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Rc3 2010 Jdc & Koh

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Case analysis of Russian ice cream producer Ice-Fili in times of increasing competition. Made and presented for Rotman Commerce Consulting Case Competition 2010.

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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 Complication Questions The Russian ice Market is becoming What can be done cream market increasingly about Ice-Filis experienced a competitive and Ice- brand identity? 3.9% CAGR1 over Fili has seen a Where can the past 4 years, reduction in market production and but import share by 50% over distribution be reliance and two the last 5 years from improved? major economic industry diffusion. How can Ice-Fili shocks have kept This is due, in part, continue to grow in industry profits in to Nestle, a new the face of check. foreign competitor. competition? 1) Based on production figures as revenue figures are distorted by inflation and FX volatility. 3 Introduction Analysis Implementation
Key recommendations can address multiple issues and while reinforcing each other Recommendation Impact Increase sales and potential price point Build brand awareness Pull availability through consumer searching Lower production costs Streamline product mix Increase brand awareness Strategic partnerships Cross-selling Partner with regional players Reduce wasted capacity Expand into supermarkets and Leverages more on marketing efforts gastronoms A growing and less competitive channel 4 Introduction Analysis Implementation
Focusing on key issues yields broad strategic principles addressed in a step-by-step plan What are the key issues? What is the What is the impact? ideal situation? What are the How can we key factors that achieve these need change? scenarios? What are the next steps? Issue Area Master Analysis Goals Plan 5 Introduction Analysis Implementation
Marketing 6
Compared to the beer and soft drink industries, the ice cream industry only spends $5m on advertising annually % of Sales Spent on Advertising Industry Volume Growth in 2000 7% 25.0% 23.0% 2% 1% -3.5% Ice Cream Beer Soft Drink 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. 7 Introduction Analysis Implementation
Advertising efforts must clearly link brand to product Masses Industry demand growth, Advertising to masses more ice No cream branding 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. 8 Introduction Analysis Implementation
3 of Ice-Filis 170 products contribute to approximately 70% of total sales Number of Ice Cream Products % of Ice-Fili Sales Other 170 30% Lakomka 30% Batonchiki-Fili 20% 50 30 25 Leningradskoe 20% Nestle Baskin-Robbins Metelitsa Ice-Fili Ice-Fili needs to streamline its product mix in order to strengthen its strongest brands, while removing underperforming products that eat up capacity. 9 Introduction Analysis Implementation
Focused marketing leads to large impact Issue Impact Advertising in ice Low demand for ice cream industry is cream Goals extremely low Launch mass media campaign that Advertising does Industry growth focuses on company not mention may not mean and brand strengths, company or brands growth for Ice-Fili while stream lining product mix Underperforming Brand portfolio is brands are taking fragmented up capacity and losing profitability 10 Introduction Analysis Implementation
Supply Chain 11
Currently, the capacity of production is higher than the demand of Ice-Filis ice cream 000 tons 120 100 Ex-Moscow Shortage 80 Capacity Moscow Demand 60 Ex-Moscow Demand Moscow 40 Excess 20 0 1 2 3 4 5 6 Years after advertising In order to satisfy the increasing demand, Ice-Fili needs to partner with regional producers to meet demand outside Moscow. 12 Introduction Analysis Implementation
Russian geography creates distribution issues; dispersion of population leads to high transportation cost Major Costs as % of Price 40% Other non-retail Distribution Equipment 28% Packaging Labour 12% 10% 10% Specifically target distribution, equipment, packaging and labour costs will significantly reduce over cost 13 Introduction Analysis Implementation
Focusing on marketing sensitive channels also brings Ice-Fili into growing segments Distribution Channel Mix 17.0% 15.1% 9.5% Restaurants 36.0% 29.0% Supermarkets 11.0% Gastronoms Minimarts 70.0% Kiosks 49.0% 45.0% Industry Ice-Fili Target 14 Introduction Analysis Implementation
