E-commerce in Kazakhstan: about sophisticated residents of Almaty, demonopolization, and new players.

Taxes for Outsiders and Online Social Support

Where is the e-commerce market heading, how are shares distributed between domestic and foreign players, are new names emerging, and how accessible are digital marketplaces to residents of the regions? TAJ.report has studied the status quo and learned predictions from experts and market participants.

Financial consultant Rasul Rysmambetov notes the active entry of Russian marketplaces Ozon and Wildberries into the market.

"I believe they will continue to develop at the same pace for 2-3 years. It all depends on whether these platforms can not only import goods but also find interesting suppliers in Kazakhstan.

I consider the presence of these participants in the market a threat to our players. Choco, for example, has little money, and in e-commerce - as in the taxi service - large investments, warehouses (we have a shortage), and logistics are needed.

What to do? – Tax foreign marketplaces. In general, there is plenty of room for new players in the e-commerce market. Classic retail is developing supply channels through electronic platforms. However, the niche is developing weaker in the regions," says the financial consultant.

Economist Askar Kysykov calls e-commerce one of the key drivers of the country's economy.

"Especially - the financial sector: many banks have created marketplaces that play a serious role in the implementation of goods and services, including through installment plans.

Large players from Russia have entered this market. To compete with them, we need giants made in Kazakhstan. Small projects, especially in the regions, are unlikely to compete with giants that have the necessary resources for development.

This is more a story about the redistribution of the market among big participants. And here it is important to support the sphere and local players. And I know that there are attempts to regulate the industry from the state side. This can seriously slow down the development of the local share of e-commerce," notes Kysykov.

At this stage, in his opinion, it is necessary to provide maximum freedom to Kazakhstani representatives of electronic commerce.

"Of course, within the law and protecting consumer rights. E-commerce is more efficient than traditional offline commerce, more economical and operational. The global trend is associated with further development of the industry, and many issues, including social support, can be developed by the state through e-commerce. Social support tools can be integrated into the e-commerce ecosystem on a mutually beneficial basis with private platforms," believes the economist.

About "Game Changer" and Prosthetics

Economist, head of the analytical center "DESHT ITG" Kuanysh Zhaikov notes: e-commerce is a very large area, which includes all possible financial and commercial transactions in digital format.

"By the numbers, I only heard about electronic commerce (part of e-commerce). In November, the Ministry of Trade and Integration announced that the sector is growing rapidly. E-commerce of goods was estimated at 2 trillion tenge or 12.5% for 2022.

Moreover, the sector is very competitive, including with the participation of foreign players. These are well-known Kaspi, Halyk market, Wildberries, Ozon, etc. Accordingly, a self-regulating market mechanism works, which does not allow anyone to become insolent. Hence all sorts of conveniences, speed, bonuses, services, and other tools for winning over customers," says the economist.

Conceptually, e-commerce is the biggest "game changer" for Kazakhstan.

"Just a few points for reflection. A huge saving of time and nerves for citizens. Searching for goods and services, comparing prices, evaluating suppliers, going to stores and markets. Or weeks of torment to collect all the documents and get a loan at the bank. Or standing in the cold to catch a taxi with an unknown driver, especially if not for yourself.

It seems to me that many underestimate how many years of additional life e-commerce gives to citizens. And yes, it is for this - saving time and safety - that we pay," emphasizes Kuanysh Zhaikov.

The second - the change in the labor market, especially the effect is noticeable on the self-employed.

"In Kazakhstan, there is a large "gray" sector. And even in the "white" sector, incomes are not always good enough to not be distracted by looking for new sources. And also consider the local culture - not everyone likes to work in the service sector, "slave away" for someone, etc.

E-commerce has created many understandable sources of income. For example, hundreds of thousands of citizens are engaged in taxi and delivery, even those who have an official job. You can blame as much as you want that this job does not require education and qualifications. But it's none of our business - the main thing is, people feed their families, asking for nothing," believes the economist.

Third - e-commerce is a "prosthesis" that replaces us with a poor institutional environment.

