Since the end of last year, Lenta has had problems attracting new customers / Alexander Demyanchuk / TASS

Russian retail trade has become grey and monotonous, complained Lev Khasis, former CEO of X5 Retail Group and now First Deputy Chairman of Sberbank, a year ago: “It is grey because the trade offer that market participants bring to the consumer is also becoming the same. Large and small stores sell the same goods at approximately the same prices” (quoted by RNS).

The main way Russian chains are trying to solve this problem is by developing their own brands (PL). The largest retailer by turnover, X5 Retail Group, is negotiating strategic partnerships with manufacturers: for example, the Belarusian Nesvizh Baby Food Plant has been producing Sarafanovo dairy products exclusively for X5 since the end of 2016. Magnit, which has one of the widest product lines under its PL, highlights them on the shelf with the words “Only from us”, and the Dixy Group will expand the range of products under its brands and increase their share in turnover to 25% in 2017 from 15.5% at the beginning of the year (according to the annual report).

"One of the tasks of the private label is to distance ourselves from competitors by offering something that they don't have <...> so that the buyer comes to us," says Lenta's private label management director Petr Kostygov. A "unique assortment" should help solve this problem, he noted.

Since the end of last year, Lenta has had problems attracting new customers. From January to June 2017, the flow of customers to stores that have been operating for at least a year decreased by 2.4%.

" Lenta " has decided to reconsider its approach to goods under its own brand, Kostygov said: the number of such goods in the chain's hypermarkets will grow by almost one and a half times to 2,600-2,800 by the end of 2017. "We <...> focus on what is sold in Lidl and Aldi, in whose turnover the share of private labels reaches 90%. This is a kind of standard for us," he explained. If Lenta currently has two of its own brands - the mid-priced "Lenta" and the cheaper "365 days", then by the end of the year separate brands for different types of goods will appear. Under this program, Lenta plans to increase its own imports. Mainly from European countries, but supplies from the USA are also possible, Kostygov noted.

The new brands will be presented in the mid-price segment, closer to “medium plus,” and including vegetables and fruits, where Lenta has not had its own brands until now, Kostygov specified.

At the beginning of the year, private labels accounted for about 12% of Lenta's turnover and about 8% of the product range. From 2018, Lenta expects that the share of its brands in revenue will grow by several percentage points per year; a company representative declined to disclose the exact figures. It is more profitable for the retailer to sell goods under its own brands. "Our plans include increasing profitability with the increase in sales of such goods," says Kostygov. He declined to disclose how much profitability will increase.

True, Lenta's own brands will de facto compete with the products of its suppliers. "The shelf is not elastic. With the appearance of a new assortment, outsiders must leave and make room for promising products," says Kostygov. He emphasizes that for the consumer such a replacement is painless.

At the same time, "the activity of brands in promotional campaigns is extremely high and customers react to it," Kostygov notes. "No matter how many products we launch and no matter how wonderfully a private label is presented on our shelves, but if a leading well-known brand is sold on the neighboring shelf and costs the same, and sometimes even less than our private label, then the customer, naturally, chooses it," he complains. Therefore, Lenta decided to start promotional campaigns for its cheapest brand, "365 days," Kostygov said, noting that this will be an indirect discount.

There should be a reasonable ratio of private label and branded products on the shelf, says Dmitry Leonov, deputy chairman of the board of the Rusprodsoyuz association: "This is in the interests of both suppliers and chain retailers." In his opinion, excessive growth of private labels reduces retail turnover and narrows distribution channels for the manufacturer, which is not beneficial to anyone.

Russian retailers, when launching their brands, do not develop a unique recipe and often do not include special promotion of such goods, Leonov notes. If the approach to the production of private labels as the cheapest goods does not change, then the share of private labels of more than 15-20% of the retailer's turnover will reduce sales, he believes.

According to a study by Ipsos Comcon, Russian consumers are gradually realizing that private label chains are cheaper than many well-known manufacturers, but are not inferior in quality. “If before the 2013–2014 crisis the share of people willing to pay more for a well-known brand was growing, then since 2015 the number of Russians willing to overpay for a well-known brand has been decreasing, which contributes to the growth in popularity of private labels,” analysts believe. Large retail chains are well-known, their private labels are becoming stronger – this increases consumer confidence in private labels and facilitates the purchase of such goods, they conclude.

Lenta decided to differentiate itself from its competitors