THE RUSSIA JOURNAL
SEPTEMBER 7 - 13, 2001
16 BUSINESS
Ice-cream sector
scoops up profits
after hot summer
D
ICE-CREAM sales really took off in Russia after the 1998 economic crisis forced frozen-food firms to find a new niche.
In 2000, Nestle came second only statistics — Nestle is unlikely to
to Moscow’s Ice Fili factory in ice- secure a large share of the market,
cream output. It owns a large dis- experts say. They add that many
tribution network throughout the foreign companies have probably
country, as well as kiosks and been scared off by the difficulties
refrigerator counters in stores. of competing against domestic
“The company has a wise market- manufacturers, who can sell ice
ing strategy,” said Yelkhov. “It has cream at four to seven rubles per
cone. Nestle, for
invested substanexample,
sells
tial resources in
cones at eight to
promoting
its
ow there’s no
13 rubles.
brand, and it
longer a need to
Unilever placed
offered attractive
orders for Algida,
conditions
by
transport ice
its
Eastern
supplying refrigcream ... because
European
and
erator counters to
Turkish brand,
stores.” He added
there are local
with Russian ice
that based on this
producers
cream makers for
year’s
results,
several years. But
Nestle
could
everywhere.’
the
company
catch up with Ice
stopped operaFili.
VALERY YELKHOV
tions here at the
“Competition
Ice
Cream Makers’ Union
beginning
of
from [Nestle] is
2001, though it
increasing,” said
Ice Fili spokeswoman Yekaterina said it might still return to the marYermolova. “They’re marketing ket in the future.
Meanwhile, the real competition
their products quite aggressively.”
But with annual output of about in Russia’s ice-cream market is
16,000-17,000 tons — compared between Moscow-based and
ice-cream
makers.
with the total industry’s 346,000 regional
tons in 2000, according to official Moscow firms want to sell more ice
‘N
cream in the regions, while regional manufacturers are struggling to
secure a share of the lucrative
Moscow market.
Many formerly state-owned ice
cream makers still have old management and prefer old operation
methods, being unwilling to spend
money on marketing and advertising. Experts say that many of these
companies still use equipment
installed in the 1960s and 1970s
that is technologically obsolete.
In this situation, new regional
companies like Russky Kholod,
whose main production facilities
are in Barnaul, capital of Altaysky
Krai, and Novosibirsk-based
Inmarko, are stepping up their
presence in the Moscow market, as
well as nationwide.
Experts say these companies are
taking advantage of lower labor
costs in the regions, which allow
them to offer lower-priced products.
As a result, Moscow’s manufacturers are losing their market
share in the capital as well as elsewhere in Russia. “A couple of years
ago, [Moscow-based ice-cream
manufacturers] first experienced
The Russia Journal/Konstantin Maslov
espite this country’s reputation as a nation of icecream lovers, Americans
actually slurp their way through
six times as much ice cream per
person every year than Russians
do. But as manufacturers count the
profits from a hot and lucrative
summer, insiders say the industry
has every reason to be optimistic.
In the first seven months of this
year, the ice cream sector reported
3 percent growth over the same
period last year. “The weather
really worked for the industry,”
said Valery Yelkhov, executive
director of Russia’s Ice Cream
Makers’ Union.
Unlike many other consumergoods industries, the ice-cream
sector is almost fully dominated by
domestic manufacturers, with foreign producers accounting for only
about 1.5 percent, according to data
from the Ice Cream Makers’ Union.
The 1998 financial meltdown,
which hampered many sectors’
growth, had a contrary effect on
the ice-cream market. “The
Russian ice-cream market, as it is
now situated, formed largely
because of the financial collapse,”
said Natalya Sterlina, a marketing
manager at the Business Analytica
research group in Moscow.
With frozen-foods imports
shrinking with the economy after
the crisis, many companies that
were involved in imports and storage of frozen meat and fish products suddenly found themselves
out of work. They had to look for a
new niche in the market, and many
found it in ice-cream production.
According to research conducted
by Business Analytica, ice-cream
production in 1999 grew 30 percent
compared with 1997, largely due to
the fact that setting up production
was a simple task for former icecream and frozen-foods wholesalers. Experts say the profit margin for ice-cream production is 1520 percent, which is high by the
food sector’s standards.
The emergence of new icecream producers in the regions
helped to solve logistical problems,
Yelkhov said. “Now there’s no
longer a need to transport ice
cream from, say, Kamchatka to
central Russia because there are
local producers everywhere.” He
added that smaller, local ice-cream
makers don’t offer a wide range of
products but account for about 30
percent of the market, with the
rest controlled by former state-run
refrigerator-warehouse companies.
Although exact figures on the
ownership structure of Russian
ice-cream firms are not readily
available, experts say that most
likely there is no foreign capital
involved in the privatized firms.
With Britain’s Unilever leaving
the Russian market earlier this
year and Baskin Robbins running
only
a
small
operation,
Switzerland’s Nestle remains the
only major foreign ice-cream manufacturer in business. It started
local production at a joint venture
in the Moscow Oblast town of
Zhukovsky in 1997. A year later,
the international food giant
acquired an ice-cream factory in
Krasnodarsky Krai.
ICE FILI is Russia’s biggest ice cream maker, but says it faces tough competition from second-placed Nestle.
The Russia Journal/Konstantin Maslov
By VLADIMIR KOZLOV
The Russia Journal
The Russia Journal/Konstantin Maslov
But getting Russians to indulge
at home remains key to growth
NESTLE owns a large network of kiosks in Russia — a key to its success.