In December 2016, Lenta signed a joint-procurement agreement with the private-owned Belarusian retailer, Euroopt. This agreement allows both entities to share suppliers and build on their buying power, thus forming a buying alliance.
Another retailer seeking buying alliance in CEE
Lenta is so far the second retailer with operations in the CEE to show interest in buying alliances. German Globus, which operates 12 hypermarkets in Russia, joined the largest European buying alliance, EMD, in December 2016. Such moves are in line with a growing interest from CEE retailers in buying alliances, as illustrated with Kaufland’s incorporation of its Eastern European operation in EMD in early-2016.
Expected stagnant consumption growth in 2017 and continued high competitiveness means that retailers in the CEE need new ways to maintain or grow their margins. Joining buying alliances or partnering with other retailers is one option. This is especially the case for Russian retailers that continue to seek ways to circumvent the embargo on fresh foods from the EU and to lower costs.
Lenta circumventing the food embargo
Lenta’s international buying partnership is a unique move in Russia. Its chief executive, Jan Dunning, sees the partnerships as an aid to its domestic competitiveness. This especially makes sense because of the ongoing EU fresh food embargo imposed by the Russian government that continues to force Russian retailers to seek suppliers outside the EU, such as from Belarus.
Lenta's partnership with the Belarusian retailer makes sense as they can hedge against future embargos. Especially as the Russian government has extended the embargo on EU foods till the end of 2017. The Russian retailer aims to expand its supplier pool and diversify via partnerships with international non-EU suppliers. They illustrated that with the increase in number of suppliers by 292 in 2015, and it continued to do so in 2016.
Seeking to lower costs and maintain affordability
Lenta and Euroopt will also include each other’s private label range on their shelves as part of their partnership agreement. This aids Lenta to increase the sales share of its private label portfolio beyond 12%, as reported in 2015.
The cross-sale of private label alongside the buying partnership expects to aid cost optimisations initiatives, especially for the Russian retailer. In the face of inflationary pressure on pricing, and a price-competitive retailing environment in Russia, cost-reduction will be at the forefront of a Russian retailer’s target. Lenta’s introduction of the Euroopt private label will be supportive in achieving that target.