Increase in Ice Cream Industry Competition

As the case-study indicates, in the aftermath of the 1998 Russian economic crisis, rivalry in the Russian ice cream industry doubled, from 150 in 1998 to 300 companies by 2002. The intense rivalry can be explained by the fact that profit ratio for ice-cream production is about 15 to 20 %, a margin that is “considered high by Russian food industry standards” (p. 5). In addition, domestic Russian ice cream is one the cheapest In the world to produce and buy, which In part explains the significant rise of highly competitive regional Ice cream producers, who nowadays account for about 30% of the domestic Russian market (p.

1). Foreign companies such as Nestle and Basking & Robbins have been able to hire in the Russian ice-cream market by producing, distributing and selling their ice cream products locally through Cafes and Kiosks.

Moscow-based producers such as Ice-Fill have mainly focused on sales Kiosks and Supermarkets. Regional producers dominate the rural and more distant areas of Russia, such as Siberia. However, as the piece indicates, they have been attempting to compete in the larger metropolitan areas as well.

The key word is “open market. For years, Russian ice cream was produced and consumed in a communist regime. To understand that is to know that he population had limited access and flexibility to the Ice cream it consumed. When the dissolution of the Soviet union came It unleashed a large desire for change throughout the entire country. A good analogy to show the environment of the market in Russia after the collapse is the Renaissance Era.

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The same way the Renaissance was the resurgence of culture throughout Europe, the new market was the resurgence of new ideas, and experiences to Russia. It was a perfect time to introduce new products, more variety of existing products, and an ideal time for international companies to enter the market. However, the financial collapse of 1998 derailed the market significantly. Ben n Jerry left the market, others like Nestle stuck around because of their huge investment. Fast forwarding to the sass’s you then saw an emergence of local companies. These local companies were free from the olds restrictions of the Soviet union and were able to function at lower costs.

Overall, the market really Is up for the taking for several reasons; 1) the market leader (Ice-fill) has not reached Its potential, slowly but surely it is starting to wake up, but their competitors can take advantage of their lack of urgency; 2) ten International companies seem to De nappy Walt want teen nave Ana although they experiment with new ideas, there isn’t any real aggressive strategies for taking over (Nestle has been making bold moves and they might be the first to take Ice-Fill from the top); and 3) the smaller companies are getting their crumbs but not making enough of an impact to significantly impact the market, at least not yet.

So I’d say, yes this market is attractive, and it is a very good time for Ben n Jerry to come back with full force. 2) Do you expect its attractiveness to change over the ext five years? Yes, I expect the Russian ice cream industry to increase its market share in consumption as long as, among other things, the industry changes its approach to the marketing and selling of ice cream (for more on this, turn to question 3). The case study expresses concerns for domestic ice cream producers by raising the possibility that Nestles strong presence in the Russian market will eventually eliminate any challenge from domestic producers, including Ice-Fill, in the medium and long term ranges by citing Nestles dominance of the Egyptian market (p. 14); but I doubt this will happen because the Egyptian market is much smaller than Russian’s and the domestic producers in Egypt may have not been able to find the financial resources and human capacity to compete with Nestle.

It is important to note that Russians are proud of their ice-cream. It is unique. However, if local companies continue to lag behind on innovation and marketing, the outside forces (Nestle, etc. ) are going to continue to expand their presence in Russia and possibly eliminate them. Ice-Fill is in a unique position to make an impact. They have the history and he brand awareness, but they haven’t really aggressively attacked the market and innovated.

If Nestle succeeds in dethroning Ice-fill, or if Ice-Fill flexes its muscle and expands its market share, the ice-cream market in Russia would lose some of its attractiveness. 3) Could the industry structure be made hugely more attractive? If so, how? Yes, I believe so. The Russian ice cream market has been on a downturn in the last few years due to the increase in consumer demand for sodas, beer and confectioneries. As the case study points out, the ice cream industry historically has not needed to engage much in marketing activities due to the Soviet-style business model, which relied on central planning and production, and the popularity of ice creams.

After market liberalizing, the multinational companies had some marketing success due to the inexperience of the domestic producers but, overall, ice cream marketing has lagged that of other notable food industries in Russia. As the study noted, Ice-Fill did not run its first TV advertising commercial until 2001 (p. 9). During that same year, the ice cream industry spent only about 1% of its gross sales on marketing, while the ere and sodas market had spent 2% and 7% respectively (p. 2). In that respect, the ice cream market underachieved. If the ice cream industry steps-up its marketing efforts, sales will likely increase. The industry should take pride in their domestic produced ice cream, which they claim many foreigners think is “the best in the world” (p. 2).

The industry should also take advantage of the nutritional advantage ice cream has over beer and sodas as source of protein (and alternative diabetic ice cream) and diversification of its use as an in-home consumption product for menu sizes and desserts, something the industry has failed to tap on so far. The potential Is tenure out It needs to a solo marketing strategically, especially Day ten ancestor producers, which targets consumers patiently and repeatedly, in a concerted effort. A) Who are Ice-File’s major competitors? As previously mentioned, despite the downturn of the Russian ice cream market share visit-a-visit other food industries, competition within the industry has flourished (p. 10), with the number of competitors doubling in size, from 150 in 1998, to 300 in 2002.

Ice-File’s main competitors are the domestic regional producers, who have tempted to compete in the large metropolitan centers, and the multinational companies, most notably Nestle and Basking ; Robbins. B) How well positioned is Ice-Fill relative to its key competitors? The study indicates Ice-Fill sales of ice-cream (and other products) occurred through kiosks, minarets, restaurants and schools. Rather than establishing their own distribution network, Ice-Fill relied on contracting with other companies for distribution and sales of its products, but these companies were not contracted exclusively given they also carry Ice-File’s competitor’s products, most of these in the Moscow area and not much beyond that.

