Russian retailer Lenta has set its sights on achieving RUB 1 trillion in turnover by 2025 – a doubling of its current revenues – by investing in a multi-format strategy that incorporates hypermarkets, smaller format stores and online.
The country's fourth-largest retailer believes that by tailoring its offer for each location, investing in proximity and online, and concentrating a number of core focus regions, it can establish itself as a "new champion among Russian food retailers", chief executive Vladimir Sorokin said at the group's Capital Markets Day.
By 2025, Lenta also intends to become the No.1 or No.2 player in the areas in which it chooses to compete, as well as remain the country's 'most profitable retailer'.
In the short term, the company is targeting increasing its selling space by at least 100,000 square metres this year and an EBITDA margin of 8%, while capital expenditure over the period will account for up to 5% of sales.
Online sales currently account for about 4% of turnover at Lenta, with the retailer expecting that to have risen to around 5% by the end of this year.
Strong Loyalty
While Lenta is predominately a hypermarket operator, its high level of customer loyalty puts it in a good position to develop smaller format stores, Sorokin told a media call to coincide with the group's Capital Markets Day.
"We have very loyal customers, and there are 70 million of them," he said. "We believe that's a good base from which we can develop small boxes, and cater to other shopping missions on top of that.
"We are cash positive – we are a very profitable company – and we are prepared to make deals in different regional markets in which we can strategically improve our positioning and gain expertise."
Market Expansion
In terms of the geographical regions in which Lenta sees the most opportunity for growth, Sorokin added that the medium-term focus is in areas in which the group already boasts a strong following.
"We have different levels of loyalty in different regions – in St Petersburg, for example, our market share is 13% and we are loved by customers," he said. "With any new stores we open, there is a strong likelihood they will be successful.
"A second region that is very strong for us is Novosibirsk-Siberia, where our market share is around 9%, and we are the number one player in the market."
And as for the capital, Moscow?
"Moscow is a fragmented city, with a lot of different retailers, but we have to be there," Sorokin added. "We've got some stores that are showing quite a decent performance, albeit slightly lower than our stores in St Petersburg. We believe we need to have more stores in Moscow to be able to build a critical mass in terms of building brand awareness."
Encouraging Signs
Elsewhere, the group's chief financial officer, Rud Pedersen, said that a combination of strong sales and the company's recent redomiciliation to Russia is likely to prove encouraging for investors.
"The year 2020 was the strongest financial year we've had at Lenta, and we're now in a situation where we have the financial firepower to engage in organic expansion," he said.
"In terms of industry consolidation, one thing that has become apparent due to the COVID-19 pandemic is that the federal players have performed far better than the regional players, which could lead to further consolidation in the industry."
Pedersen added that the group now has the "financial firepower" both to drive organic growth and make acquisitions, adding that further industry consolidation could be "one way to make a step change" in reaching its target of doubling its sales by the mid part of the decade.
© 2021 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
