Ice-Fili and the Russian Ice Cream Market Analysis
... the local supplying channel was abundant but the price was competitive and not stable. The bargaining power of buyers. The bargaining power of buyers in the Russian ice cream market was high with many producers and products to choose from. Although Ice Fili’s products were partially differentiated due to their traditional taste, quality ingredients, and brand recognition, buyers could still easily switch to other very similar brands. In general, buyers’ switching costs were low (except for the high end brands like Haagen-Dazs), brand loyalty was low, and substitute products were readily available. More competitive industries are usually less profitable as defending market shares become more difficult and therefore become increasingly less attractive to current competitors and prospective entrants. This effect is likely to continue hurting the overall Russian ice cream market. That is, trends seem to indicate that in order to maintain and grow market share, companies will probably enter into price wars which will drive prices and profits lower. The growing numbers of new entrants into the market are also increasing overall plant capacities which will probably eventually go largely unused and further reduce profits unless Russian ice cream producers can band together to increase consumer demand for ice cream to levels more prevalent in other industrialized countries. It is always possible for a market to become more attractive but it is dependant on several factors. For instance, the number and intensity of competitors can decrease, and it’s likely they will as the market slows. Eventually some competition will be forced to leave the market, and perhaps prices and profits could rebound at that point. This could possibly open the door to a new entrant that feels it holds a competitive advantage in a certain area. Or an underserved or ignored market segment could be identified and entered. However, the Russian ice cream industry seems to be entering maturity in its life cycle and will probably become less attractive as increased barriers to entry prevail over time. One thing that could offset this is if consumer perception of ice cream were to change, for example to a family household product, which would drive up demand to reverse the downward trend that had occurred over the past several years. Some of the potential competitive advantages in the Russian ice cream market include: Consumer Price Advantage: Domestically produced Russian ice cream was among the cheapest in the world to buy. Conceivably if demand were to increase, prices could rise and boost profitability while still keeping prices below more standard levels. Differentiation advantage. It could be said that Ice-Fili holds this type of competitive advantage due to such things as quality all natural ingredients with no preservatives, a traditional flavor with a higher fat content, and its brand recognition and Russian legacy. Marketing advantage. Ice-Fili’s main competitors, such at Nestlé seem to be holding a marketing advantage. They invested a significant amount of capital into running TV ads and advancing its distribution channels. Ice-Fili could not seem to keep up with its larger competitors’ marketing budgets and skill. They attempted to run TV ads which was a step in the right direction but seemed to fall short of having an impact on consumers. Cost advantage. Newly established regional producers were coming onto the scene with new manufacturing facilities, lower rent and labor costs, and absent the old Soviet management systems, all contributing to their cost advantages. Ice-Fili is not exhibiting a cost advantage over the competition in this area. Ice-Fili is not positioned very well relative to its competitors. Ice-Fili seemed to be losing market share at every turn likely due to their competitor’s ability to out-spend and out-market them, and because they were letting certain market segments, such as restaurants and café’s, go to the competition uncontested. Foreign Producers: Nestlé. Nestlé was Ice-Fili’s fiercest competitor, holding the second largest ice cream market share in 2000. It had the longest and most established relationship with Russia among the foreign competitors. Nestlé was aggressively gaining marketing advantage by making significant capital investments in Russian ice cream production and distribution. Nestlé also seemed to be gaining ground in the distribution battlefield as evidenced by an Ice-Fili director who pointed out that although Ice-Fili had a greater variety of products compared to Nestlé, there is twice the likelihood of finding a Nestlé product in Russia. Due to the huge capital investments and economies of scale required to establish effective distribution networks, Ice-Fili traditionally did not participate. The only apparent weaknesses in Nestlé was that its products cost a little higher than Ice-Fili’s and they did not seem to be trying to reach the high-end Russian ice cream market. Although not necessarily a weakness, they may be excluding the market segment that prefers the more traditional taste and ingredients offered by Ice-Fili. Baskin & Robbins. Baskin & Robbins exploded on to the Russian scene with their franchises offering a recognized international brand appeal and a matured training system for management. Serving the high-end market in restaurants and café’s, they were able to carve out a niche with little or no competition. However, they also opened one of their world’s largest factories in Moscow that ended up running at a fraction of its capacity, and they did not seem to have a part of the main stream Russian ice cream market, using almost all imported ingredients. Regional Producers (i.e., Inmarko and Russkii Holod). Regional producers held cost advantages partially due to the fact that they didn’t have a Soviet heritage of old management systems, they had newer manufacturing facilities, and labor and rent savings. Since regional producers established themselves all over Russia, Moscow-based producers no longer had a need, or the demand, to transport their product ...