Ice Fili Case Analysis Ice Fili – Case Analysis Introduction Ice Fili, is historically one of Russia’s best ice cream producers, led by Chief Executive Officer Anatoliy Shamnov. After surviving being controlled by the Soviet Regime, warding off local competitors, and continuing success through the collapse of the Russian market in 1998. They have not been able to sustain steady growth of market share, and are facing increased competition from fierce rivals Nestlé. Following the time of the market collapse, they had peaked at 10.37% in 1997, and have lost more than 50% of its shares in 2002, with a recorded low of 4.3%. The industry is a very saturated one, and with increased competition from rival Nestlé, Ice Fili will need to analyze the external and internal environments, and improve their business strategy to help increase market share. Environment – PEST Political Segment The political trend that may have major implications on the strategy for Ice Fili, starts with the Association of Russian ice Cream lobbying to redefine GOST. This would set a minimum state standard for ice cream, allowing Ice Fili an opportunity to increase their market lead, because of their domestic ice cream. This would most likely have Nestlé change their operations and use fewer preservatives. Another political trend that would have implications is the change in Russian economy, to a free market enterprise, with no money implications for international companies to sell in Russia, this would hinder market share for Ice Fili. The patents law in the case of Lakomka, is another segment in which Ice Fili does not gain from. Having other rival companies sell the same product, under a different name, does not help increase market share. They would need to be able to patent their product so they can increase their market share, not allowing other companies to use their product under a different name. Economic Segment The transition to an open market economy and how it lowered barriers to entry is one of the biggest concerns Ice Fili should have in regards to the economic segment. There will be new entrants internationally, and because there’s so much diversification of ice cream, it will be hard for Ice Fili to increase market share. The economic devaluation of Russian currency in 1998, have consistently been shrinking the foods import market. With wholesalers leaving the foods import and going to ice cream producing, it has increased the amount of producers in Russia considerably. These new producers have a cost advantage and flexible with their operations because of their new manifesting facilities, however quality is hindered. Ice Fili should use that to its advantage, and use higher quality as a brand, advertise appropriately and increase their market share. Social
Russia has gone through many sociocultural changes that affect Ice Fili. To begin, the consumption of Ice Cream has been seven times smaller compared to Canada, and so with that international companies have developed more of a recognized brand to its consumer worldwide. With that in mind, having an international company come into Russia it won’t be as tough as it should to gain market share for them, since they already know how to advertise and develop their brand. With bulk ice cream gaining popularity in major metropolitan areas like Moscow, Ice Fili should consider positioning itself to be the main bulk ice cream producer, so that it can capture that market. Another sociocultural change that they have faced is how alcohol, soda have increased their popularity amongst the consumer in Russia, while they have increased, ice cream has decreased. Technology There has been a trend that suppliers of ice cream production equipment in Russia that has increased from 1999. There were a least 10 private ice cream equipment companies in 2001 in Russia. The usage of old machines do not help Ice Fili, looking into finding a new supplier of equipment and maintaining the quality of the ice cream produced is vital to their future success. Porters 5 Forces The bargaining power of buyers in this industry is high. Consumers can easily switch between products at little cost (2.5 to 15 Rubles), as there are only minimal price affect, purchasing decisions, and most products are all priced close together. There is an abundant amount of ice creams available, both domestic and generic. These domestically produced ice creams, have no preservatives, high fat content, and provide similar flavors to generic versions. There are no large consequences for consumers to have a domestic brand ice cream, or generic one. The threat of new entrants in this industry is high. This begins with the low barriers to entry, starting with government policies; it is a free market which allows international companies to enter with no problem. There is a high fixed cost, in investments of assets; the abilities for companies in related industries to convert their operations in order to produce ice creams allow them to surpass this barrier. Since there is a growing local supplier base for equipment, it would be cheaper for new entrants to get their equipment, increasing the likelihood of a new entrepreneur. There is an enormous amount of kiosks, gastronomes that are accessible to any new entrant, it is easy for them to come in and find a place to sell their product. Finally, there is low customer loyalty in this industry, as there are so many different products and switching cost are so minimal, that it does not affect buyers. The threat of substitutes in this industry is high. There are a vast amount of other products that fall into the same price range, like beer, soda, yogurts, chocolate, and cadies, with a variety of different suppliers and fulfill those similar needs for consumers; this can be shown by how beer went up 23%, soft drinks 25% while ice cream shrank to 3.5% in 2000. There is very low brand loyalty, new trends, and low switching cost for ice cream. The bargaining power of suppliers for raw materials in this industry is low, and for equipment is moderate. Raw Materials are available everywhere (sugar, milk, powder), and although there are
