IKI operates 219 stores in Lithuania and Latvia and is of the largest employer in the Baltic States with over 9,000 employees at present. The company is focused on quality and grew dynamically in the last 15 years. Let’s see why!

Progresszív Magazin: You hold a case study presentation in Budapest at the NCR Self-Service Universe Conference. Why did the global store automation and self-service solutions provider ask You to make the presentation?

Eglé Nutautaite: In one of our IKI supermarkets in Vilnius we have successfully completed a three-month trial of NCR FastLane that enables consumers to scan, bag and pay for goods themselves. We were the first one to launch self check-outs in Eastern and Central Europe. Now we expand its deployment to two additional stores in the city and will be installing up to 100 more self-checkouts during 2008.

P.M.: It is a new solutions and rare in Eastern Europe. Why did You decide to install it?

E.N.: Our philosophy is based on the quality and speed of shopping. Self checkout helps to further develop the speed as it doubles the same footprint as traditional manned checkouts (it means that SCO takes twice less floor space than regular check-out). As only one attendant is required to look after multiple self-checkouts staff can help to improve customer service levels elsewhere in the shop by assuring on-shelf availability of merchandise and can provide product advice. It is very important. Since we joined the EU we have to face the lack of labour and the fast growing wages.

P.M.: Self-checkout is not a cheap solution. Did You have further reasons to install it?

E.N.: Yes, another important reason was that we don’t want to loose our competitive advantage of quality service, one the strongest differentiating factors that we have. Payback – which is planned for a two years period – also played an important role but was not in first place.

P.M.: Self-checkout can only be found in three of Your stores – right now – but Your further stores are also unique. Why?

E.N.: We have in store bakery in 30 supermarkets as well as a central bakery delivering stores with the same assortment that do not have a bakery in house. They offer over 100 types of fresh bread, rolls and cakes which are prepared in the shops from natural ingredients and are not made of frozen bakeries. Another specialty is fresh fish on ice which is also in offer in each store. IKI was the first to start imports of fresh fish over seven years ago and today it is one of our fastest growing category. In general, we note strong growth in two major categories – convenience foods and healthy food. People having less free time do not want to spend hours cooking, and health and sustainability issues play more and more importrant role in product choice

P.M.: You have a full range network with convenience and discount stores included but Your business model is based on supermarkets. Why?

E.N.: That is what we are an expert of. While others focused on price we concentrated on high quality which could be best achieved with the supermarket format. Our strategy proved to be successful as since our countries economic boom started – people began to focus on quality and we could reach excellent growth rates. Now our economy is cooling down but fortunately we don’t feel its effect yet. Latvia – where we have 35 stores – is facing more problems with higher inflation and a harder landing forecasts but there we will continue to focus on quality too.

P.M.: While focusing on supermarkets You also developed over hundred stores discount network. What is the reason of this?

E.N.: Four years ago Lidl announced entrance to the Baltics. To be able to confront coming competition we decided to strengthen our discount format PIGIAU GRYBO, thus we decided to make a master franchise agreement with the French Casino Group. Based on this agreement we had over a hundred stores under Leader Price banner. Last year Casino Group sold its Polish operation, the one supplying our discount stores with the Leader Price branded products. We had to stop the cooperation with Casino and renamed our discount stores to Cento. These are located mainly in smaller towns with smaller number of inhabitants or where consumers are more price sensitive and low cost operation is key. Our discount stores’ size fluctuates between 180 to 550 m2.

P.M.: Last year You stopped the cooperation with the French group but this year a new one started.

E.N.: The Ortiz family – founder of UAB Palink, the company which operates the IKI network – decided to sell the majority of the shares for the partners of European buying group Coopernic: the French Leclerc, the Swiss Coop and the German Rewe Group.

P.M.: Why was it necessary?

E.N.: In the highly competitive European retail scene we need to have strong international partners. Our country is small – with only 3,5 million inhabitants – and Latvia, where we are also operating, is even smaller with 2 million people. The Lithuanian retail is very concentrated with domestic chain Maxima in the first place and we in the second. The Latvian market is more fragmented with 50 per cent share of the small, independent retailers. Right now the Scandinavian ICA is the only big multinational chain present in the Baltics with the Rimi chain. With such important international retailers we get access to know-how, sharing of experience, common purchasing, which gives a more weighty competitive position.

P.M.: Lidl planned to come but did not. What do You think, why? And what about Aldi which recently entered the Hungarian market?

E.N.: Lidl representatives could comment better on their reasons. We can only presume that major deciding points for Lidl’s pull-back were too small markets with too strongly established retailers.

P.M.: The hypermarkets are missing from Your portfolio. Are they not common in the Baltics? Are there any restrictions of the store sizes You can build?

E.N.: IKI is a food-oriented retailer, our main business is supermarkets. Hypermarkets exist in both countries. There are no major restrictions for store sizes so far.

P.M.: What about IKI’s private label portfolio?

E.N.: Private label is a new thing in the Baltics and we are in the stage of the development of the first ranges. At IKI right now we only have a premium private label range (IKI Gurmanai – Gourmet) with niche products in 14 categories like foods prepared following old recipes. We don’t have any medium price and cheap lines.

P.M.: Why did You start with the premium line? What are the difficulties in the development of Your private label offer?

E.N.: Being focused on food quality we wanted to provide our customers unique high quality products that would differentiate IKI from other retailers. Private label will grow in our markets as well, just relatively small market sizes make potential sourcing scope narrower.

P.M.: In March this year You not only got a new majority shareholder but also a new Director General who can be really interesting for our (Hungarian) readers as he Hungarian born in Austria where he spent most of the time. Why was he asked to direct the Lithuanian chain?

E.N.: It is connected with the Coopernic transaction. Mr. Haraszti worked long years for Rewe, member of Coopernic. He started his career in the retail sector in retail chain REWE where he took various manager positions in Austria and Hungary until 2004. Since January 2004 he run retail chain BILLA in the Ukraine; and since January 2007 in Romania. On the 21^st of March – short after the Coopernic deal – he has joined IKI as a CEO of Palink Group.

Eglé Nutautaite,

Retail Director of the second biggest Lithuanian grocery retail chain

Interviewed by Péter Salgó