"We have a population scattered over a large territory, ethnolinguistically, culturally disconnected. We have issues with basic market institutions - courts, law enforcement system, legal support, adequate rules, etc.

E-commerce replaces much of this and also erases differences between people. You do not know the values and beliefs of the people from whom you bought the product or who will deliver it to you. You do not know whose deposits you were given a loan from. You do not know the political views of your taxi driver. The economy starts to work "seamlessly," so everything accelerates," emphasizes the head of "DESHT ITG".

He also adds: his center especially supports the Ministry of Trade and Integration, which "has taken an adequate position regarding electronic commerce":

"The government agency is not set to tighten regulation (at least for now). They believe that it is necessary to first thoroughly study the new phenomenon and "approach delicately." Moreover, there is no talk of any subsidies."

A New Window to Europe

Co-founder of the first unified e-commerce project - a marketplace of European goods for Kazakhstan "Dede Shop" Aset Beisenov is confident: electronic commerce in our country has a huge future.

"In November last year, we opened a store of goods from Europe on Telegram, on March 1 we are launching on Instagram, at the end of March we are launching the website in test mode. We are building a small Amazon and Farfetch in one - that is, trade in mass-market and premium category goods from Europe.

Many residents of Almaty and Astana are already using Farfetch, paying money to a foreign company located in London and other foreign points. We want to change the situation so that taxes from incomes remain in Kazakhstan and the money goes to pay Kazakhstani workers, opening new jobs," emphasizes the interlocutor.

In two years, entrepreneurs intend to provide Kazakhstani access to the largest world markets, with the possibility of purchasing goods, including in installments and on credit.

"On Wildberries, Ozon, Kaspi, and other platforms, local sellers mainly sell goods of Turkish, Chinese, Kyrgyz, Russian production. The main principle of fighting for a client on these platforms is dumping. And often the client suffers from this.

In Lamoda, the choice of goods is somewhat limited. European and American products are sold in boutiques or small online stores. The average consumer's access to these goods is complicated. There are buyers who help find sites in the West and then send the ordered items, but there was no unified trading platform where goods from Europe, the USA, for Kazakhstani would be collected," says Aset.

On the "Dede" marketplace, the creators offer clothing, cosmetics, home goods, sports, and hobby items from the EU and the USA.

"We also plan to supply goods from South Korea. Now, in the top-selling products, we have haberdashery and accessories from Europe: bags, wallets, belts, watches, antique jewelry, as well as home goods: dishes, household appliances, kitchen interior items. In third place - goods for sports and hobbies. Before the New Year, there were many orders for chocolate and souvenirs from Europe and original Disney toys," the interlocutor tells.

Expectedly, the demand for goods from Europe is higher in Almaty, followed by Astana, Shymkent, Aktobe, and Atyrau. If, according to the analysis of the retail electronic commerce market, the average check in the first half of 2023 in Kazakhstan was 24.9 thousand tenge, then, according to "Dede Shop", the indicator was 75 thousand tenge per 1 item last year.

"There are no changes in the delivery time of goods from Europe due to geopolitics and complicated logistics by air. The only thing - the arriving order in Almaty reaches the client's door faster. At the Almaty airport, customs on-site processes parcels and then sends them to customers. The situation is different in the capital: customs clearance is not at the airport, but at another branch. This is a loss of 1-2 days.

There are difficulties with ground transport – goods often get stuck at borders. And another important nuance: Air Astana has a very small volume of postal shipments between Europe and Kazakhstan. We send goods from Frankfurt-am-Main - one of the world's transport hubs. And we could ship every day, but the domestic carrier slows us down in this regard. If the issue were resolved, e-commerce would develop faster," notes Aset Beisenov.

Regarding competition with Russian marketplaces, he notes that in neighboring countries, this niche began to develop much earlier.

"In the mid-2000s, the population was already actively using online purchases. Given the territory and the number of residents in Russia, there are more goods, so the margin can be lower due to the quantity. But again, due to the volumes, they can win the battle for customers.

