Ice-Fili

Ice-Fili

Memo

To: Anatoliy Shamanov, CEO

From: Consultant вЂ" Temple Consulting

CC: Troy Pappas, CEO вЂ" Temple Consulting

Date: April 20, 20082

Re: Strategic Analysis

Executive Summary

We at Temple Consulting have completed an analysis of Ice-Fili’s current corporate standing using data collected over the past several years. Using tools such as Porter’s Approach and SWOT we have analyzed the internal and external environments and have recommended several strategic plans of action. Current areas for improvement such as marketing initiatives and re-evaluation of distribution channels will increase sales and profitability almost instantly. Long term plans such as lobbying against luxury tax on ice cream, partnerships with franchise vendors, and bringing new products to the market, performing an IPO, and planning more global efforts will help keep Ice-Fili rooted as the industry leader in Russian ice cream production for years to come.

1. Internal Analysis using SWOT

Strengths and Weaknesses

Ice cream in Russia is a very profitable business. Profit margins range between 15 and 20 %. This profit can be even greater when creating a premium product. Ice-Fili’s product value lies within raw material acquisition. Since the content of fat applied in the creation of ice cream is higher in Russian ice cream, the product is of better taste quality and unique flavor. With the Russian public placing more alarm on preservatives in edibles rather than fat content, this gives Ice-Fili an advantage over foreign competitors. In fact, Ice-Fili was the only ice cream producer awarded at the 2002 Moscow World Food exhibition for its brand Eralash. To market such prestige could help increase brand loyalty amongst customers. Ice-Fili also enjoys rather favorable brand recognition. The Lakomka brand is hailed as one of three most recognized ice cream brands in Russia. Although Lakomka makes up about 30% if total sales, over 170 various products are offered, with the planned effort to bring 20 new products to market each year. Ice-Fili also finds strength in its employee retention. With a workforce of about 600 employees, over 40% have been employed for over 20 years. The open and cooperative environment proves most beneficial for employee retention and attracting young talent to join the ranks of Ice-Fili’s workforce. Although lacking behind today’s technology, Ice-Fili has made an outstanding effort in capital investments to increase productivity; contributing over $8 million throughout the 1990’s.

Ice-Fili’s marketing approach and product distribution could be seen as weaknesses in the company’s primary activities. In 2001 the firm started its first TV marketing campaign years after competitor’s advertised through the media outlets. To date Ice-Fili is still very inexperienced and far lacking of marketing strategies deployed by Western competitors such as Unilever and Nestle. Not only does Ice-Fili need to market more fiercely against competitors within industry, it must also compete against other consumables such as beverages and snacks. Another weakness is the distribution that is handed over to several distribution companies. There is a much higher chance (twice as likely) to find products of its biggest competitor NestlÐ"© than those of Ice-Fili. Another detriment is how ice cream is viewed socially. Currently ice cream is primarily an impulse purchase. If Ice-Fili can change this outlook, it would result in an enormous competitive advantage to the ice cream industry as a whole.

Opportunities and Threats

Major opportunities facing Ice-Fili can substantially increase its position within the industry. For one, home consumption of ice cream is a market that has been barely tapped. By tapping this market Ice-Fili can expand its existing products and brands but can take advantage to deploy new products as planned. Another possible area for gain is Franchises. Having partnerships with Pizza-Huts steadily increasing growth, Ice-Fili should look to other fast food vendors such as McDonalds to offer Russian ice cream as a menu desert. With the implementation of luxury taxes, Ice-Fili should join forces with other Russian ice cream producers to lobby towards more favorable taxes to produce such goods. Once obtaining a more favorable market presence, Ice-Fili has the option to go public with an Initial Public Offering. This would be an excellent source for capital investments to improve production, distribution, and technology processes and to even expand foreign market efforts. Another possible gold mine is the dry ice market; with little production costs and large profit margins, Ice-Fili should capitalize on this area. By far, the largest threat to Ice-Fili is competition. Amongst fierce competition within the ice cream industry, Ice-Fili is loosing ground to its largest competitor Nestle. Projections state Nestle may surpass Ice-Fili in the next few years as the leading ice cream producer. In addition, the ease of entrance to this market has allowed numerous domestic producers to come to market. One major concern for Ice-Fili is the marketing inexperience of the current management staff. Consultants should be hired to reevaluate how products are marketed and distributed or this service should be outsourced to firms with global marketing experience.

2. External Analysis using Porters Approach

The Russian ice cream industry has high economies of scale and new competitors will face high initial costs for the production facilities. The product differentiation is high and the brands are well established. Despite those relatively high barriers the threat of new entrants is high, especially from regional producers. With the declination of supermarkets and frozen food vendors, many Russian companies existing in another market will continue to target the ice cream market because of the ease of entrance and the already existing capacity to produce with existing equipment. The threat of entry from international producers could also rise again, if the Russian economy seems continues to stabilize to levels similar to the early 1990’s. Ice cream producers are continuing to enter the market at a rapid rate; Russia consisted of 150 ice cream producers in 1998 which has risen to over