New supply chain network accommodates marketing strategy Issue Impact Inability to Ex-Moscow demand transfer capacity will soar above from Moscow to Goals current capacity outside. Form strategic partnerships to A large part of 28% of price is produce where profit is foregone if eaten up by demand is, while distribute to ex- accommodating distribution costs Moscow increased demand for bulk Current channel mix Competitors will does not allow us to capture incremental capture growth growth 15 Introduction Analysis Implementation
Competitive Environment 16 Introduction Analysis Implementation
Nestle achieved 2nd largest market share in 2000 and will continue strong. 000s tons Sold in 2000 20 Local production Low 16.5 costs Heavy advertising Unique brand identity Ice-Fili Nestle Focus advertising on Ice-Fili company and top brands, with the help of improved distribution network to maintain strong market presence. 17 Introduction Analysis Implementation
Baskin-Robbins leverages its know-how in franchise operations and international brand appeal to maintain dominance in caf辿 segment Dominance in caf辿 Franchise operations segment expertise International brand appeal Specialized training, High margins marketing, and advertising Ice-Fili should not enter caf辿 segment, due to lack of expertise. Company should maintain strength in kiosks and mini-marts. 18 Introduction Analysis Implementation
New supply chain network accommodates marketing strategy Issue Impact Nestle has strong Goals Ice-Fili could lose distribution dominant market network and position Differentiate Ice-Fili advertising brand based on premium, natural ingredients, and Baskin-Robbins is High probability of avoid caf辿 segment dominant in caf辿 failure if enter segment segment 19 Introduction Analysis Implementation
Increase advertising, Streamline product Launch and maintain marketing campaign High mix Select and approach regional producers Form strategic Introduce bulk for family Medium partnerships, Strengthen presence in Increase gastronom supermarkets and gastronoms exposure Produce at regional level Optimize product mix Low Differentiate brand, Investigate international Avoid caf辿 segment opportunities 0-6 months 6-12 months 12 months+ 20 Introduction Analysis Implementation
Key Takeaway 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 21
Appendices 22
Distribution Channel Mix 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 23
Projected Demand in 000 Tons 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 24

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Rc3 2010 Jdc & Koh

  • 1. Ice-Fili How to Win in the Russian Ice Cream Market David Darryl Calvin Jeff 1
  • 2. 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
  • 3. A changing business environment demands efficiency and new strategic investment Situation Complication Questions The Russian ice Market is becoming What can be done cream market increasingly about Ice-Filis experienced a competitive and Ice- brand identity? 3.9% CAGR1 over Fili has seen a Where can the past 4 years, reduction in market production and but import share by 50% over distribution be reliance and two the last 5 years from improved? major economic industry diffusion. How can Ice-Fili shocks have kept This is due, in part, continue to grow in industry profits in to Nestle, a new the face of check. foreign competitor. competition? 1) Based on production figures as revenue figures are distorted by inflation and FX volatility. 3 Introduction Analysis Implementation
  • 4. Key recommendations can address multiple issues and while reinforcing each other Recommendation Impact Increase sales and potential price point Build brand awareness Pull availability through consumer searching Lower production costs Streamline product mix Increase brand awareness Strategic partnerships Cross-selling Partner with regional players Reduce wasted capacity Expand into supermarkets and Leverages more on marketing efforts gastronoms A growing and less competitive channel 4 Introduction Analysis Implementation
  • 5. Focusing on key issues yields broad strategic principles addressed in a step-by-step plan What are the key issues? What is the What is the impact? ideal situation? What are the How can we key factors that achieve these need change? scenarios? What are the next steps? Issue Area Master Analysis Goals Plan 5 Introduction Analysis Implementation
  • 7. Compared to the beer and soft drink industries, the ice cream industry only spends $5m on advertising annually % of Sales Spent on Advertising Industry Volume Growth in 2000 7% 25.0% 23.0% 2% 1% -3.5% Ice Cream Beer Soft Drink 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. 7 Introduction Analysis Implementation
  • 8. Advertising efforts must clearly link brand to product Masses Industry demand growth, Advertising to masses more ice No cream branding 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. 8 Introduction Analysis Implementation
