Lenta is a Russian grocery retailer founded in 1992 that operates stores in St. Petersburg. By 2005 it had grown to 9 stores in St. Petersburg through pursuing a strategy of low prices, 24/7 convenience, and direct supplier relationships. The document discusses Lenta's competitive advantages, operations, challenges like an unwieldy Russian labor market, and strategies to either continue expanding in St. Petersburg or enter Moscow's larger market. It recommends Lenta first focus on further growing within St. Petersburg to capture remaining potential and establish stronger finances before entering new cities like Moscow.

1. Lenta of St. Petersburg, Russia Presented by, Shriti Chhajed GNOV09RM125

2. 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

3. 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

4. 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

5. The Store “To give you what you want & need” “Offer you the most value for your money”

6. Competition

7. 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

8. 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 manageable

9. 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 alchohol aisles Tax rate in St. Petersburg – 24% Lenta established a tax reserve – "Yukos effect"

10. 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

11. 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

12. Marketing & Advertising Marketing & 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

13. Building a new store Land - Lease of 49 years frm local government Approval of plan from loacal government – fire marshalls, 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

15. No foreign players

16. Existing Relationships with suppliers

17. Established Brand name

19. Experience in similar markets

20. Easy availability of infrastructureHigh investment in reals estate Different form of government

21. Recommendation Lenta should first expand in St. Petersburg, capture the untapped potential and once it has good financial status, it should enter into Moscow and later other Tier 2 cities It should select shopping areas in Moscow to open stores and not the undeveloped areas like in St. Petersburg It should look for some local financing options to avoid foreign exchange rate risks