Lenta to boost store proximity and online in 2021

Date : 25 March 2021

Amin Alkhatib

Senior Retail Analyst

As part of its Capital Markets Day event in March 2021, Lenta announced it is to expand its small format network and online presence as it aims to double its revenue, to more than RUB1 tr (US$13.2 bn) by 2025. The aim is to capture a higher share of consumer spend through new channels that target a wider range of shopper missions, while still enabling it to focus on its core hypermarket business.

Lenta aiming to get closer to shoppers with proximity and online

Lenta is looking to get closer to its customers by expanding its presence with its small supermarkets, under the Lenta Mini banner, and through its online delivery service. The strategy is aimed at helping it to win a greater share of shopper spend by meeting a range of new shopper missions, such as top-up, food-to-go and impulse purchase missions. It will also see it target larger shops, such as weekly grocery needs through its online store, and more expensive goods, such as high-ticket non-grocery items.

Lenta is catching up with competitors

Lenta must catch up with most of its key competitors as they have already established small format store networks and have been investing to develop an online offer. X5, Magnit and Dixy Group have a substantial network of small stores in locations closer to residential areas than Lenta does presently. These stores can also support as online fulfillment units.

Source: IGD Research

The leading five retailers in Russia are represented in the graph in terms of the strategic direction they are taking with their strategies. The location of the retailer represents their position in 2019, and the length of the arrows and end points represent where the retailer is expected to be by 2025. The direction of the arrow represents where the strategic focus will lie between understanding and improving proximity to shoppers.

Lenta Mini: its smallest format yet

Lenta Mini is the retailer’s smallest format has rolled out, at less than 700 sq. m. This compares to its supermarket format, Lenta SM, at around 1,500 sq. m. Lenta Mini will give it the possibility to access more locations than its core hypermarket format, which will help it expand its presence in residential areas. The new format will also see it adjust its offer to provide a more convenient range that targets convenience shopper missions.

Source: Lenta

In 2020 it launched 49 of these stores and plans to significantly increase its network in 2021. The retailer said Lenta Mini stores, in 2020, generated better sales densities than Lenta SM and format leaders, in St Petersburgh and Siberia, and matched it in Moscow. This gives the retailer encouraging signs of the greater returns this format will offer.

Hypermarket conversion to expand online fulfilment

Lenta is also investing to expand the coverage of its online home delivery service nationally. In 2020 it operated its own service, Lentochka, offered an in-store click and collect option, and partnered with several food delivery services to provide shoppers with a range of options.

The retailer has an advantage when it comes to expanding its online fulfilment. It has a large network of hypermarkets that can support this growth. Between 2021 and 2025, all 254 of its large format stores will be converted into hybrid-dark stores to support its growing need for online fulfilment.

Utkonos merger is still possible

The conversion of its hypermarkets will be key in helping the retailer generate 10% of its sales online by 2025. However, this will be further supported by a potential merger with his own pure online grocery retailer, Utkonos, as announced by the owner of both companies, Alexei Mordashov.

Utkonos has extensive experience in the online grocery business, and a strong presence in Russia’s largest city, Moscow. A merger would give Lenta an added advantage in consolidating its position in respect of its two key competitors, X5 and Magnit, who are making strong investment in the channel.

Lenta is building its retail ecosystem

Lenta is investing in its retail ecosystem to advance it knowledge and understanding of its shoppers. It will do this through its omnichannel offer, which will enable it to gather more data on its shoppers’ needs and habits. So far it has invested in the digitisation of its loyalty programme and the integration of its offline offer with its online one. Separately it has used transactional data to create personalised offers and expand its range and the delivery capacity of its ecommerce offer to attract more shoppers.

Source: Lenta

Lenta will continue focus on its core business…

Despite its strong investment in new and emerging channels for the business, Lenta remains focused on its core format, hypermarkets. It is aiming to improve its in-store shopping experience, alongside improving its price competitiveness. It will use its retail ecosystem to help it understand its shoppers’ needs at a more local level. This will help it, first, to tailor assortments to the needs of each store’s catchment, and, secondly, to curate its layouts to create an in-store customer journey that presents the greatest spend opportunity.

…as it shifts to a more multiformat strategy

Lenta is piloting a hard discount format, under the 365 banner, which is the name of its value tier private label brand. This move sees it follow its key competitors X5 and Magnit who have already launched their own hard discount banners, Chizhik and Moya Tsena, respectively.

Hard discounter Svetofor is putting all the retailers under growing pressure as it is enjoying strong sales growth. Svetofor has recorded the fastest year-on-year sales growth amongst leading retailers in recent years, jumping to 8th position in 2021, from 10th in 2019.

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