Clm mark@- нпгю

By MARK@ (Ruska, Markevichus, Naniev,

Grachev)

Emerging russian ice-cream market is good area for different producers as it has great potential

1. Currently Russian ice-cream market is the 4th largest in terms of amount produced and 10th

in terms of value.2. The market is

growing slowly and the consumption less than in the US and Scandinavian countries.

3. The ice-cream market has got good potential.

4. Mainly people contribute ice-cream by impulse rather than taking it home.

5. A few leaders have got huge share of the market.

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53%54%55%56%57%58%59%60%

2011 2012 2013 2014 2015

Trend of ice-cream consumers share

90%95%

100%105%110%115%

2009 2010 2011

100%

112,80% 113,15%

Trend of market volume

Stick21%

Wafer Cup11%

Fruit Ice 3%

Cone18%

Sandwich2%

Trubochka3%

Other10%

Tub10%

Pot4%

Log+Cake3%

Bulk5%

Big Brick9%

Other1%

Take-home; 32,00%

Main ice-cream categories

22%

15%

14%7%6%

36%

Share value of main producers, 2011

Unilever-Inmarko

Nestle

Iceberry

Russki Holod

Talosto

Other

According to current situation on the Russian ice-cream market Unilever-Inmarko has got a great potential acting in this area. Hence, Unilever-Inmarko could achieve good results by having a good-functioning structure. So the main goal is to

achieve the 1st place in certain areas (Central, North-West, South) of Russia by modifying current distribution system.

Russian ice-cream market is growing slowly but has a good potential

Differentiated demand provide sufficient market share for main producers

Current position of Unilever-Inmarko on the market gives huge opportunities for constructing effective distribution network

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Using its competitive advantages and existing capacities Uniliver can build effective distribution network in Central, North-West and South regions based mainly on highly technological plant in Tula.

Unilever-Inmarko can use its strengths to resist threats and use opportunities to improve weaknesses.

Strength Weaknesses

•Good position in world and Russian market;•Good facilities;•Well-balanced portfolio of brands;•High quality of products

•Bad experience in acting on Russian ice-cream market;•Production capacities not always cover existing demand;•Weak position in distribution in some regions

Opportunities Threats

•Central region has great potential;•Developing economy gives huge opportunities;•Huge areas that could be used in manufacturing;•Economy of scale could be used

•Unstable political situation;•Uncertain tax policy of the government;•Strong competitors

Acting in competitive market with strong players Unilever has got its own advantages (Price/quality; Tula – high

technology; High quality of service) that give company opportunities for growth.

02468

10Brand

Value shares

Effectiveness of …

Price (from the point of view …

Brand portfolio

Producer’s CPI

Unilever-InmarkoNestleIceberryRusski HolodTalosto

Unilever has strong positions in Russian market in certain areas, but not good enough to be a leader in ice-cream sector. Previous bad experience could be a good example for company.

Unilever should use existing capacities of Inmarko and should improve distribution channels.

Unilever can optimize distribution network (in Central, North-West, South regions) using given capacities.

Novosibirsk• Low power and not suited

to modernization.• The shop in Novosibirsk isequipped with only twoproduction lines.

•In 2011 - re-equip into the distributionwarehouse and the logistics center.

Tula •Good location (Central, South and North-West).•The high production capacities.•Complex for the production of ice cream + logisticscenter (5,000 tons of finished products).•By the end 2014 will produce about 120 mln liters ofice cream (potentially 200 million liters).

•I = 100 million euros.•Produces 60% of Inmarko production.•Maximum production capacity = 60 million liters of ice cream.•Warehouse (20,000 pallets for 5,000 tons of finishedproducts).

Omsk •Fairly modern enterprise.•Regular upgrading.•Can produce only 50 mln tons ofice cream per year.•Partial modernization hasalready begun.

•Restructuring measures will increase theproduction of ice cream up to 75 tons peryear.•Later will produce goods for Siberia, theFar East and Kazakhstan.

