competencies of candidates are very interesting.
Example: in 2012, Amazon acquired Kiva Systems. Today, Amazon no longer needs distribution centers with wide thoroughfares, since robots carry goods. 50-70% of the time in a typical distribution center is spent by people on the search for goods, Amazon due to robotization of this process reduced the cost of labor in the RC by 30-40%, and each order can be completed 6 times faster.
2. Mobile and digital technologies . Check-out technologies are already working in the world, when people come to the store and scan a QR code using a mobile phone - they buy goods bypassing the cash desk. Image recognition technology allows you to determine the occupancy of shelves. The store, through cameras, recognizes the customer’s basket and products on the shelves, sees where the customer gets the products from and which ones, knows the price of the products.
3. Big Data, analytics and personalization . Any solutions are interesting that will help not only to collect data on the entire supply chain, but also to analyze and optimize processes from the "garden" to the customers.
4. Omni channel . Everything about online sales. Retailers want to understand what the customer wants, when, whether they are willing to pay, and correlate offline customer actions with online activities.
X5 Retail Group is ready to share knowledge about the industry with startups, evaluate the applicability of startup ideas, help companies grow, determine the market's need for a product and pilot interesting solutions for X5 Retail Group. Success conditions - a business case with figures to increase sales and reduce costs X5 Retail Group.
The goal of a startup with a large partner is to go on a pilot, receive feedback from a partner, make sure that the partner receives value, and prove it in figures.
X5 Retail Group is interested in products or services that:
- help make traditional purchases faster and more comfortable,
- personalize the customer service process and collect information about the consumer basket,
- optimize logistics and / or the operation of the sales area,
- increase conversion by combining online and offline sales channels.
- allow you to independently buy goods using a mobile phone (self-checkout) and not stand in line,
- intelligent loyalty programs, possible due to the analysis of previously completed purchases based on big data technology and machine learning.
You can listen in more detail about the work of the IIDF and the Accelerator, watch the pitch of retail startups from the market, and most importantly, listen to the representatives of X5 Retail Group and other retail companies in the video:
Accelerator of IIDF - a three-month program for accelerated development of startups in the areas of IT, Internet and mobile, which IIDF launches to help companies build a scalable business and grow faster to the next rounds of investment. For three months, the founders, with the help of a pool of experts, confirm the value proposition, check the viability of the business model, put sales on the flow and break through the growth ceiling.
The accelerator industry track is a chance for a startup to get acquainted with representatives of large strategic companies and accelerate the launch of a joint pilot. Experts look at the final list of companies that have passed the selection, and choose which of them want to talk to. Company representatives also meet with some startup founders personally for mutual interest and potential pilots. IT startups from the retail sector, who will be selected for the 12th Accelerator, will have the opportunity to test business hypotheses on the X5 Retail Group's consumer base with anonymized information on more than 3 billion purchases.
You can apply for the 12th Accelerator until March 6, 23:59 Moscow time - for this you need to fill out a questionnaire, go through an online consultation with a pre -accelerator expert and take part in the selection.
As a result of the event, we publish material on promising areas for investing in retail start-ups according to the IIDF, the volume of venture investments in this area, as well as about which startups are interested in X5 Retail Group, and how the company is ready to work with them.
Nikita Yuriev, investment manager of IIDF, on the development of the retail industry in the world and venture investments in IT startups
In IIDF, I am responsible for investments in IT companies in the areas of retail, education and the Internet of things at the seed (up to 25 million rubles) and round A (up to 324 million rubles) stages, which showed good growth following the Accelerator, and the solution has competitive advantages (technological or organizational, for example, due to accumulated data). It is also desirable that the solution has international potential, and it has synergy with the current FRII portfolio.
In 2015, the global turnover of the retail industry amounted to 22.6 trillion dollars, while the investments of large companies from traditional retail in the solutions of IT startups remained low for many years. Now the situation is changing - major retail market players are turning their attention to startups in the retail-tech sector.
