Ice-Fili How to Win in the Russian Ice Cream Market

David

Darryl

Calvin

Jeff

1

Agenda

1. Introduction a. SCQ b. Recommendations c. Framework

2. Key Analysis a. Marketing b. Supply Chain c. Competitive Environment

3. Final Recommendation a. Implementation b. Key Takeaway

2

A changing business environment demands efficiency and new strategic investment

Situation The Russian ice cream market experienced a 3.9% CAGR1 over the past 4 years, but import reliance and two major economic shocks have kept industry profits in check.

Complication Market is becoming increasingly competitive and Ice-Fili has seen a reduction in market share by 50% over the last 5 years from industry diffusion. This is due, in part, to Nestle, a new foreign competitor.

Questions What can be done about Ice-Fili’s brand identity?

Where can production and distribution be improved?

How can Ice-Fili continue to grow in the face of competition?

Introduction Analysis Implementation

1) Based on production figures as revenue figures are distorted by inflation and FX volatility.

3

Key recommendations can address multiple issues and while reinforcing each other

Introduction Analysis Implementation

Recommendation Impact

Build brand awareness

Increase sales and potential price point

“Pull” availability through consumer searching

Streamline product mix

Lower production costs

Increase brand awareness

Strategic partnerships

Partner with regional players Cross-selling

Reduce wasted capacity

Expand into supermarkets and gastronoms

Leverages more on marketing efforts

A growing and less competitive channel

4

Focusing on key issues yields broad strategic principles addressed in a step-by-step plan

Introduction Analysis Implementation

What are the key issues?

What is the impact?

What is the ideal situation?

What are the key factors that need change?

How can we achieve these scenarios?

What are the next steps?

Issue Analysis

Area Goals

Master Plan

5

Marketing

6

Industry Volume Growth in 2000

-3.5%

23.0% 25.0%

Ice Cream Beer Soft Drink

The 1% of sales spent on advertising is associated with falling sales volume. To boost ice cream demand, Ice-Fili needs to increase advertising budget.

Compared to the beer and soft drink industries, the ice cream industry only spends $5m on advertising annually

1%

2%

7%

Ice Cream Beer Soft Drink

% of Sales Spent on Advertising

Introduction Analysis Implementation 7

Advertising to masses

Masses demand more ice

cream

Industry growth,

No branding

Advertising efforts must clearly link brand to product

Ice-Fili must develop advertising that emphasizes the company and its top brands, on top of natural ingredients, in order to build brand equity among consumers.

Introduction Analysis Implementation 8

Lakomka 30%

Leningradskoe 20%

Batonchiki-Fili 20%

Other 30%

% of Ice-Fili Sales

25 30

50

170

Nestle Baskin-Robbins Metelitsa Ice-Fili

Number of Ice Cream Products

Ice-Fili needs to streamline its product mix in order to strengthen its strongest brands, while removing underperforming products that eat up capacity.

3 of Ice-Fili’s 170 products contribute to approximately 70% of total sales

Introduction Analysis Implementation 9

Advertising in ice cream industry is

extremely low

Advertising does not mention

company or brands

Brand portfolio is fragmented

Low demand for ice cream

Industry growth may not mean

growth for Ice-Fili

Underperforming brands are taking up capacity and

losing profitability

Issue Impact

Launch mass media campaign that focuses on company and brand strengths, while stream lining product mix

Focused marketing leads to large impact

Introduction Analysis Implementation

Goals

10

Supply Chain

11

Currently, the capacity of production is higher than the demand of Ice-Fili’s ice cream

In order to satisfy the increasing demand, Ice-Fili needs to partner with regional producers to meet demand outside Moscow.

0

20

40

60

80

100

120

1 2 3 4 5 6

Capacity

Moscow Demand

Ex-Moscow Demand

Ex-Moscow Shortage

Moscow Excess

Introduction Analysis Implementation

Years after advertising

‘000 tons

12

Russian geography creates distribution issues; dispersion of population leads to high transportation cost

Other non-retail

Distribution

Equipment

Packaging

Labour

Specifically target distribution, equipment, packaging and labour costs will significantly reduce over cost

40%

28%

12%

10%

10%

Major Costs as % of Price

Introduction Analysis Implementation 13

Focusing on “marketing sensitive” channels also brings Ice-Fili into growing segments

9.5%

11.0%

70.0%

45.0%

15.1%

36.0%

Ice-Fili Target

Distribution Channel Mix

Restaurants

Supermarkets

Gastronoms

Minimarts

Kiosks

Introduction Analysis Implementation 14

49.0%

29.0%

17.0%

Industry

Ex-Moscow demand will soar above current capacity

28% of price is eaten up by

distribution costs

Current channel mix does not allow us to

capture growth

Inability to “transfer” capacity

from Moscow to outside.

A large part of profit is foregone if

distribute to ex-Moscow

Competitors will capture incremental

growth

Issue Impact

Form strategic partnerships to produce where demand is, while accommodating increased demand for bulk

New supply chain network accommodates marketing strategy

Introduction Analysis Implementation

Goals

15

Competitive Environment

Introduction Analysis Implementation 16

Nestle achieved 2nd largest market share in 2000 and will continue strong.

Introduction Analysis Implementation

20

16.5

Ice-Fili Nestle

‘000s tons Sold in 2000

Local production Low costs

Heavy advertising Unique brand identity

Focus advertising on Ice-Fili company and top brands, with the help of improved distribution network to maintain strong market presence.

17

Baskin-Robbins leverages its know-how in franchise operations and international brand appeal to maintain dominance in café segment

Introduction Analysis Implementation

Franchise operations expertise

Specialized training, marketing, and advertising

Ice-Fili should not enter café segment, due to lack of expertise. Company should maintain strength in kiosks and mini-marts.

• Dominance in café segment

• International brand appeal

• High margins

18

Nestle has strong distribution network and advertising

Baskin-Robbins is dominant in café

segment

Ice-Fili could lose dominant market

position

High probability of failure if enter

segment

Issue Impact

Differentiate Ice-Fili brand based on premium, natural ingredients, and avoid café segment

New supply chain network accommodates marketing strategy

Introduction Analysis Implementation

Goals

19

Increase advertising, Streamline product

mix

Form strategic partnerships,

Increase gastronom exposure

Differentiate brand, Avoid café segment

Launch and maintain marketing campaign

Select and approach regional producers

Introduce “bulk” for family

Produce at regional level

Strengthen presence in supermarkets and gastronoms

Optimize product mix

Investigate international opportunities

Hig

h

Me

diu

m

Low

12 months+ 6-12 months 0-6 months

20 Introduction Analysis Implementation

There is a Russian saying, “A bad soldier is one who does not dream of becoming a general.” Even small companies dream of becoming large someday.

Anatoliy Shamanov

Key Takeaway

21

Appendices

22

23

Ice-Fili Target Industry

Kiosks 0.7 0.45 0.49

Minimarts 0.095 0.11 0.29

Gastronoms 0.1511 0.36 0.17

Supermarkets 0.032 0.06 0.02

Restaurants 0.0219 0.02 0.0219

Distribution Channel Mix

Projected Demand in ‘000 Tons

24

Capacity Moscow Demand Ex-Moscow Demand

0 73 4 16

1 73 5 44.215

2 73 6.25 55.26875

3 73 7.8125 69.0859375

4 73 9.765625 86.35742188

5 73 12.20703125 107.9467773