Ice Lyli

Ice-Fili (Ð Ñ'Ð ™Ð ÐŽ-ОÑ'Ð ?Ð ›Ð ?)

You cannot defeat a nation that enjoys ice cream at minus 40 Celsius.

вЂ" Winston Churchill

To survive in Russia’s ice cream industry during the 11 years since the collapse of the former

Soviet Union was no small feat (see Exhibits 1 and 2). To be successful in these turbulent times was

nothing short of amazing to industry observers. In 2002, Ice-Fili, a midsized Russian company with

more than $25 million in sales, was Russia’s top ice cream producer. Surprisingly, it had outlasted

several well-known international companies such as Ben & Jerry’s, which exited the Russian market

in 1997, and Unilever, which left in 2001. Ice-Fili had not only successfully transitioned from the tight

controls of the Soviet regime to the infant Russian open-market economy in 1992, but it had also

successfully navigated its way through the difficult times of Russia’s 1998 financial crisis.

Ice-Fili was fighting to maintain its market share leadership in the increasingly competitive

Russian ice cream market, which had decreased over the past few years to about a half-billion dollars

in sales. NestlÐ"©, which advertised heavily, was Ice-Fili’s fiercest competitor. While most ice cream

producers were left to fight in an already saturated ice cream kiosk system, Baskin & Robbins and

Haagen-Dazs1 had positioned themselves as premium ice cream producers, distributing through

franchised restaurant and cafÐ"© networks. At the other end of the competitive spectrum, the small

regional ice cream producers, which were believed to have lower production costs than Ice-Fili and

other Moscow-based producers, were now making strong inroads in the major metropolitan markets.

Anatoliy Shamanov, Ice-Fili’s CEO, wrestled with some fundamental strategic questions: Could

Ice-Fili maintain its market lead over NestlÐ"©? Should Ice-Fili invest in its own chain of cafÐ"©s in order

to find new retail avenues for its ice cream products? How could Ice-Fili compete with regional

producers without engaging in a price war? And how could Ice-Fili attract the talent necessary to

manage in a competitive market economy?

Consumption of Ice Cream in Russia

There are many stories explaining how the Russians came to love ice cream. According to one

story, Czar Peter the Great brought ice cream back from France in the seventeenth century; yet

another claimed that ice cream achieved its popularity after the Bolshevik Revolution in 1917 when it

became available to the masses and not just the noble classes.2 Another Russian ice cream legend

maintained that ice cream sellers were as numerous in winter’s subzero climate as they were in the

summer. According to a Baskin-Robbins manager in Russia: “Russians eat even more in the winter,

although it sounds strange. Perhaps it’s because in summer it melts by the time you get it home. In

winter you can eat it as long as you want.” 3

Despite those casual observations, industry statistics indicated that Russian ice cream

consumption peaked during the summer months, exhibiting strong seasonal differences (see Exhibit

3). In 2001, Russians consumed 2.5 kilograms of ice cream per capita, compared with the 16 kg

consumed in the United States, 17 kg in France, and 18 kg in Canada.4 Ice cream was considered

primarily as an inexpensive snack consumed “on the go,” resulting in a greater number of

spontaneous purchases from kiosks or street stalls than from supermarkets and grocery stores (see

Exhibit 4). According to a Russian business analyst: “Domestic [Russian] manufacturers have done

little to position ice cream as a family product, being satisfied with spontaneous, impulsive

consumption. Ice cream is not an expensive product, and many people can afford it. But people still

don’t consider it to be something they can have at home for dessert.”5 In contrast, over a third of the

$20 billion U.S. ice cream market was from in-home consumption.

Traditional Russian ice cream contained about 15% milk fat, compared with the 10% found in

premium western brands (see Exhibit 5). This contributed to the unique flavor of Russian ice cream,6

which was less sweet and more aerated than the typical ice cream product of the U.S. and Europe

(reminiscent of whipped cream). Also, traditional Russian ice cream was made with all natural

ingredients and did not contain preservatives. It was believed that Russian consumers were generally

more concerned about preservatives in food than fat levels. According to an industry trade

association representative, “Millions of foreigners, after arriving in Moscow and tasting our ice

cream, have proclaimed Russian ice cream to be the best in the world.”7

In the selling of ice cream, many products competed for the consumer dollar, including beer

(Baltica