The domestic regional companies had their own sales and distribution channels given their niche was in regional localities, such as Siberian Marko, which started as an ice cream distributor ; retailer and ended up establishing manufacturing, distribution and sales capabilities of their own ice cream that reached into Moscow, Ice-File’s main niche (p. 11). The multinational companies, on the other hand, decided for the most part to implement the same strategies they applied in other markets, with some adjustments. After the 1998 Russian financial crisis, most foreign companies left the Russian market with the exception of Basking & Robbins and Nestle.

Basking & Robbins successfully established franchising operations in Russia much in the same way as it does in the United States, that is, through allowing independent companies and entrepreneurs run Cafe’ franchises under the Basking ; Robbins brand name, supporting the franchisees in every detail of the operation. Basking ; Robbins network has 105 Cafe©s in 35 Russian cities. The study points out that Nestle’ has had a presence in the Russian market since the days of the Russian Empire. Nestle operations have consisted in mainly maintaining its own local production costs while training and developing local employees. Since 2000, Nestle’ has invested more than $20 million in ice cream production, attempting to create brands that fit more the Russian market and investing heavily in TV advertising.

By 2000, Nestle had the second largest market share in Russia, only behind Ice-Fill. Ice-Fills price position was medium price. Local producers were at 3-4 rubbles while Nestle was around 10. Ice-Fill came in around 6. Keep in mind that Ice-Fill has the brand recognition, the quality and the tradition. I believe this is an excellent session to be in for the moment. However, once the new strategies are implemented the new pricing strategy may have to be considered. C) Is this position sustainable? Despite Intense competition In ten Ice cream market, Ice-HI seems to enjoy ten lead in market share in Russia for the moment, with a 5% share (p. 10).

In the short term, yes, this position is sustainable, but in the medium and long terms, no, given the fact, as the study points out, the Moscow market is already saturated with kiosks, booths and minarets and Ice-File’s distribution scheme is very limiting, especially visit–visit TTS domestic regional competitors, even in the Moscow market, and foreign competitors outside of Moscow. It is incredible that Ice-Fill has a lead in the market share despite the fact Nestle outspends Ice-Fill in advertising and has a competitive edge in distribution over Ice-Fill. Eventually, Ice-Fill is going to have to commit more to marketing and expanding to cafe©’s which will ultimately lead to possible increases in price. However, since they are positioned in the middle at the moment, a successful campaign might Justify the increase.

What are the potential sources of competitive advantage in the Russian ice ream market? 1) Quality of product (Russian taste ; feel). Russians have pride in their ice cream and how it is made. Ice-Fill has the history and recognition, Russians are aware of their quality. If they decide to expand their product line more, its existing brand loyalty will take them a long way. 2) Distribution- Ice-Fill enjoys it success by having of its distribution through kiosks and mint-markets. Their lead in the market share would increase even more if they pursued other distribution channels such as cafes. 3) Marketing- Nestle spends much more on marketing ice-cream than Ice-Fill.

If Ice-Fill invested more on marketing, or if one of these other new local companies decides to aggressively market more, Russians would respond well. After all, the numbers show that Russians are loyal to their ice-cream. 4) Good Internal/ External Fit- A company that matches its internal fit to the external environment will have a competitive advantage because it will be creating and capturing value from its competitors 6) What strategy options does Ice-Fill have? What strategy would you recommend Anatoly Shampoos? Ice-File’s strategy is intended to pursue a market growth and diversification tragedy while still retaining the “family culture” style. Right now his company has a slight edge over Nestle’.

I believe Shampoos should consolidate and expand Ice-Fills market share of ice cream first by doing the following: 1) Competition with domestic regional companies by investing in a strategy to consolidate distribution of its products in a way that will enable it not only to maximize economies of scale but also gain more control over the distribution of its products beyond Moscow. This strategy will help Ice-Fills not only to consolidate and expand its market share in Russia but also to increase and diversify exports of his rodents to Germany and Eastern Europe. 2) Ice-Fills should compete head to head with Nestle’ and Basking & Robbins by establishing its own chain of Ice Cream Cafe©s in a franchise fashion.

Doing so will require Ice-Fills to aggressively recruit young entrepreneurial talent for its main operations Ana Translates. It wall also Torte cinnamon to Implement a 0010 Ana aggressive capitalization strategy, and the only avenue for that would be the offering public shares of his company. This was also contemplated in the Passion for Learning case, in that case, FL considered whether to open up boutique toy stores as another means to progress their sales. A bold move like this can be detrimental if not applied properly, however, given the extensive history of the company and its knowledge with their own people, Ice-Fill would succeed with this move. 3) Embrace the concept of internal and internal fit. Ice-Fill is is on the right track. They hire young energetic executives, it is their desire to thrive in a open market.

And open is in their culture. This internal fit needs to be refined to meet the external environment that is developing. An environment that is growing in competition rapidly and where old moves need to be made. Ice-Fill needs not only to create value by leveraging its strengths and experience, but it must also capture value through its organizational structure. All departments must be linked and have a common purpose. 4) Ice-Fills solution to the regional producers is aggressive marketing. It would not be beneficial to start a price war but it may not be necessary to do so. As it stands, Ice-Fills is more known, and it is trusted. Having a new marketing campaign tied in with some special promotions might be enough to get ahead of these local competitors early on.