lenta of st. petersburg, russia
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Lenta of St. Petersburg, Russia
Presented by,Shriti Chhajed
GNOV09RM125
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
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The Store
“To give you what you want & need”
“Offer you the most value for your money”
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 manageable
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"
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 & 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
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
Lenta’s Strategy
• Lenta has 2 options:• 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
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
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