March 12, 2015 / 7:22 AM / 3 years ago

INTERVIEW-Russian retailer Lenta looks to expand smaller store format - CEO

ST PETERSBURG, Russia, March 12 (Reuters) - Russian budget hypermarket chain Lenta is looking to roll out a smaller grocery store format to more cities after its pilot project in Moscow proved successful, its chief executive said in an interview.

While Russia’s economy lurches into recession and a decline in the rouble has fuelled inflation, Lenta, backed by U.S. private equity firm TPG and Russian bank VTB, hopes its low-price focus will help attract cash-strapped consumers.

Russia’s No. 6 food retailer by revenue opened 24 supermarkets with a sales area of around 1,000 square metres in and around Moscow in 2013 and 2014, while its standard hypermarkets have a sales area of 7,000 square metres.

“(The Moscow project) is doing in such a way that we have decided to (consider) rolling it out to other cities. It’s past the pilot phase and is now part of our business and we will also be continuing growing it in Moscow,” CEO Jan Dunning told Reuters.

Russian annual inflation is running at around 17 percent, spurred also by a food import ban, imposed by Moscow last year in retaliation for Western sanctions over the Ukraine crisis.

Households have reduced spending, benefiting budget retailers such as Lenta and Magnit, and have cut back on non-essentials, primarily non-food purchases.

NO PARTIES

Dunning said it made sense for Lenta to further diversify into the smaller format to reach consumers who find it difficult to get to stores without a car or live in urban districts lacking modern shops.

It could open up in St Petersburg first and would explore opportunities in all other cities where it has distribution centres, he said.

“Although we’ll have soon 18 hypers in St Petersburg, there are still areas where, if you want to come to a Lenta, you have to take a car because it’s simply too far off. In the current situation not everyone will be thinking of buying a car.”

As evidence of the hit to consumer confidence from Russia’s economic problems, Dunning said customers who stock up for parties “disappeared totally” in September and only re-emerged in December and then ahead of holidays in February and March.

Lenta is rare among Russian grocers for making use of data from loyalty cards to track changes in consumer behaviour and respond with targeted promotions. Its customer numbers steadily increased in 2014.

“From the second half of October we’ve seen a continuous growth in like-for-like sales, leading in the fourth quarter to an increase of customers ... and that is continuing now in January-February,” he added.

“On the business performance we get more and more secure. I feel more confident now than I was in January because I’ve seen now we are in the third month and we are doing pretty well.” (Editing by Christian Lowe and Pravin Char)

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