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The Russian Ice Cream market is worth $ 500 million, with Ice Fili as the market leader. The industry concentration, determined by the market share of the four largest firms in a sector is low for Russian ice-cream industry. It indicates that the industry is highly fragmented and competitive. The industry has experienced a low growth rate of ~ 3.5 % for the last two years and the other factors influencing the overall market size, like the population and the per capita consumption of ice cream have been stagnant over the years. The external factors like the shrinking frozen-foods imports market coupled with low entry barriers caused increase in the number of new entrants into the ice-cream market.
Ice-Fili is a traditional Russian manufactured who has been the market leader in the Russian ice-cream industry but over the years the supremacy and competitive edge has been declining. Due to its traditional competency it has a lot of capacity, much of which is lying unutilized. Out of its capacity of 200 tons/day, it is utilizing only about 25% (with an annual production 16000 tons, assuming 300 working days).
Ice-Fili has also followed the strategy of sourcing most of its supplies from domestic market and hence in the short run it is relatively immune to imports and hence any negative international events. Over past few years, Ice-Fili has invested significantly in upgrading the machinery such that about 75% of the current machinery is of new generation. This is one of the strengths of Ice-Fili operations and can be leveraged.
The company is also leading the way in innovativeness and has already received recognition for introducing innovative products. This is one of the strengths of the company since innovative products will help to differentiate its products from the other competitor products as well as the new products can be exclusively branded as compared to the other flagship products from older Soviet times.
The ice-cream space in Russia can be visualized in context of three strategic groups namely –
1. International Players
2. Traditional Manufacturers
3. Local Players
Traditional Manufacturers are the ice cream manufacturers of the erstwhile USSR which were privatized in the wake of the dissolution of USSR. They prefer using natural ingredients as compared to MNC’s who use preservatives. They have traditionally not been strong proponents of Marketing and their marketing expenses constitute 1 % of their overall revenue. They have been the market leaders in the Russian markets till date but most of them have old plants and technologies.
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"Ice-Fili and the Russian Ice-Cream Market." 123HelpMe.com. 22 Apr 2019
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MNCs have positioned themselves as premium manufacturers and they have positioned themselves at the higher end of the value chain. Their sales and retails operations is different from the traditional manufacturers as in that they have their own distribution channels and some of them work on the franchise system of sales which was alien to the Russian market until now. They have been more focused on brand establishment and advertising, typically spending 4% of their revenues and 75% of the total advertisement spending by the Ice Cream industry in Russia.
They are the erstwhile Meat & Fish whole sellers who migrated to the Ice Cream business when the market for meat and fish dwindled. They are operating from outside the city and hence enjoy a cost advantage in terms of lower labour and rental expenses. They are the most flexible of the lot as they cater to the seasonal demands of the Russian market by quickly adjusting their production according to the market demand. They do not have any brand image and much scalability.
Industry Entry Analysis:
• The traditional players have been lagging behind in terms of technological advancement and hence a capital cost required for modernization of the plant (existing players) to match international standards
• Cost of developing/acquiring higher capacity for the newer players (MNC’s and local manufacturers)
• Cost of developing distribution channel as part of the supply chain. The ice-cream manufacturers need a robust distribution system to make their products easily available to cater to the impromptu demand
• Marketing and Brand establishment cost
Ice Fili marketing strategy should be two fold .On one hand it should aim at positioning the Ice Cream as healthy , nourishing constituent of a meal rather than as a snack so as to expand the ice-cream market as a whole and reduce competition from other snack products. On the other hand it should establish its own brands in order to differentiate them from other generic producers.
• The per capita ice-cream consumption is low in Russia as compared to other European and Western countries. The locations with similar climatic conditions also have better per capita consumption and reduced seasonality of demand.
Position Ice Cream as a healthy staple food item rather than as a snack through the consolidated promotion campaign by GOST. This is to increase the overall ice-cream market size as a whole.
• Company branding - “Oldest Russian Manufacturers of Ice Creams catering to the local taste since 1937 using only natural ingredients and no artificial preservatives”.
• Ice Fili should follow Customer Segmentation Strategy and direct the promotion to the needs of the particular segment (fun filled and exotic image for youth segment, healthy family dessert to adult population).
• Ice Fili should differentiate its generic products like “Lakomka” and “Leningradskaya” from the similar competitor products by brand promotion by focusing on its superior quality of ingredients, taste and packaging.