Modify currently existing system in Central Federal District

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Central Federal District has the biggest population among the others (37million). Central region also less suffers from seasonal changes, also, Inmarko’splant is situated here.Our current distributors (5) work almost in every city except Lipetsk and Tula.They have high CCFOT and expectable level of % of sales. Almost allwarehouses are owned. Almost all distributors are huge and highly appreciatedby companies. They have high rating.We have 10 possible distributors, as well, that gives us opportunity to changesomething.In Central Federal District work a lot of companies. That is why it is highlyconcentrated. Minus is that almost all our current distributors work with ourcompetitors. That is why we can’t guarantee that we will get required amountof pallets.

Pros and cos of highly populated region with lots of distributors Modification of current distribution network will give Unilever-Inmarkomore effective structure

In this region we have a lot of strong and productively working current and possible distributors. So, we do not have to change distribution network system. But we can change some currently working distributors in different cities to possible distributors. Thus we will build efficiently working system.Changes will take place in these cities:BelgorodCentralD -> Distributor 16Less % of sales, less CCFOT, but more pallet capacity + ability to rentVladimirCLC -> Distributor 9Less % of sales, less CCFOT, but more pallet capacity + ability to rentKostromaIce -> Distributor 8The same % of sales, more CCFOT, more pallet capacityLipetskWait till Logistic+ will build there warehouseRyazanLogistic+ -> Distributor 11More % of sales, more CCFOT, more capacitySmolenskSnezhok-> Distributor 11More % of sales, more CCFOT, more capacityTverIce -> Distributor 9More % of sales, more CCFOT, more capacity

We made our assumptions according to % of sales, CCFOT, pallet capacity, own/rent, customer price.

Look for calculations in Appendix

According to predictions demand will grow and capacities of Tulamanufactory will grow as well. This will lead to increase of sales andincrease of profit. Thus, having such structure we will get the 1st placein Central Federal District and this will lead to doubling of profit by2015

x2 => 1st

place in CFD

Combine different systems for North-West Federal District

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Has small population level and hard climatic environment, therefore, weconsider low consumption level in its regions. Inmarko has 5 distributors inNorth-West district. Besides, Inmarko may have 7 possible distributors here.Almost all current distributors have high CCFOT and low % of sales.Distributors are represented in almost every region.Possible distributors have some optional qualities.The main characteristic is low temperatures. That is why demand here could belower.

Pros and cos Modification of current distribution network will give Unilever-Inmarkomore effective structure

We suppose, that organizing an own distribution network there is not themost effective option. The better way is to use current distribution channels.

To make the system work more effectively we should change distributor Con distributor 4 (higher CCFOT, no contracts with competitors, more pallets,own). There is a possibility to change A on 1 and 3, thus we would have gotentrance on new market, but their KPI is lower. We cab add 5 (and probablymove out E) – that will give us entrance on new market in Murmansk, butagain KPI is worse.

In our opinion we should combine modified distribution network andlogistics center. The costs will approve themselves. For more calcilationslook in the Appendix.

We made our assumptions according to % of sales, CCFOT, pallet capacity,own/rent, customer price.

Look for calculations in Appendix

According to predictions demand will grow and capacities of Tula manufactory will grow as well. This will lead to increase of sales and increaseof profit. Thus, having such structure we will get the 1st place in North-West Federal District and this will lead to doubling of profit by 2015

x2 => 1st

place in NWFD

Make own distribution network in South Federal District

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Has high level of demand depending on season. In this region we should makeown distribution network. We have 4 distributors here and 6 potentialdistributors.To make work more efficient we should add distributor 5 (entrance on newmarket) or add distributor 5 and 6 and put out distributor B, because they havebetter KPI but less capacities. Distributor C is the most interesting from thepoint of view of M&A. He works only with us, he is one of the most trusteddistributors and has logistics contract as well.