In general, I am in favor of developing competition. In developed countries, the indicator of citizens involved in e-commerce reaches up to 50%. We are still at the level of 10%. Many in Kazakhstan still prefer offline purchases, although switching to online markets will save you time, nerves, and up to 25% of your money. And the saved hours can be spent on communication with loved ones, hobbies, and sports," Aset reasons.

From the Green Bazaar to a New Level

Managing Director of the online supermarket "Arbuz.kz" Valeriya Reksha notes: the food delivery market began to develop in Kazakhstan recently. The dynamics of its growth were influenced by the appearance of large international players in the market in 2019 and the COVID-19 pandemic, which changed consumer habits and operational solutions of companies.

The history of the brand itself began with a small store at the Green Bazaar with its own transportation delivery in Almaty in 2011. The project developed into No. 1 in the e-grocery market, now No. 2.

"In 2018, a new team led by Alexey Li and Ruslan Pogorelov carried out a project relaunch and increased sales more than 90 times. The domestic startup operates on a supermarket model with the delivery of food, beverages, household chemicals, and home goods. The company has its own warehouses, assembly line, and courier service.

As of 2018, the company, operating in the average and average plus segment, had rented warehouses of 30 square meters, now - 9 thousand square meters of warehouse premises in Almaty and Astana," says Reksha.

She points out the problem with warehouses for Kazakhstan, where large operators come in, requiring large distribution centers of 20-30 thousand square meters.

"Within the city, depending on the number of SKUs (stock keeping unit), businesses need relatively small warehouse spaces. Some can trade directly from the warehouses.

We don't have our own offline presence, so we need warehouses inside the city, and with this, Almaty faces big difficulties - all plots are given over to residential complexes and shopping malls. Arbuz.kz has 22 thousand product names, and we need a large warehouse near residential areas, where there are people to whom we must deliver a wide range within an hour (15 minutes for order assembly, 40 minutes on average for delivery). That is, premises outside the city initially do not suit us.

In June 2023, we joined the Freedom Finance holding and opened a new warehouse in the upper part of Almaty," continues the interlocutor.

The issue of having quality large warehouses is part of the company's strategy – depending on where and how they will be built, investment requests are determined, emphasizes the managing director of the online supermarket. For example, their warehouses have several temperature regimes for frozen food products, chilled goods, fruits, and vegetables. Separate storage requirements apply to alcohol and red caviar.

All these years, the online supermarket has been operating in Almaty and Astana, and the company intends to enter regional markets no earlier than 2026-2027.

"Research shows that not everyone knows about us. So in the next couple of years, we have work to do. We are ready to enter regional markets from 2026," says Valeriya.

Overall, the interlocutor notes a change in consumption structure and a drop in the average check, related to high inflation in 2023.

"The client is looking for cheaper substitute products and is willing to use 3-4 stores, increasing the waiting time for the product. We observe unstable dynamics in the average check – in recent years, a range of products has been ordered in other networks.

For example, "Golden Apple" (a chain of perfume stores from Russia) entered the Kazakh market, actively developing online delivery now. Understandably, their stock of care and beauty products is larger than ours, holding a minimum stock of such products. But this is more a question of product niche," emphasizes the managing director of Arbuz.kz.

What Almaty Chooses, What Astana Saves On

By the way, about the products that Kazakhs choose. According to the interlocutor, buyers in Almaty and Astana have different preferences.

"According to our measurements, different triggers act on the audience of Astana and Almaty when choosing an online supermarket. In Almaty, the buyer is more oriented towards farmer's goods and overall more conscious consumption products. In this respect, our competitive advantage is having a base of farmers who supply us with asparagus, watermelons, other berries, and other green produce.

Also, in the southern metropolis, there is a higher demand for ready-made culinary products in the "ready to cook" and "ready to eat" formats.

