СТРАТЕГИЯ ВХОДАНА СЫРЬЕВОЙ РЫНОК

Дмитрий Леонов

Startup in

commodity market

Entering new Company, I often face a paradigm

Decisions were determined on base

of logic and facts

I could see

another factsAnd basing on the same logic

come to

another decisions

Strategic goal of agro leader was to enter new commodity markets

founded in 1994

$1 bln revenue

15.000 employees

40 plants and silos

Razgulay company

We all know what beer is:

Malt Water Yeast Hop

+ + +

And malt is produced from

Barley

Which market is*

$600M

*by that time barley market was in short supply and growing

And barley’s margin is

Twice more than market average

32

Malting process

1

Grains are dried, and the result is called malt

Barley contains starch Grains are sprouted, the starch turns into sugar, which

gives extract to mash

Even before the project started I analized the market …

Spot market, MALT

Seed program, BARLEY

Spot market, BARLEY

Others

…. and segmented the players into

Huge multinational companies, local brewers, and independent malt -houses

Users of malt or barley

On the concepts of the Company and common sense I did not rush into small breweries and independent malt-houses

Non transparent tenders

Credit risks

Small delivery lot

And it was difficult to sell to multinational brewers …

Difficult to meet decision maker

I was not professional enough in malt

Specifications, which I did not understand

And then I started to learn more about the market from the clients and industrial organizations

That's what I did not know coming into the market

To contract To buy To supply

It’s not enough to contract, you also need to buy the product

It is difficult to determine the quality when you buy commodity

Malting barley requires totally different rework and storage

All the crop is bought in September - October

Different sorts cannot be mixed together, 2 + 2 ≠ 4

Why in barley 7 + 15 = 5 ?

Malting cycle is the time of sprouting the barley

Only germinated grain turns starch into sugar

Barley with 2 weeks malting cycle costs 7 rur/kilo, with 1 week - already 15rur/kilo – because malt-house capacity doubles

If you mix these two barleys, you get less sugar than from each components, but malting cycle is the same

+7 Rur/kilo = 5 Rur/Kilo15 Rur/Kilo

My competitors in purchasing were in different «weight categories»

The major land owner provided new market for brewers

Close relationships with farmers allowed me to work even more effectively than brewers

Money of leading trader allowed me to pay farmers for the crop in advance

Half of success – to persuade management

Largest brewers instead of ExWorksand prepayment wanted CPT and credit

Silos needed to be re-equipedfor barley technology process

Changes concerned also field work

Brewers wanted transparent relation-ships, including certification of silos

We sold all we had contracted

Seed programs worked

We entered spot market

Silos were certified

Razgulay was positionedas loyal and responsible supplier

Operating profit of the first yearwas positive and above the target

Develop model

Persuadeboss

Compete !Learn more

My conclusions from the case