Pros and cos Own distribution network

According to predictions demand will grow and capacities of Tula manufactory will grow as well. This will lead toincrease of sales and increase of profit. Thus, having such structure we will get the 1st place in South FederalDistrict and this will lead to doubling of profit by 2015

x2 => 1st

place in SFD

(RUR) 2010 SFDFC 5 400 000VC

Kiosks 219 157 198Quantity of subjects in region 6

Chests 80 660 744Quantity of chests 2504,653696

Trucks 145 859 245Consumption per year 810 329Truck's roads per year 51

Total costs 445 677 187

Consumption per yearPopulation 14 686 261,00Consumption per district (liters) 30 694 285,49Inmarko consumption in region (liters) 1 841 657,13Inmarko consumption in region (kg) 810329,1369

Each region requires individual structure of distribution depending on different strategic options of channels

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As we are considering that Inmarko’s interaction with distributors in European regions is not absolutely effective, we should change the existing system of distribution so that in every region (North-Western, Central and Southern Federal Districts ). According to our reasoning we should built own distribution network in Central region and

use services of current distributors in North-West and South region

Having certain demand and knowing capacities in Tula we can calculate what structure will give us the least costs.

Impulse

68%

Take-home32%

•Russia’s location•Low HoReCa

•Pretty high price for quality ice-cream (185,7

rubles in 2010)

Demand in Russian ice-cream market highly depends on season, but in

volume we have huge numbers. As most purchasing are made buy impulse than we should mainly

concentrate on Traditional trade

Own network•Long-term strategy

•Kiosks (average cost 150 – 200 000 RUR)•Labor-intensive

•Refrigeration equipments•Vehicles

•Chest boxes•Warehousing

•Own Sales DepartmentLogistics

•Delivery between cities•Delivery within city

Distributors•Compensation to distributors•(discounts + bonus for CCFOT)

(For more information refer to Appendix)Central Federal District has the biggest population among the others (37 million). Central region also less suffers from seasonal changes, also,Inmarko’s plant is situated here.Our current distributors (5) work almost in every city except Lipetsk and Tula. They have high CCFOT and expectable level of % of sales. Almost allwarehouses are owned. Almost all distributors are huge and highly appreciated by companies. They have high rating.We have 10 possible distributors, as well, that gives us opportunity to change something.In Central Federal District work a lot of companies. That is why it is highly concentrated. Minus is that almost all our current distributors work with ourcompetitors. That is why we can’t guarantee that we will get required amount of pallets.In this region we have a lot of strong and productively working current and possible distributors. So, we do not have to change distribution networksystem. But we can change some currently working distributors in different cities to possible distributors. Thus we will build efficiently working system.North-West FD Has small population level and hard climatic environment, therefore, we consider low consumption level in its regions. Inmarko has 5distributors in North-West district. Besides, Inmarko may have 7 possible distributors here.Almost all current distributors have high CCFOT and low % of sales.Distributors are represented in almost every region.Possible distributors have some optional qualities.The main characteristic is low temperatures. That is why demand here could be lower.We suppose, that organizing an own distribution network there is not the most effective option. The better way is to use current distribution channels.South FD has high level of demand depending on season. In this region we should make own distribution network. We have 4 distributors here and 6potential distributors.To make work more efficient we should add distributor 5 (entrance on new market) or add distributor 5 and 6 and put out distributor B, because theyhave better KPI but less capacities. Distributor C is the most interesting from the point of view of M&A. He works only with us, he is one of the mosttrusted distributors and has logistics contract as well.