specific materials like cream, butter, that are available only overseas, the power it gives suppliers is not significant. Companies can change suppliers within months; there will always be a supplier for raw materials somewhere. Equipment on the other hand, requires a large investment, and a good quality asset is not available everywhere, it has to be tailor made for the product you are creating. This product has to be able to make the companies work more efficient, and productive. Switching costs are high for equipment, companies will research for a specific supplier, and because they are specialized and finding a new one may be difficult. Local suppliers base are growing, and their current quality isn`t good enough to meet the industry standards, that`s why finding the right one is a key to growth. The rivalry within this industry is moderate. There are many direct competitors, 300 in 2012. There are many regional ice cream producers, and foreigners who are part of the industry. In all likelihood there is a high barrier to exit this industry, seeing that there are high fixed costs. Ice cream has a low shelf life; especially those domestically made which entices companies to maximize production capacity. The negative industry growth, from 1999-2000 showed a market decrease of 3.5%, showing that the market is not stagnant, and there is still room for growth. Industry Analysis The Russian ice cream industry in the year 2002 has been experience relatively poor growth overall. Although competition has increased greatly (300 companies in 2002), the market demand has been decreasing with production down 3.5% from the previous year. The confectionary market has increased 8%, a place where Ice Fili is currently not. The distribution channels for this industry are defined by kiosks, mini-markets, gastronomes, supermarkets and cafes, which are all easily accessible. The Russian street market has reached the maturity stage of its life cycle, in Moscow there is a kiosk selling ice cream on every corner, the only way for growth is at-home consumption. The industry itself is very easily accessible, since there is a high threat of new entrants, and bargaining power remains with the consumer. The only advantage Ice Fili has in this market is that they are a leading producer, but rival Nestlé can cause major havoc to them, with their great method of advertising and availability of their ice cream. The industry itself is not an attractive one, the decrease in profitability, the high fixed investment cost, and the inability to find a nice market is going to affect future sales growth. Ice Fili should consider developing into a cash cow, and focusing solely on the ice cream industry, heading towards gaining the market share of house hold consumption. SWOT Analysis A major opportunity for Ice Fili is the at-home consumer market. The vanilla ice cream with dried fruits from Ice Fili was introduced for this market, but only had 3.2% of its production reach supermarkets, 10% goes to Alter-West, of which 20% goes to supermarkets. With the over saturation of on-the-go consumptions at kiosks, this growing nice market can help them gain profitability, gain market share, and improve brand recognition. Household segments present an advantage over on-the-go, because it is less sensitive to seasonal demands, because on-the-go would be mainly sold outdoors. In addition, creating a product that would be in larger volumes of ice cream, it would fewer the steps in the production process, leading to be less costly and in all increase revenue.
A major threat outside of Nestlé that Ice Fili faces is the entrance of regional ice cream producers. The regional ice cream producers can better compete on price and are more can produce how they would like in terms of demand. With this it would allow them to potentially grab Ice Fili’s market share as a domestic brand. It was clearly shown with Ice Fili’s berry flavored ice cream. They would be able to retain this market share if they are able to conduct heavy advertising, to strengthen their brand recognition. Business Level Strategy & Corporate Level Strategy Ice Fili has positioned itself to pursue product differentiation as their business strategy. It serves 170 different ice creams, and won a silver medal for “Product of the Year”, they add near 20 new ones each year. The price they`ve set is about two Rubles higher than the lowest price category. They are trying to provide their Russian consumers with a unique, premium ice cream product as oppose to the generic brand. As a business they haven`t been investing properly in advertising, and marketing to display their unique product, for example their biggest ice cream product Lakomka, is replicated by 5 other companies. To have consumers want their product, they have to be more successful in grabbing their consumers’ attention with good advertising, by paying more than their 1% that they are doing. Ice Fili`s value added activities consistent of: being creative and innovative with enormous different ice creams, a strong focus on the quality of product, and strict adherence to Russian consumer preferences. Efficient and productive organizational structure with a compensation system to match, they have an excellent production capacity. Ice Fili`s value decreasing activities consistent of: The affiliation with Service Fili, although it is an independent company, as it carries many of their competitors product, it doesn`t give Ice Fili any major advantages. Appendix Figure 1: Porters 5 Forces