In Astana, they are more sensitive to price - despite it being the capital and the government sector seems to earn more. Second, not all suppliers from Almaty deliver goods to Astana. In August 2023, we held the "Arbuzhay" festival and introduced our supplier partners (including cheese and meat delicacies) to the Astana market. The capital's audience is less discerning in terms of product selection compared to Almaty residents," shares the research outcomes Valeriya.

Another nuance to the portrait of the capital's buyer: in Astana, more customers respond to promotions with significant discounts of 30-40%.

Overall, speaking of e-commerce market forecasts, the interlocutor notes the following trends: global growth of e-commerce sales in the food & beverage sector is expected from $426.6 billion in 2023 to $480.4 billion in 2024. That is, by 12.6%.

Mainly, Kazakhstani companies from the categories "food and drinks," "agriculture," "construction and real estate" are represented on this platform. They are much fewer in the "clothing" category.

"Grocery delivery is the fastest-growing market in e-commerce in Kazakhstan: more than 48% of users make orders for food products online. 2.4% of the total revenue in the food market. By 2028, we expect the e-grocery market to account for about 10% of all food and essential goods sales in Almaty and Astana," says Valeriya.

Source: Agency for Strategic Planning and Reforms of the Republic of Kazakhstan

There's plenty of room for new players in the market, the expert believes.

"But clients need to be built up, taking into account local features, consumer

 habits. The volume of the e-grocery market in the Republic of Kazakhstan in 2023 amounted to over $508 million, the grocery delivery market grew by 24%.

At the same time, the e-commerce market is not covered in the regions of Kazakhstan, mainly represented only by Almaty and Astana (like Arbuz.kz). In 2023, the number of e-grocery market users in the country was over 1.5 million. The number of users will increase by 0.2 million clients annually. According to analysts' forecasts, by 2027, the market will grow by 197% with a volume of $1.5 billion," emphasizes the interlocutor.

Among the market trends, she notes the increase in the frequency of online food purchases among Kazakhs.

"At the same time, the average check is decreasing - due to the fragmentation of orders and the growth of the share of marketplaces and e-grocery. The potential for reducing the average check will remain.
The business community also forms certain needs – they need services that will help optimize logistics budgets," continues Valeriya Reksha.

Among the predicted trends - monospecialization: meat departments will ship their products, greenhouses - vegetables, and so on. Competition will grow, new delivery operators for the same vegetables will appear, there will be many online stores, including on Instagram.

"Marketplaces will develop, Russian players selling mainly long-term storage goods from the Russian Federation and China will compete for a place under the sun of Kazakhstan. Our competitive advantage is 7 years of experience with "perishables". Newcomers do not realize how large a percentage of write-offs we factor into our work to deliver fresh, fragrant goods to the customer. Ozon Fresh from Russia is not yet represented with us, we do not see other strong competitors in our price segment.

This year we intend to develop supplies from European partners," shares the managing director of the online supermarket.

Source of Taxes and Jobs

The press service of Ozon.kz, in turn, reports that since 2021, the company has been investing in the development of infrastructure in Kazakhstan and is among the top five socially significant companies in the field of internet commerce in the republic.

"Ozon.kz offers more than 250 million product names with fast and free delivery – from books and clothing to food products and household appliances. The business on the marketplace is developed by more than 33 thousand Kazakhstani sellers, who sell almost 400 thousand products.

The number of active buyers exceeded 500 thousand citizens of the country, who ordered 6 million products on the marketplace over the year.

Ozon's turnover in Kazakhstan for the 3rd quarter of 2023 increased 10 times compared to the results for the 3rd quarter of 2022. The frequency of orders reached 19.2 orders per year per active buyer compared to 11.7 orders as of September 30, 2022," the press service provides data.

Source: Analysis of the retail electronic commerce market in the Republic of Kazakhstan for the first 6 months of 2023, PricewaterhouseCoopers

Over two years, the company opened 6 logistics centers in Kazakhstan, 1300 order pickup points, courier delivery in 3 cities. Total investments in construction, equipment, and IT systems of the two largest complexes exceeded 30 billion tenge, and the number of jobs at all six facilities for citizens of the Republic of Kazakhstan by the end of 2024 will exceed 800 people.

