Ice-Fili

Ice-Fili A storied market leader facing competitive pressures To Senior Management, Ice-Fili February 12, 2012 Current Situation Ice-Fili was able to keep on its leading position in the Russian ice pickaxe manufacture during volatile times. However, it now faces even tougher challenges that queer its future prospects reduction in ice-cream uptake, emergence of fol low-pitched-efficient regional players, and the lack of a quality dispersal system. After analyzing the situation, we barrack a strategy that aims to grow gross gross sales through with(predicate) with(predicate) the earning of market sh atomic number 18, and improving the scattering network.Porters Five Forces Model application Rivalry Industry rivalry is high. The ice-cream pains is fragmented 300 producers fight in the market. Ice-Fili is an industry leader with 5% market trade. regional producers threaten Ice-Fili with their signifi bumt cost advantage and flexible production system. In addition, im material companies such as Baskin-Robbins and Nestle are expanding through relatively untasted segments such as cafes and consistaurants. Threat of Entry Threat of entry is high.Numerous cold imports companies provoke emerged as regional ice-cream producers with their cold-storage and production capabilities in pursuance of relatively high profitability in the ice cream industry. Economies of scale are non required for those low-toned regional players. In addition, new entrants quite a little enjoy significant cost advantages over Ice-Fili through more cost efficient equipment. Threat of Substitute Products or Services Threat of musical accompaniment is high. Ice-cream is not perceived as a family product that people can enjoy at home as a dessert.Impulsive purchasing consists of a large portion of ice cream sales in Russia, generally through kiosks or street stalls. In 2000, ice cream consumption declined 3. 5 % from the previous year in contrast, its substitutes such as beer, easygoing drink and confectionery products experienced self-colored market demand result indicating a change in consumer behaviour on the back of strong advertising. Bargaining Power of Buyers Bargaining power of buyers is high. Since Ice-Fili contracted with dozens of small distribution companies, no single firm has a significant dicker power.However, there is a potential downside pretend payable to the absence of unshared contracts. For example, Service Fili, an independent affiliate, can carry its competitors products without restriction. No binding planning exists to enforce Service Fili to carry Ice-Filis products. A potential risk arises when competition becomes severe. Ice-Fili could lose distribution volumes if competitors offer more favourable deals to its distributors. Lastly, when mentation about the end consumer as a consumer of ice-cream, we see low turn costs. Bargaining Power of Suppliers Bargaining power of suppliers is low.For each of its major ingred ients, Ice-Fili has 3 4 antithetic suppliers and it is not hard to find new one. Thus, electric switch costs are low. Internal Environment Ice-Fili highly quantify employees, as shown by its financial director quoting Stalins Human resource majuscule decides e verything. Ice-Fili understands its struggle in establishing itself in the open-market economy, so it actively seeks young and quick managers to help revive the company. Strategy & Key Success Factors Ice-Fili employs somewhat of a concentrate strategy as a few products derive up a significant portion of revenues.However, they do have a very large product offering even though some products fuck off up a very small portion of revenue. Thefore, Ice-Fili does not richly employ a focus strategy. Most of Ice-Filis ice cream products are priced at 6 rubles per portion, making it more expensive than products of regional producers and Nestle and at the same time a lot less(prenominal) than premium products which could be as m uch as 15 rubles per portion. Ice-Filis commitment to only using high-quality natural ingredients and eliminating the use of any bathetic preservatives or colorants makes it clear its strategy is not low cost.Ice-Fili also does not directly compete with premium differentiates such as Baskin-Robbins and Haagen-Dazs which have in two ways the price and compete intensively in restaurants and cafes. To succeed in this strategy, Ice-Fili postulate to do two things. First, it needs to broadcast its commitment to follow the bequest of the traditional Russian ice cream makers and inspire consumers to cherish and value traditional Russian ice cream making method, thus creating stronger brand virtue. Second, Ice-Fili needs to restructure its current distribution system. Nestle already has its products in two ways as available as Ice-Fili. Summation of Key Problems ) Competition Baskin & Robbins and Haagen-Dazs have already become incumbents in the premium ice cream space. Regional playe rs have a big cost advantage so a price war or a move into a low cost strategy would be difficult. 2) Distribution Ice-Filis products have sensibly limited availability. Distribution was also highlighted as a factor for the failure of other players in the Russian ice-cream market Reccomendation Possible Strategies The main determination of our recommendation is to stop the decline of Ice-Filis return on equity which has fallen from 27. 3% in 1996 to 14. 4% in 2001 ( visualise 1, Appendix).We will construction to do this through a combination of sales growth and border expansion. We outline several realistic options, and choose one which looks to be the close optimal 1) Focus on a low cost court to grow sales 2) Focus on restaurants and cafes to meliorate margins 3) Focus on a few key products and improved distribution system to grow sales Analysis of alternatives and final recommendation 1) Ice-Fili currently still has 25% of their products produced with old machinery which results in higher costs in relation to regional players who have recently emerged and structured their operations around more efficient machinery.Ice-Fili could firstly invest in their equipment to modernize the rest of their machinery and improve the cost structure of their whole operation. They would then need to cut back their pricing from the current 6 rubles closer to 1. 5 rubles to improve volumes. This could potentially be a lucrative strategy. However, the main problem we see with this is the possible reduction in margins that could emanate from this (although it could be made up through increased volumes and lowering of costs). Also, since almost 80% of sales come through Gastronoms and Kiosks with limited space, sacrificing price for volume may not be optimal. ) If Ice-Fili focus or even just expand into restaurants and cafes, they could potentially improve margins due to the higher price points seen in this space. Ice-fili is a market leader with the number one market share in the industry as a whole, and they have also been around for much longer than both regional players and foreign competitors. This bodes well for their ability to still sell significant volumes at higher prices. The downside to this strategy that we foresee is the fact that Ice-Fili is not the incumbent in this high end space with foreign competitors like Baskin-Robbins already evenhandedly established.Secondly, we see that Baskin-Robbins factory utilization for 2001 was very low at 7%-12%. Although this may not be representative of the high end industry as a whole, it is still a concerning sign. 3) Our final alternative, and the one we recommend is the focus on a few key products, and the improvement of Ice-Filis distribution chain. Ice-Filis Lakomka was one of the three most recognized brands of ice-cream in Russia, but Ice-Fili was not able to trademark it. However, the industry has not historically spent much on advertising, and Ice-Fili is still a market share leader.Th is means there is still time to brand Lakomka as Ice-Filis product, just like how people think about Coke when view about Cola drinks or Googling something when thinking about doing an internet search. By focusing on a few key products, Ice-Fili can profit on their storied tradition, and take advantage of the limited space in their main distribution channel (kiosks). Along with this strategy to grow sales through taking of market share, we also recommend growing sales through improving availability.There are heavy capital requirements for building a strong distribution channel alone, but a joint gamble with Baskin Robbins would be an efficient way to achieve this since these companies compete in different parts of the market, and a partnership with an international company will make foreign debt and equity investors more open to financing Ice-Fili. Appendix Figure 1. Financial Calculation (in thousands of U. S. dollars) Figure 2. Ice-Filis Current Market put Price Price Brand Eq uity Brand Equity