Lenta Retail Group



Lenta Retail Group

Russian retail chain Lenta was founded by Oleg Victorovich Zherebtsov in St. Petersburg in 1993. The company began as a single store, operating as a regular discounter or “cash and carry” store, though that store produced enough revenue to support the creation of two additional stores in 1996, expanding into the northwest Siberian and Volga regions. Lenta financial figures note that the company grossed around $650 million in 2005. Forbes ranked the business No. 92 among Russia’s 200 largest private companies in 2004.

Oleg Zherebtsov, current chairman and CEO of Lenta, established the company shortly after his graduation from the Leningrad Institute of Mines in 1993. He served as the company’s general director from 1993 until 2003 when he was named CEO. In 2004, Ernst and Young named Zherebtsov Russian Entrepreneur of the Year in the category of trade. Zherebtsov is married and has one daughter.

In 1999, Lenta changed its retail format to “hypermarket” with the opening of an 86,111-square-foot store in St. Petersburg. Although the hypermarket format was not new to the world at large, it was relatively unique in Russia at the time, and Oleg Zherebtsov, Lenta’s founder and current chairman, likes to joke, “We thought we had invented the concept.” Zherebtsov has said he believes that Lenta, run as a large-scale business, will help people to live better lives.

After the initial megastore construction, Lenta continued proliferating warehouse-sized supermarkets, opening more than a dozen stores between 1999 and 2006. At the end of 2006, Lenta operated 17 megastores in northwest Russia with further plans for expansion including 13 more retail outlets in several Russian cities in 2007, representing a total investment of more than $500 million. Although Lenta has plans to expand its operations out of the St. Petersburg region, it does not currently have plans to move into Moscow, Russia’s Far East or any neighboring countries.

Lenta has a well-connected set of directors and managers, along with management personnel who have joined from foreign companies. Zherebtsov himself has close ties to Russia’s political elite. Russian President Vladimir Putin named Zherebtsov governor of the Chita region in 2004, a testament to Zherebtsov’s standing with the administration. In October 2004, the Russian Duma adopted a controversial proposal to allow Putin to choose regional governors directly, allegedly as a response to the hostage crisis in Beslan the previous month. Though the named governors were not in Putin’s inner circle, the positions were typically awarded as a way to provide financial rewards and incentives to individuals that had previously supported the administrations because many governors receive quiet kickbacks from state-government coffers. As such, the Chita region is particularly attractive for this purpose due to the large quantities of mineral resources and the large number of resource extraction companies seeking to establish or expand operations in the region.

Zherebtsov also has a seat on the Competitiveness Council, a subdivision of the Russian Union of Industrialists and Employers (RSPP). The RSPP boasts an elite and powerful membership, including Unified Energy Systems CEO Anatoly Chubais, Interros President Vladimir Potanin and Russian state-controlled natural gas monopoly Gazprom Chairman Alexei Miller.

In terms of international connections, Lenta is considered to have one of the most internationally experienced management teams among Russian industry, including two former Wal-Mart executives -- Bill Woodard and Rob Voss -- and Pavel Tomanek, a former executive for British firm Tesco, the world’s fourth-largest retailer.

Further demonstrating international interest in Lenta as a retail operation, the European Bank for Reconstruction and Development (EBRD) in May became a stakeholder in Lenta with an investment of $125 million into Lenta’s regular stock offerings. The EBRD has expressed a great deal of confidence in Lenta, particularly in regard to the company’s financial transparency and corporate governance.

It is unclear exactly how much of a stake in Lenta these new shares will give EBRD, but rough estimates put it between 3 percent and 5 percent. The original shareholding structure of the private company was 43.5 percent held by Zherebtsov, 40 percent held by individual investor August Meyer and the remaining 16.5 percent split up among the other managers of the company, including financial director Sergei Yushchenko. The company did not disclose its primary ownership until September 2006.

Lenta currently has plans to make an initial public offering of between 25-30 percent on the London Stock Exchange in fall 2007. In August 2007, Zherebtsov announced that part of the proceeds of the sale would be used to make an investment in a new retail project creating 160 Norma supermarket and convenience markets to be part of the Nova brand. The stores are scheduled to open beginning in early 2008 with an initial cost of about $500 million. The four companies involved in preparing for the offering have been ABN Amro, MDM Bank, UBS and Goldman Sachs. The initial sale has been preliminarily valued at $300 million, putting the estimated value of the company as a whole at about $900 million to $1.2 billion.

In interviews with journalists, Zherebtsov notes that Lenta has an unusual business model compared to some retailers, refusing to carry some well-known brands due to problems with suppliers. Lenta, he said, would refuse to lose some business because certain brands are not on their shelves rather than work with distributors or pay high prices for products that would require them to charge high prices to customers.

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