Last year, the company launched the local showcase Ozon.kz,
adapted for local buyers. It displays only the available assortment, prices are indicated in tenge, and full-fledged customer support is organized in two languages.

It is noteworthy that, according to Ozon.kz, online commerce is developing more actively in the regions.

"This positively affects the development of logistics infrastructure in the country. Large networks, delivery services, and marketplaces continue to invest in infrastructure throughout the country.

Large logistics market players, such as Kazpost or SDEK, are developing fulfillment service offerings. Marketplaces and large networks also invest in their own infrastructure to increase delivery speed - one of the key factors in making a purchase decision. The Ozon company already has two fulfillment centers – in Almaty (38 thousand square meters) and Astana (10 thousand square meters).

In 2023, we announced the construction of another, the largest in Kazakhstan. Its area will be 42 thousand square meters and will create about 2000 jobs for the residents of the region.

"Over the past year, the turnover of Kazakhstani sellers on Ozon has almost tripled both due to sales within Kazakhstan and due to purchases by our 42 million buyers in Armenia, Belarus, Kyrgyzstan, Russia, and Uzbekistan. With the opening of sorting and fulfillment centers Ozon Kazakhstan, local sellers can ship goods for sale faster, and we – deliver them to customers faster. Thanks to this, in the search results, the goods of Kazakhstani sellers are often higher than competitors," notes the press service.

The company also offers residents of Kazakhstan the opportunity to open an Ozon order pickup point on a franchise basis.

"With the development of the network, we noticed that our customers in Kazakhstan changed their preferences and began to visit pickup points more often than parcel lockers. Today, 9 out of 10 of our clients choose this delivery method thanks to their wide distribution, free delivery, as well as the ability to check the order, try on clothes, and refuse unsuitable goods for free," added the press service.

Market Trends

The President of the Kazakhstan Internet Business Association (KIBA), creator of Kazakhstani internet projects Ticketon.kz and Processing.kz, Konstantin Gorozhankin, identifies several trends in the country's e-commerce sector.

"After the coronavirus pandemic, the industry in the Republic of Kazakhstan soared, giving a strong quality leap. If in terms of the Internet we have long caught up with world leaders, then in terms of customers we were significantly behind. Before the pandemic, Kazakhs mostly entertained themselves on the Net, learned news, used messengers, and to a lesser extent bought, for example, tickets. Ticketon.kz many Kazakhs used as a guide, to then buy tickets in another way.

Before the pandemic, 10% of Kazakhs used the Internet for purchases, after – already 40%. At present, already 12% of all retail turnover in Kazakhstan falls on online purchases. In Western countries, the figure reaches 20%" - says the interlocutor.

Thus, for example, in 2023, the turnover of Ticketon.kz amounted to 25 billion tenge. In 2012, the company sold 14 thousand tickets a year, in 2023, the same amount - in half a day.

The second point that the interlocutor highlights is that during the pandemic, Chinese online stores became the losing side in Kazakhstan: once the leader of the industry Aliexpress moved below the tenth position due to deteriorated logistics and increased delivery times.

"During the same time, the market has strengthened - our product Kaspi, for example, and 2 large Russian marketplaces Wildberries and Ozon. Now the main competition is between these three online stores. This trend, in my estimation, will continue for the next 3 years.

Each marketplace has its own strategy. Last year, Kaspi
had 2 key advantages: the popularity of the brand, described by epithets "native, reliable and simple", and a large number of goods in installments. The Russians did not have this. But this year Halyk credits users on Ozon, and a couple more banks," notes Konstantin Gorozhankin.

 

Source: Analysis of the retail electronic commerce market in the Republic of Kazakhstan for the first 6 months of 2023, PricewaterhouseCoopers

As president of KIBA, he participates in EAEU meetings, and, according to him, Kaspi is afraid of the arrival of foreign players.