• Market survey to gather data about the consumer tastes and preferences.
• The higher end of the ice-cream market has monopoly of Baskin-Robbins and presents a lucrative market with higher profit margins.
Gain entry in this untapped segment of the market by promoting its products in Cafes, Supermarkets and eateries like Pizza Hut.
The new premium line of the products can be priced higher and retailers can be offered a discount on higher markup price as an incentive to promote the company’s new line of premium products.
• Position the company as “Most Innovative Russian Ice Cream Manufacturer”.
• Distribution channel costs can be influenced by buying some strategic stake in one of the distributor, possibly Eskimo Fili.
Ice-Fili thereby will be in a better position to influence the distributor with respect to promoting the company’s brands using the existing distributor resources.
• Long Term Agreements with Retail chains to stock their products, by assuring them of regular supplies and ensuring easy scale-up of supplies in case of increased demand.
• Franchise model
Build a franchise of local manufacturers by offer our technical expertise, brand, supplier and distributor network to them in return of a profit share.
This will help the company to expand into the growing markets like Siberia and Petersburg as well as take share the cost advantage of the local player. Increased supplies will help the company to negotiate better with the suppliers.
Integration with suppliers
• Sweet cream butter costs a significant portion (13%) of the overall raw material costs.
Sweet cream butter can be procured from Europe/nearby countries .Potential savings in terms of freight costs resulting in lower overall costs of Ice Cream and greater profits and potentially greater reliability, availability of the raw material.
• Domestic Suppliers price fluctuate with season.
Try negotiating with the existing domestic suppliers for better and stable prices in return for long term contracts of supply orders.
• The current system of higher penalization and lesser rewards does not provide incentive for risk taking and innovation.
Bonus system should be commensurate rewards with penalties, if not higher value of rewards for risk taken.
• Introduce a reward for Innovative ideas with a reward linked to benefit of the idea.
• Focus towards training and development to increase the productivity and create more talent pool.
• Marketing the company to the youth as an attractive place to work and grow.
Product and Packaging
• Identify and do an individual profit analysis for each and every product. Cut off the products that have been consistently bleeding profit.
• Introduce a marginal differentiation is terms of product and revise the prices upwards by 5%.
• Introduce a bigger packing size for the products with some discount on larger pack.
• Venture into alternate products like Dry Ice which have a substantial demand in order to utilize the spare capacity
Environment and government policy:
• Lobby for a lower tax rate for domestic players and lower import duties on raw goods.
• Focus on establishment of company and product brand through an extensive advertising campaign
• A good company image will help in boosting investor confidence for a future IPO.
• Increase in sales and hence better profit figures.
• Start an incentive scheme for innovative ideas.
• Introduce a variable pay structure which provides rewards commensurate with the risk taken.
• Robust training and development program, emphasizing the overall growth of employee.
• It will help in building a better talent pool to fuel company’s future growth.
• Increase the employee/labor productivity.
• It will help in attracting younger talent.
3. Franchisee and Distribution Network
• Introduce a franchise model to the local manufacturers offering Ice-Fili’s expertise, supplier
• Buy a stake in Eskimo-fili or similar distributors, as a step towards establishing stable distribution system.
• Entry into market segments which were previously inaccessible due to logistics and cost constraints
• A share in the distribution business will help in negotiating better and exclusive terms
4. Product and Packaging
• Launch ice-cream products in the premium segment.
• Introduce bigger family packs in the market.
• Lead to grabbing a share of previously untapped market segment, which promises higher margins.
• It will help in establishing Ice-Fili as a quality ice-cream producer.
• A bigger packaging will help in increasing the overall consumption of ice-cream.
5. Production and Export of Dry Ice
• Venture into production and supply of dry ice which has a high demand and can be produced with the existing production facilities.
• It will lead to increase in the topline and ROA by utilizing the spare capacity to earn more revenue.
• The dry ice can be easily produced with the existing infrastructure and has a good demand in the neighboring countries.
6. Negotiate better terms and conditions with the suppliers
• Reduce the effect of price fluctuation, and hence decrease variability in costs.
B. Long Term
• Establish distribution channels to export the ice-creams to growing markets in neighboring countries.
• Lobby for tax breaks and lower import duties.
• Go for joint venture with the local players in foreign markets so as to gain entry in the newer growing regions.
• Invest in the advanced technology and better equipment.
• Get a quality certification that promotes company’s quality conscious image.