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Lenta Of St. Petersburg, Russia


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Lenta Of St. Petersburg, Russia

  1. 1. Lenta of St. Petersburg, Russia<br />Presented by,<br />Shriti Chhajed<br />GNOV09RM125<br />
  2. 2. Russian Business Environment<br />Political and Macroeconomic Issues<br />1990 – 2000: Russia struggled for survival<br />2400% inflation<br />Ruble loose 50% of its value<br />2000 – 2010: Putin’s Goal – 7% annual growth in GDP<br />Growth largely driven by high oil prices<br />2004: SMEs contributed to 13% of GDP<br />Economic success contributed to larger cities<br />Average monthly per capita income 350% & 40% above national average in Moscow & St. Petersburg<br />St. Petersburg – 2nd largest city, 4.5m population<br />
  3. 3. Russian Retail Environment<br />Russia – Dynamic underdeveloped business environment<br />Rising consumption levels<br />Fastest growing food market in Eastern Europe<br />Difficult labour laws – Soviet influences<br />Lack of work ethics<br />Lack of loyalty to the employer<br />Unwillingness to work hard<br />Government, the greatest barrier<br />Russian customers are not demanding<br />
  4. 4. The company – Lenta<br />1992 - Oleg Zherebtsov founded Lenta as a wholesale candy business<br />1993 – 1st small cash & carry retail store<br />1997 – 3 smalll retail stores<br />1998 – ruble collapsed, layoff 75% of workforce, warehouse cash & carry chain selling both grocery and selected non food items<br />2005 – 9 stores in St. Petersburg<br />Competitive Advantage<br />Low prices<br />Smaller margin than competitors<br />Convenience of being 24 * 7 open <br />
  5. 5. The Store<br />“To give you what you want & need”<br />“Offer you the most value for your money”<br />
  6. 6. Competition<br />
  7. 7. Suppliers<br />Direct relationships with multiple suppliers to keep the prices low<br />No wholesaler in between<br />High purchasing power<br />No distribution warehouse, direct to store deliveries<br />100-120 deliveries/ day<br />10% imported products – problems with customs<br />
  8. 8. Inventory Systems<br />POS systems reading barcodes<br />Monitored using SAP computer system<br />Track fast & slow selling products<br />Monitor inventory levels to avoid stock outs & excess inventory levels<br />Analyze POS data for better decision making<br />Expansion becomes manageable<br />
  9. 9. Government Relations<br />Uninvolvement of Govt. in day to day operations to monitor safety<br />No government Quality check authority<br />Random inspection by government agencies – closed down alchohol aisles<br />Tax rate in St. Petersburg – 24%<br />Lenta established a tax reserve – "Yukos effect"<br />
  10. 10. Financials<br />Transaction in Rubles<br />Financial statements in USD<br />Lenta had 4 Americans on its Board of directors<br />Lenta was looking for loans from western financial institutions<br />Intense Financial Growth<br />Internal cash flows<br />Debt Financing<br />
  11. 11. Lenta’s HR Challenges<br />Hire 500 people, 20 for managerial roles<br />HR department – new in Russian market<br />Clash in Lenta's values and Russian market – customer service <br />Lack of managerial talent in Russia<br />High attrition rate<br />Profit sharing plan – to retain & motivate its managers<br />Expansion of HR department – include T & D<br />
  12. 12. Marketing & Advertising<br />Marketing & Advertising - .35 to .38% of sales<br />First mega supermarket in St. Petersburg<br />Loyalty card program – discount to cardholders<br />Personalised their communications with the customers<br />Advertising promoted 3 key customer benefits<br />Low prices<br />Easy & fast shopping<br />Convenience of being 24 hours open<br />Billboards, Radio & monthly shopping circulars<br />Metro Radio – 3m people daily<br />Advertising for new store opening<br />Inform the public of the opening (2-3 weeks)<br />Promote the opening day celebration<br />
  13. 13. Building a new store<br />Land - Lease of 49 years frm local government<br />Approval of plan from loacal government – fire marshalls, environmental agencies, construction agencies, sanitation department<br />Conflicts between agencies<br />Corruption – approval on time<br />High cost to build - $ 20m<br />Buy extra land to sublet for complimentary businesses<br />
  14. 14. Lenta’s Strategy<br />Lenta has 2 options:<br />Open more stores in St. Petersburg<br /><ul><li>Huge untapped potential
  15. 15. No foreign players
  16. 16. Existing Relationships with suppliers
  17. 17. Established Brand name
  18. 18. Relationships with government</li></ul>Open up stores in Moscow and then other high per capita cities<br /><ul><li>Huge market potential
  19. 19. Experience in similar markets
  20. 20. Easy availability of infrastructure</li></ul>High investment in reals estate<br />Different form of government<br />
  21. 21. Recommendation<br />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<br />It should select shopping areas in Moscow to open stores and not the undeveloped areas like in St. Petersburg<br />It should look for some local financing options to avoid foreign exchange rate risks <br />