Lenta of St.Petersburg, Russia

Presented by

Ludmila Sedina,

Nastya Mityurina,

Izabella Hrytsayenko,

Anastasia Shemshur,

Nikita Detochenko

Russian Business Environment

Political and Macroeconomic Issues

1990 – 2000: Russia struggled for survival

2400% inflation

Ruble loose 50% of its value

2000 – 2010: Putin’s Goal – 7% annual growth in GDP

Growth largely driven by high oil prices

2004: SMEs contributed to 13% of GDP

Economic success contributed to larger cities

Average monthly per capita income 350% & 40% above national average in Moscow & St. Petersburg

St. Petersburg – 2nd largest city, 4.5m population

Russian Retail Environment

Russia – Dynamic underdeveloped business environment

Rising consumption levels

Fastest growing food market in Eastern Europe

Difficult labour laws – Soviet influences

Lack of work ethics

Lack of loyalty to the employer

Unwillingness to work hard

Government, the greatest barrier

Russian customers are not demanding

The company - Lenta

1992 - Oleg Zherebtsov founded Lenta as a wholesale candy business

1993 – 1st small cash & carry retail store

1997 – 3 smalll retail stores

1998 – ruble collapsed, layoff 75% of workforce, warehouse cash & carry chain selling both grocery and selected non food items

2005 – 9 stores in St. Petersburg

Competitive Advantage

Low prices

Smaller margin than competitors

Convenience of being 24 * 7 open

Competition

Suppliers

Direct relationships with multiple suppliers to keep the prices low

No wholesaler in between

High purchasing power

No distribution warehouse, direct to store deliveries

100-120 deliveries / day

10% imported products – problems with customs

Inventory Systems

POS systems reading barcodes

Monitored using SAP computer system

Track fast & slow selling products

Monitor inventory levels to avoid stock outs & excess inventory levels

Analyze POS data for better decision making

Expansion becomes manageabl

Government Relations

Uninvolvement of Govt. in day to day operations to monitor safety

No government Quality check authority

Random inspection by government agencies – closed down alchoholaisles

Tax rate in St. Petersburg – 24%

Lenta established a tax reserve – "Yukos effect"

Financials

Transaction in Rubles

Financial statements in USD

Lenta had 4 Americans on its Board of directors

Lenta was looking for loans from western financial institutions

Intense Financial Growth

Internal cash flows

Debt Financing

Lenta’s HR Challenges

Hire 500 people, 20 for managerial roles

HR department – new in Russian market

Clash in Lenta's values and Russian market – customer service

Lack of managerial talent in Russia

High attrition rate Profit sharing plan – to retain & motivate its managers

Expansion of HR department – include T & D

Marketing & AdvertisingMarketing & Advertising - .35 to .38% of sales

First mega supermarket in St. Petersburg

Loyalty card program – discount to cardholders Personalised their communications with the customers

Advertising promoted 3 key customer benefits Low prices

Easy & fast shopping

Convenience of being 24 hours open

Billboards, Radio & monthly shopping circulars

Metro Radio – 3m people daily

Advertising for new store opening Inform the public of the opening (2-3 weeks)

Promote the opening day celebration

Building a new store

Land - Lease of 49 years from local government

Approval of plan from local government – fire marshals, environmental agencies, construction agencies, sanitation department

Conflicts between agencies

Corruption – approval on time

High cost to build - $ 20m

Buy extra land to sublet for complimentary businesses

Lenta’s Strategy

Open more stores in St. Petersburg

+ Huge untapped potential

+ No foreign players

+ Existing Relationships with suppliers

+ Established Brand name

+ Relationships with government

Open up stores in Moscow and then other high per capita cities

+ Huge market potential

+ Experience in similar markets

+ Easy availability of infrastructure

– High investment in reals estate

– Different form of government

2 options:

Recommendations

The foundation with their help private financial institute

Searching for lobbyists and business partners in the sphere of political elite and security forces

Intensive expansion in the region due to all of the following

Close cooperation with business schools and government programmes ahead of the elections

Thank you for your attention!