On the graph - investments in the in-store sector from venture investors in the early stages
According to CB Insights, the global market for investment in technology for offline retail is growing. In 2016, investments in the in-store sector as a whole exceeded the projected maximum and amounted to more than $ 800 million. Over the past two years alone, global investment in retail-tech startups amounted to more than $ 2.3 billion (according to Tracxn).
Early-stage investments in e-commerce from venture investors
Investments in e-commerce are declining, investors have "cooled off" in this area - this is because the sphere is already quite saturated. So large players have appeared on the market that launching a new e-commerce startup on the market now involves too much capital expenditure, which is why venture investors are wary of looking at new startups in e-commerce.
At the same time, the number and technological diversity of new startup projects is growing, the solutions of which can be applied in retail. Map of IT startups in retail by topic:
The most interesting segment for investments here is the services that help optimize the work in the store, there are a lot of them in the world.
Over the past few years, more than $ 3 billion has been invested in the areas highlighted on the map above. Some services help to monitor user behavior, show unwanted actions, such as theft. Another part is services that help with the placement of goods on shelves, with merchandising: they analyze according to user behavior how to correctly arrange the goods with the greatest benefit for the retail outlet. And the third part is services that help communicate with users: display advertising and advertising that adapts to user behavior.
Largest deals for 2016
Most of the investments were made in the following areas:
- "smart" cash registers and services integrated with POS-terminals - Lightspeed, Yunnex, Shopkeep, Fivestars;
- services that help you track online goods in the store and get information about what the visitor bought - Retail Next, PlaceIQ;
- analytics services that connect the user's online purchases with offline and user behavior in the store - Zenreach, NewStore, Fivestars;
Where is the market moving
The next stage in the development of intelligent services is not only to collect and analyze information, but also to make predictive analysis on its basis: which assortment will be of interest to the user in the near future, how to optimize the display of goods to increase sales in the coming month, and so on. Over 670 million investments have been made in startups of the Artificial Intelligence retail segment over the past few years.
Transactions and exits from IT startups in retail
Most of the investments in retail-tech are still made by technology companies, not traditional retailers. In the future, retail companies can most likely be viewed not as investors or buyers of IT startups, but as customers to whom these startups primarily sell their solutions. Technological giants like Google and Amazon are likely to invest in successful companies in this area.
Retailers need a product rather than process optimization. Retailers primarily buy turnkey solutions to integrate them into their product line. According to CB Insights, in 36% of cases, retailers consider buying startup IT solutions to actually outsource their development department.
Industry Development in Russia
The Russian market is not yet very developed - about 4-6 transactions a year occur in retail. But on the whole, even the Russian market is enough for retail companies and IT startups in this area to actively develop. Trade accounted for 11% of the contribution to the country's GDP in 2015, there are hundreds of thousands of small, medium and large companies in the country that startups can help optimize.
Vadim Kapustin, Director of Strategic Marketing and Planning, X5 Retail Group - about technologies that interest companies
X5 Retail Group today is more than 9 thousand stores in four formats (Pyaterochka, Perekrestok, Carousel, convenience stores with various brands), about 1 trillion rubles of annual turnover.
X5 Retail Group is an IIDF partner in the industry track retail of the 12th Accelerator. We indicate startups in which areas companies are interested.
5 types of innovations according to X5 Retail Group
X5 Retail Group sees opportunities for innovation in five business areas. Startup solutions can be applied in the following areas.
1. Business processes in which companies may be interested in working with startups are, for example, robotics in logistics and inside the store.
2. Facilities and services - in the store and inside the supply chain.
3. Business models that can change the face of retail - such as those of Google Express and UBER. When someone enters between the retailer and the buyer and changes the business model, the retailer remains on the sidelines, large retailers would not want this.
4. Technologies - are the basis of all these areas.
If you look at the retailer’s business from the inside out, startup technologies can be implemented at one of the stages of the value chain in retail.