Every region needs individual approach according to its characteristics and given market features

Appendix 1. Unilever-Inmarko SWOT-analysis

Strengths Weaknesses• Unilever is the world's biggest ice cream manufacturer• Inmarko - the leading manufacturer of ice cream in Russia,

and has a strong position in the market• Good facilities and good location of plants, ensuring a high

coverage of demand.• Well-balanced portfolio of brands, aimed at medium and high

price categories, as well as different tastes of consumers.• High quality of the products and a continuous expansion of

the range + active communication with consumers.• 3 factories (Omsk, Novosibirsk, Tula) are equipped with the

latest innovative technologies and have the necessarycapacity to meet demands in the Russian market

• Tremendous capacity (9 branches in major cities acrossRussia)

• Unilever came on the domestic market twice, in 1997 and2003, both times did not last more than one season (1st -Algida brand +crisis, 2nd – huge costs)

• The production capacities in Tula did not provide completecoverage of the rapidly growing demand in central and north-western region

• The factory in Novosibirsk seemed low power and not suitedto modernization.

• Weak positions in distribution in North-West, Central andSouth regions

Opportunities Threats• Central region has great potential• Developing economy gives huge opportunities• Huge areas that could be used in manufacturing• Economy of scale could be used as Unilever is large company

• Unstable political situation• Uncertain tax policy of the government• Strong competitors

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Appendix 2. Central current distributors

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Distributor

Coverage % of sales volume

CCFOT Type of company

Contracts with competitors

Stock (pallet capacity) Own/ Rent

Transport (own/rent)

A

CLC Moscow, Ivanovo, Vladimir (Central

Disrtict)

30% 97% Distributor + Own, 10000(Moscow) + 4000(Ivanovo)

+3000(Vladimir)

Own + Rent

B

Ice Moscow, Yaroslavl (25% to Kostroma),

Tver

20% 85% Distributor + Own, 8000(Moscow) + 4000(Yaroslavl) +1500(Tver)

?

C

Snezhok Smolensk, Bryansk, Kaluga

20% + indexing

80-90% Local producer

Own, 6000(Kaluga) + 2000(Smolensk) +

2000(Bryansk)

Own

D

Logistics + Ryazan, Tambov 20% 92% Distributor + Own, 3000(Ryazan)+1500(Tambov).

possible rent

Possible rent

E

CentralD Orel, Kursk, Belgorod, Voronezh, Lipetsk

30% 95% Distributor _ Own, 6000 (Voronezh) + 2000 (Orel) + 2000(Belgorod)

+3000 (Kursk) + 3000 (Lipetsk, 30% rent) + 1000

rent in Belgorod

Appendix 3. Central potential distributors

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Distributor Coverage % of salesvolume

CCFOT Type of company Contracts withcompetitors

Stock (pallet capacity)

Own/ Rent 1 Distributor 8 Yaroslavl Kostroma 20% 89% Local producer - Own 2000

Rent 1500 2 Distributor 9 Moscow Tver Vladimir 28% 93% Distributor + Own 6000

Rent 2500 3 Distributor 10 Moscow Yaroslavl Vladimir

Ivanovo 27% 91% Distributor + Own 7000

Rent 2000 4 Distributor 11 Moscow Ryazan Smolensk 26% 93% Distributor + Rent 6000 5 Distributor 12 Moscow Kaluga Bryansk 25% 90% Distributor - Own 2000

Rent 3500 6 Distributor 13 Bryansk Kursk Belgorod 20% 84% Local producer + Own 2000

Rent 3000 7 Distributor 14 Orel Lipetsk 19% 88% Distributor - Own 3000 8 Distributor 15 Voronezh 20% 90% Distributor - Rent 3500 9 Distributor 16 Voronezh Belgorod Lipetsk 27% 91% Distributor + Own 5000

Rent 2500 10 Distributor 17 Moscow 28% 94% Distributor + Own 6000

Appendix 4. Central distributors

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Appendix 5. North-West current distributors

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Distributor Coverage % of sales

volume


Contracts with

competitors

Stock (pallet capacity) Own/

Rent

A Arktika St. Petersburg, Novgorod,

Pskov

25% 94% Local producer

+ Own, 6000 Rent 2000

B LED St. Petersburg, Novgorod,

Tcherepovets, Vologda

20-25% 92% Distributor + Own, 5000 rent 1200

C Sever-Kholod

Ukhta, Syktyvkar

10% + 7%

85% Distributor + Rent, 1500 (50% for

Inmarko, rest for others)