"At the last meeting two weeks ago, Kaspi asked to protect the market from the arrival of Russian competitors, to which he received the answer: how can this be done in a free market without monopoly. Although, I note, in terms of mobile transfers, he has a monopoly.

Let me explain: Kaspi was created after the example of Tinkoff bank. But in Russia, when making mobile transfers, there is no binding to the bank - only to the phone number. This breaks the monopoly. That is, buying vegetables in a stall near your home. You do not wonder if the seller has an account in the conditional Sberbank - you easily transfer money to the account of any bank.

In Kazakhstan, the National Bank is trying to break Kaspi's monopoly, as well as Halyk, transfers by phone number have already been introduced, but so far small banks are participating in this. But, I think, the situation will change," believes the expert.

Another trend is the appearance of an increasing number of Wildberries and Ozon pickup points.

"This is an interesting model, convenient for the consumer. Near your home, most likely, there are several points of these marketplaces. And there will be even more. Especially since one of these players pays money if within 10 months the owner of the pickup point does not make a profit.

In Kazakhstan, due to the large territory, the delivery of goods from Almaty to Uralsk by distance is comparable to the delivery from Istanbul to London.

E-commerce services in our country have developed coolly, the same tickets, and e-commerce
goods due to logistics - poorly. Kazpost is not the fastest and not the most reliable service. So with the arrival of new players, the market is revitalized," says the interlocutor.

He gives another example of the negative consequences of monopoly.

"For my dad's birthday, I wanted to send a basket of fruits and meat delicacies to Shymkent, chose on Kaspi and only then found out that there is no delivery to the million-plus city… In the end, on Ozon, I chose an Alice column and sent it to my dad.

We, living in Almaty and Astana, are used to thinking that delivery is available throughout Kazakhstan. But this was not the case until the arrival of new players. And thanks to the expansion of the market, people in the regions have the opportunity to enjoy the benefits of digitalization. And I am sure that soon their residents will be able to receive them," predicts Gorozhankin.

By the way, he also actively uses marketplaces, and the other day ordered a mobile phone, the price of which was twice lower than that offered by traditional stores.

"The next trend is related to the fact that marketplaces provide a platform for goods and generate traffic. And in this context, there is no need to be afraid of the presence of non-domestic players, because domestic entrepreneurs receive a large infrastructure for their goods with issuance in all points of the country with their arrival. Plus, Russian, Armenian, Belarusian, Uzbek markets open - all where Russian marketplaces are presented," emphasizes the expert.

He notes that if in 2011 only 1 transaction out of 10 in e-commerce remained in Kazakhstan, now already 9 out of 10.

"Russian market participants have opened their representations in Kazakhstan. Buying from them, you are essentially buying on Kazakhstani processing in tenge, taxes, jobs remain with us - this is an important point. Western players have not done this yet," states the interlocutor.

In conclusion, the president of KIBA gave recommendations to those who are just thinking about going online.

"In 2000, I launched an online bookstore in Shymkent. The business did not take off, and when analyzing the reasons, I realized that the penetration level of the Internet was too low. We only reached 20% in 2008. All projects opened before that time died. Only Flip.kz and Intim.kz survived.

By the way, at that time, apart from Almaty, Astana, and Karaganda, almost no Internet stores appeared in other cities that would reach even a country level.

Now a client from any part of the world can become your buyer at the distance of one click. When we just created our Association, there were no platforms, now marketplaces already exist. And I recommend all Kazakhs who have goods and services to start going global. You can occupy a niche by selling an interesting product. Be the first - in the conditions of absolute competition on the Net, this is your main advantage," urges compatriots Konstantin Gorozhankin.

As an illustration, he told the story of acquaintances who have been trading computer speakers for 10 years.

"They became exclusive suppliers of Chinese products in Kazakhstan and have remained millionaires for 10 years, although they no longer actively use computers. That is, it is a question of how much you can make a small segment big. Look for, launch, and marketplaces will help you with this," says Konstantin Gorozhankin.

 

This text was translated with the help of the artificial intelligence ChatGPT