1. Suppliers - from the "farm" to the shelf and the buyer. In the West, everything goes to the point where the retailer wants to know where, when, and under what conditions a particular product is produced.
2. Planning - demand (to predict how much, where and what we will sell), capacities (shops, logistics), stocks.
3. Storage and delivery - distribution centers and transportation.
4. Shops / online stores, the buyer - Big Data and predictive analytics. Not only understand what methodologies and technologies for collecting analytics are, but also get data that is useful to the retailer.
Technologies that can be used at these stages of the supply chain are shown above.
Business Needs X5 Retail Group
1. Automation, robotization, process optimization - inside distribution centers, delivery and inside stores. So far, a huge number of retailer processes are tied to people and are expensive. In stores in the West, robot substitution is already beginning, and we will come to this soon. The company also employs and trains more than 50 thousand people a year, which is why HR solutions that optimize or automate the hiring process, understanding the skills, capabilities and competencies of candidates are very interesting.
Example: in 2012, Amazon acquired Kiva Systems. Today, Amazon no longer needs distribution centers with wide thoroughfares, since robots carry goods. 50-70% of the time in a typical distribution center is spent by people on the search for goods, Amazon due to robotization of this process reduced the cost of labor in the RC by 30-40%, and each order can be completed 6 times faster.
2. Mobile and digital technologies . Check-out technologies are already working in the world, when people come to the store and scan a QR code using a mobile phone - they buy goods bypassing the cash desk. Image recognition technology allows you to determine the occupancy of shelves. The store, through cameras, recognizes the customer’s basket and products on the shelves, sees where the customer gets the products from and which ones, knows the price of the products.
3. Big Data, analytics and personalization . Any solutions are interesting that will help not only to collect data on the entire supply chain, but also to analyze and optimize processes from the "garden" to the customers.
4. Omni channel . Everything about online sales. Retailers want to understand what the customer wants, when, whether they are willing to pay, and correlate offline customer actions with online activities.
The format of the retailer’s work with startups within the framework of the Accelerator
X5 Retail Group is ready to share knowledge about the industry with startups, evaluate the applicability of startup ideas, help companies grow, determine the market's need for a product and pilot interesting solutions for X5 Retail Group. Success conditions - a business case with figures to increase sales and reduce costs X5 Retail Group.
The goal of a startup with a large partner is to go on a pilot, receive feedback from a partner, make sure that the partner receives value, and prove it in figures.
As a summary
X5 Retail Group is interested in products or services that:
- help make traditional purchases faster and more comfortable,
- personalize the customer service process and collect information about the consumer basket,
- optimize logistics and / or the operation of the sales area,
- increase conversion by combining online and offline sales channels.
- allow you to independently buy goods using a mobile phone (self-checkout) and not stand in line,
- intelligent loyalty programs, possible due to the analysis of previously completed purchases based on big data technology and machine learning.
You can listen in more detail about the work of the IIDF and the Accelerator, watch the pitch of retail startups from the market, and most importantly, listen to the representatives of X5 Retail Group and other retail companies in the video:
Accelerator of IIDF - a three-month program for accelerated development of startups in the areas of IT, Internet and mobile, which IIDF launches to help companies build a scalable business and grow faster to the next rounds of investment. For three months, the founders, with the help of a pool of experts, confirm the value proposition, check the viability of the business model, put sales on the flow and break through the growth ceiling.
The accelerator industry track is a chance for a startup to get acquainted with representatives of large strategic companies and accelerate the launch of a joint pilot. Experts look at the final list of companies that have passed the selection, and choose which of them want to talk to. Company representatives also meet with some startup founders personally for mutual interest and potential pilots. IT startups from the retail sector, who will be selected for the 12th Accelerator, will have the opportunity to test business hypotheses on the X5 Retail Group's consumer base with anonymized information on more than 3 billion purchases.
You can apply for the 12th Accelerator until March 6, 23:59 Moscow time - for this you need to fill out a questionnaire, go through an online consultation with a pre -accelerator expert and take part in the selection.