The test project at 14 stores for Danone and Lenta to increase sales of modern dairy products was so successful that it became a full category management project implemented across all Lenta stores. Key aspects of the project included analyzing underperforming segments, competitors, and developing recommendations to optimize assortment, shelf space, layout, and promotions. These changes led to a 17% increase in modern dairy sales, exceeding expectations, with some segments growing over 25%. The project approach is now being continued and expanded to additional stores.

2. How the test has become a project! In January 2009 Danone and Lenta finished test in 14 stores and started Category Management project in all stores!

3. Frames of the category are defined as all modern dairy products excluding UHT: cheese spoonable yoghurts drinkable yoghurts desserts kids products

4. For Health For Pleasure Kids products Beauty Cholesterol Digestion Defense Yoghurts Drinkable Yoghurts Cheese Desserts

5. Role: Destination

6. Data sources: Data used in the project: market data sales share of segments inside category, dynamics, trends research on household consumption sales data of Lenta At the process of analyses it was defined that share of Modern category in Lenta is lower than on the market and there is high potential for growth! -13%

7. Lenta All Shoppers StP,MATMar08 Relbase:Dairy Total We found out that following segments are underperforming comparing to the market: Digestion Kids products Cheese We focused our efforts on these segments GFK Household panels proved once again that following segments have high potential: Kids products, Cheese and Defense Source: GFK MAT March 08 Lenta All Shoppers StP,MATMar08 Relbase:Dairy Total Source: GFK MAT March 08 ? STARS POTENTIAL Segments which belong to Stars quadrant are crucial to retailer. Decrease in these segments will have negative impact on customer loyalty to the category and, probably, to retailer in whole. These segments may have low turnover at the moment, but they have high potential. These means that customers choose this particular retailer and are intensive consumers of following segments. That’s why it will be easy to make them purchase these segments. POOR

8. Net Gain GFK MAT Who are the main competitors in these segments? We chose priority segments Cheese “Pyaterochka” Karusel 0 -5000000 -10000000 -15000000 5000000 Dixi Perekrestok Total Metro Semiya Aushan Pyaterochka Okey Total -10645294 -6627039,5 -816782 -492293 230354,9 820063,3 955773,1 2245219 Kids products “ Pyaterochka” and “Dixi” Karusel 0 -5000000 -15000000 5000000 Dixi Perekrestok Total Metro Semiya Aushan Pyaterochka Okey Total -29496648 -11162638 -682798,1 126015,4 201216,2 1084408,4 12503996,4 3284513,5 -30000000 Digestion “ Pyaterochka” Karusel 0 2000000 Dixi Perekrestok Total Metro Semiya Aushan Pyaterochka Okey Total -72383808 2577667 5689777 799635 10484146 41066012 56451684 57372840 -80000000 -20000000 6000000 4000000 Defense “ Karusel” and “Okey” Karusel 0 -5000000 -10000000 -15000000 5000000 Dixi Perekrestok Total Metro Semiya Aushan Pyaterochka Okey Total -10886030 -2432758 -2143641 -415492 0 0 0 282352,9

9. Based on analyses of competitors we made following recommendations: Digestion - increase lay-out, make more promo Defense – extend assortment (launch innovations) and increase lay-out Cheese– increase lay-out, make more promo Kids products – carry out separate block, inside kids block place cheese on bottom shelves, launch innovations Made detailed analyses of competitors by priority segments How the space is allocated in competitors’ stores? How much space is given to the category, to segments?? What is the difference in price between retailer and competitors? What is the gap in price for top 10 positions in each segment? Do competitors have much promo? In which segments, brands? What mechanics do they use, are they efficient? Which products compound retailer’s assortment, what do competitors have in assortment? Does the retailer have top 10 positions of competitors? Does retailer have innovations in assortment? Assortment Shelf Price Promo

10. Goal: increase sales of modern dairy category by 10% in units compared to period before project Strategic goal: increase of category penetration