D Alfa Arkhangelsk 20% 90% Distributor + Rent 3000 (part of it)

E Beta Severodvinsk 20% 91% Distributor - Rent 3000 (partof it)

Appendix 6. North-West possible distributors

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volume


Contracts with

competitors

Stock (pallet

capacity) Own/ Rent

1 Distributor 1 St. Petersburg, Petrozavodsk,

Velikiy Novgorod

25% 92% Distributor

+ Own 5000

2 Distributor 2 Tcherepovets, St. Petersburg

27% 90% Distributor

- Own 2000, Rent 2500

3 Distributor 3 Velikiy Novgorod, Pskov


+ Own 1500

4 Distributor 4 Ukhta, Syktyvkar 22% 88% Distributor

- Own 3000, Rent 1000

5 Distributor 5 Murmansk, Apatity, Severodvinsk

25% 90% Distributor

- Rent 2000

6 Distributor 6 Arkhangelsk 21% 89% Distributor

+ Own 1500, Rent 1000

7 Distributor 7 ArkhangelskVologda

18% 88% Distributor

- Own 1000

Appendix 7. North-West distributors

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Appendix 8. South current distributors

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Distributor Coverage % of sales volume


Contracts with compet

itors

Stock (pallet capacity) Own/ Rent

A Santa Krasnodar, Stavropol, Tcherkessk

15-24% 80-90% Local producer

(summer) + Distributor

(winter)

Own, 4000 + 3500 + 1000

B FGD Stavropol, Vladikavkaz,

Naltchik, Nazran

25% 87% Distributor - Own 2000 + 6000 Rent, own 2500, rent

1800, rent 1000)

C Antares Kalmykia, Rostov,

Astrakhan

20% 90% (99% for logistics)

Distributor - Own, 1200(Elista) + 5000(Rostov) +

3000(Astrakhan)D Zero Volgograd 15% 80% Local

producer - Rent, 3500 (share

with own goods)

Appendix 9. South possible distributors

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volume


Contracts with

competitors

Stock (pallet

capacity) Own/ Rent

1 Distributor 18 Volgograd, Astrakhan

25% 88% Distributor + Own 4000

2 Distributor 19 Volgograd Rostov


+ Own 3000 Rent 1000

3 Distributor 20 Elista Rostov Astrakhan


4 Distributor 21 Krasnodar Stavropol


5 Distributor 22 Grozny Makhatchkala

Nazran


+ Rent 1900

6 Distributor 23 Vladikavkaz Naltchik

Tcherkessk

23% 93% Distributor + Own 3500 4000 Rent

1200

Appendix 11. ice-cream density

m=pV

Depending on kind of an ice-cream its density (p) could be different.

According to our own empirical data (ice-cream’s wrapper) we found that 1 liter of ice-cream in average weight 0,44 kg.

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Appendix 12. Chests

The chest boxes with a metal lidSize: 200 - 700 litersPrice: from $ 500 - $ 700 to $ 800 - $ 1000 (Europe)from $ 350 -$ 500 to $ 700 $ - $ 800 (Russia)

If we consider the highest size for foreign chest we will give 600$ for 3 years ((1000/5)*3) + 150$ (average delivery costs) = 750$, for Russian chest we will give the whole value 800$ for the same period of time. So, foreign chest is more profitable and we will choose it.

The chests with a glass straight sliding lidSize: 200- 600 litersPrice: from $ 550 - $ 600 to $ 800-900 (Europe)from $ 370 - $ 500 up to $ 700 (Russia)

If we consider the highest size for foreign chest we will give 540$ for 3 years ((900/5)*3) + 150$ (average delivery costs) =690$, for Russian chest we will give the whole value 700$ for the same period of time. So, foreign chest is more profitable and we will choose it.