  • 9. 3 of Ice-Filis 170 products contribute to approximately 70% of total sales Number of Ice Cream Products % of Ice-Fili Sales Other 170 30% Lakomka 30% Batonchiki-Fili 20% 50 30 25 Leningradskoe 20% Nestle Baskin-Robbins Metelitsa Ice-Fili Ice-Fili needs to streamline its product mix in order to strengthen its strongest brands, while removing underperforming products that eat up capacity. 9 Introduction Analysis Implementation
  • 10. Focused marketing leads to large impact Issue Impact Advertising in ice Low demand for ice cream industry is cream Goals extremely low Launch mass media campaign that Advertising does Industry growth focuses on company not mention may not mean and brand strengths, company or brands growth for Ice-Fili while stream lining product mix Underperforming Brand portfolio is brands are taking fragmented up capacity and losing profitability 10 Introduction Analysis Implementation
  • 12. Currently, the capacity of production is higher than the demand of Ice-Filis ice cream 000 tons 120 100 Ex-Moscow Shortage 80 Capacity Moscow Demand 60 Ex-Moscow Demand Moscow 40 Excess 20 0 1 2 3 4 5 6 Years after advertising In order to satisfy the increasing demand, Ice-Fili needs to partner with regional producers to meet demand outside Moscow. 12 Introduction Analysis Implementation
  • 13. Russian geography creates distribution issues; dispersion of population leads to high transportation cost Major Costs as % of Price 40% Other non-retail Distribution Equipment 28% Packaging Labour 12% 10% 10% Specifically target distribution, equipment, packaging and labour costs will significantly reduce over cost 13 Introduction Analysis Implementation
  • 14. Focusing on marketing sensitive channels also brings Ice-Fili into growing segments Distribution Channel Mix 17.0% 15.1% 9.5% Restaurants 36.0% 29.0% Supermarkets 11.0% Gastronoms Minimarts 70.0% Kiosks 49.0% 45.0% Industry Ice-Fili Target 14 Introduction Analysis Implementation
  • 15. New supply chain network accommodates marketing strategy Issue Impact Inability to Ex-Moscow demand transfer capacity will soar above from Moscow to Goals current capacity outside. Form strategic partnerships to A large part of 28% of price is produce where profit is foregone if eaten up by demand is, while distribute to ex- accommodating distribution costs Moscow increased demand for bulk Current channel mix Competitors will does not allow us to capture incremental capture growth growth 15 Introduction Analysis Implementation
  • 16. Competitive Environment 16 Introduction Analysis Implementation
  • 17. Nestle achieved 2nd largest market share in 2000 and will continue strong. 000s tons Sold in 2000 20 Local production Low 16.5 costs Heavy advertising Unique brand identity Ice-Fili Nestle Focus advertising on Ice-Fili company and top brands, with the help of improved distribution network to maintain strong market presence. 17 Introduction Analysis Implementation
  • 18. Baskin-Robbins leverages its know-how in franchise operations and international brand appeal to maintain dominance in caf辿 segment Dominance in caf辿 Franchise operations segment expertise International brand appeal Specialized training, High margins marketing, and advertising Ice-Fili should not enter caf辿 segment, due to lack of expertise. Company should maintain strength in kiosks and mini-marts. 18 Introduction Analysis Implementation
  • 19. New supply chain network accommodates marketing strategy Issue Impact Nestle has strong Goals Ice-Fili could lose distribution dominant market network and position Differentiate Ice-Fili advertising brand based on premium, natural ingredients, and Baskin-Robbins is High probability of avoid caf辿 segment dominant in caf辿 failure if enter segment segment 19 Introduction Analysis Implementation
  • 20. Increase advertising, Streamline product Launch and maintain marketing campaign High mix Select and approach regional producers Form strategic Introduce bulk for family Medium partnerships, Strengthen presence in Increase gastronom supermarkets and gastronoms exposure Produce at regional level Optimize product mix Low Differentiate brand, Investigate international Avoid caf辿 segment opportunities 0-6 months 6-12 months 12 months+ 20 Introduction Analysis Implementation
  • 21. Key Takeaway 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 21
  • 23. Distribution Channel Mix 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 23
  • 24. Projected Demand in 000 Tons 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 24