11. Assortment analyses showed that 36% of products give only 5% in sales For assortment optimization AssortDan soft was used All stores were categorized depending on size of milk section For each format optimal quantity of SKU in category and in segment were calculated Following factors were taken into account: average facing per segment and days of stock. It enabled us to define number of SKUs more precisely. IN and OUT recommendations were made for each format Assortment optimization process included following steps:

12. Recommendations on additional listing, that were made based on analyses of competitors sales, were accepted in underperforming segments. As well as were accepted recommendations to list innovations of dairy market. For example: Defense segment There were no Immunele Cherry, Actimel Orange, innovation Actimel Sea Buckthorn – Peach and 2 SKU of multipacks in assortment Whereas these positions had good share of sales in other retailers Innovations Launch 100 г. х4 напиток Актимель натуральный 15 % 100 г. х4 Актимель Черника-Ежевика 12 % 100 г. х4 Актимель Гранат 11 % 100 г. х4 Актимель Персик-Облепиха 10 % 100 г. х6 Актимель Черника-Ежевика 9 % 100 г. х4 напиток Актимель Мультифрукт 9 % 100 г. х4 напиток Актимель Клубника 8 % 100 г. х6 Актимель Клубника 6 % 100 г. х4 Актимель Малина-Клюква 6 % 100 г. х4 напиток Актимель Апельсин 4 % 100 г. Кисломол.+Сок Иммунеле Мультифрукт 2 % 100 г. Кисломол.+Сок Иммунеле Ассорти 2 % 93.7 кефир 0% Актимель 2 % 93.7 кефир 0% Актимель Клубника 2 % 93.7 х6 Актимель 0% с лесными ягодами 1 % 100 г. Кисломол.+Сок Иммунеле Ассорти 1 % 100 г. Кисломол. напиток Иммунеле 9% натуральный 2 % 100 г. Кисломол.+Сок Иммунеле Ассорти 0 %

13. Category was placed on the shelf according to consumers’ expectations We applied new segmentation We took into account purchase decision-making tree Developing new Lay out New lay-out was developed for each hypermarket taking into account its configuration and current lay-out of fridges Space for each segment is corrected depending on average sales per day of this segment and necessary stock on the shelf We allocate space between segments of modern dairy category depending on their share of sales and market data. This is made in order to give chance to develop to underperforming segments and at the same time to take into account peculiarity of retailer. Neighborhood of segments, based on consumers perception, is also taken into account when developing new Lay-Out

14. Customer flow New segmentation with separate Health Block is now used in all stores and is positively perceived by consumers Before Customer flow After Health Pleasure

15. Before

16. After

17. Design of decoration was created jointly, each segment received unique color code. It helps customers orient in the section, quickly find needed products and as result saves their time. Apart from usual toppers and stoppers, colored shelf carpets and nets on the back wall of the fridge were used in order to help customers differentiate concrete bounds of the segments.

18. Project was implemented in first 14 stores in 3 nights, furthermore we implemented city after city during 2009. Before After

19. The results exceeded expectations – modern dairy category increased by 17%, while traditional category, that were not included in project, grew only by 5% Highest growth! Modern category grew in all stores! +13% +19% +11% +17% +13% +8% +24% +12% +25% +18% +17% +21% +16% 15 17 +19%

20. Growth by segments Based on analyses of sales additional opportunities for growth were defined – in some stores Lay-out was corrected, vertical blocks were implemented and innovations, that were not presented in assortment on implementation date, were listed Segment Growth Comments Recommendations Defense +27,5% м²↑ {block} Health block: Functional products place in Defense Digestion +20,5% {block} Deinkable Yoghurts +20% м²↓ {block} Make vertical blocks Desserts +13% м²↓ SKU ↑ Optimize assortment Yoghurts +7% м²↓, Gaps in brand shares remained Improve planogramm, controle OOS Kids products +6% OOS Cheese +2% м²↓ Vertical blocks were not implemented

21. Project is going on!!