The chests with a sagged (bent) glass coverIncreases the exhibit space + increasing sales volume up to 30%Cost higher by 30 $ -100 $Price: from $ 580 - $ 630 to $ 900-1000 (Europe)from $ 400 - $ 530 up to $ 800 (Russia)

We use similar calculations as for the chests with a glass straight sliding lid. Foreign chest is more profitable and we will choose it.

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Appendix 12. Chests (continue)

For Russia: normal & “tropical” version.“tropical” versionsThicker layer of heat-insulation of the box + additional capacitor. For remote trading or in outdoor cafes and in zones of moderate climate.Cost 20% higher than on the ordinary ones.10% - defect.

This version isn’t profitable because of higher costs and % of defected equipment. That is why we won’t choose this variant.

Customs costs (15%) of the imported productsDelivery = 50 - 200 $.

Often choose imported chests: 1) small scale of production of chests (Inmarko can buy in Russia no more than 7,000 per year for delivery in the Central Federal District, North-West, South and North-Caucasus Federal District), 2) chests are not always high-quality equipment (average service life of a foreign chest is 5 years, of the Russian one - 3 years).

According to quantity/price index we will choose the 3rd type of chests - The chests with a sagged (bent) glass cover (foreign)

Quantity of chests = Q (consumption per year in District) * % spontaneous purchases / Average volume of chestCosts on chests = Quantity of chests * Average price * Customs duty + Quantity of chests * average price + Quantity of chests * Average cost for delivery of

1 chest

During Summer -> rent 5,000 - 10,000 rubles per month - average = 7,500 RUR per month(We assume that we have enough chests and we won’t need to rent additional chests, because we can always move acquired chests from 1 region to

another one)

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Type of chest Min/maxQuantity, liters Average price, $ Average price, RUR Bonus Quantity/price

1 min 200 600 18960 0,33max 700 900 28440 0,78

2 min 200 575 18170 0,35max 600 850 26860 0,71

3 min 200 605 19118 0,3 0,63max 600 950 30020 0,3 0,93

Appendix 13. Kiosks

Price: 150 – 200 thousand RURAverage = 175 000 RUR

We assume that in 1 kiosk we have 2 chestsQuantity of kiosks = Quantity of chests / 2Costs on kiosks = Quantity of kiosks * Average

price

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Appendix 14. Trucks

Truck Volume, sq m Loading capacity, tons Price (VAT incl), RURFRASCOLD C415 8SP 10,8 16 2 880 000Hyundai HD25 10,8 16 3 586 600Hyundai HD170 10,8 9 3 002 000

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We will chose FRASCOLD C415 8SP trucks because for less money paid we will get the same (16 tons) loading capacity.Quantity of truck’s roads per year required to satisfy demand in District = Q/loading capacity Q (consumption per year in District) = Share of Inmarkoin District * total consumption of ice-cream in RussiaQuantity of truck’s roads per year = quantity of required trucks because we need not only external trips but also internal.Costs on trucks = Quantity of trucks * payment for purchasing + Average petroleum costs + Average wages

We will use our own trucks to deliver products between cities and logistic services trucks for within city delivery.

Appendix 15. Consumption per district

Population of District * Share of ice-cream Consumption * Share of Unilever-Inmarko in District* Ice cream consumption in Russia per capita consumption (3,8 liters) = Consumption in liters

1 liter ice cream = 0,44 kg ice cream

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Appendix 16. Model of own distribution network

• Our goal is to achieve minimum costs• FC = sales department* + warehouse**•• * Federal and regional levels are fully equipped; territory positions are equipped

on 33%. We should take additional 67%. We will take average salary, because the model is constructed such that it is applicable for every region.

•• ** As not in every district there are not enough warehouses we could either buy

or rent it. But to buy warehouse is not profitable because they are too expensive and every year distribution network changes. That is why it’s economically more profitable to rent warehouse. We can rent warehouses using our connections with distributors.

•• VC (Q) = kiosks + chests + trucks (including petroleum and wages of truck drivers)•• TC = VC + FC ––> min

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