Case surfers

Case Surfers

Unilever: delivering ice to every house

Fedor ChuvilkinMaksim SofronovVictoria Susakova

Yuriy Kotikov

Current distribution network of Unilever requires optimization to achieve the aim of doubling the sales of ice-cream in Russia by 2015

20,0

5,7

15,411,1

16,0

Perfect

100,0

15,0

10,0

10,0

20,0

25,0

Transport

Warehouse

Other contracts

Type of company

14,0

7,0

9,0

11,8

10,4

NWFD

56,1

9,0

6,0

9,0

CCFOT

Premium

SFD&NCFD

59,4

10,0

7,5

7,5

8,3

15,0

CFD

68,0

10,8

According to our criteria the distributors are not efficient enough

1718

1921

2224

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201520142013201220112010

Required value share to double the sales

Current value share (projected)

The aim is to increase sales from € 280 mln to € 564 mln; to do that we need to capture at least 19% of the market value by 2015

Global strategy: focus on BRIC

Objective in Russia: doubling sales by 2015

Analysis AS-IS

Optimization of distribution•Own network•Multiple distributors• Logistic services

2007 2008 2009 2010 2011 2012 2013 2014 2015405060708090

100110

Inmarko volume projected (th tons)Required volume (th tons)

Our analysis shows that Inmarko needs to ramp up its production volume from 69 th tons in 2011 to 106 th tons in 2015

*See appendices for additional analysis

Premium

• % of sales charged by a distributor

CCFOT

• % of goods delivered in time

Type of company

• Does a company produce ice-cream or only distribute the goods?

Other contracts

• Does it work for our rivals?

Warehouse

• Does it have enough stock to meet our needs?

Transport

• Does it have its own fleet?

To optimize the distribution network we have assessed each distributor according to the following criteria

# Name Coverage %of sales CCFOT type of

companyother

contracts Stock Fleet Total

25 20 10 10 20 15 100

1 Arktika SPB, Novgorod, Pskov 8% 14% 5% 10% 11% 15% 63%

2 LED company SPB, Novgorod, Cherepovets, Vologda 12% 12% 10% 5% 6% 15% 60%

3 Sever-Kholod Komi 24% 5% 10% 5% 2% 5% 51%

4 Alfa Arkhangelsk 18% 10% 10% 5% 5% 5% 53%

5 Beta Severodvinsk 18% 11% 10% 5% 5% 5% 54%

1 Central Logistics Moscow, Ivanovo, Vladimir 0% 17% 10% 5% 20% 10% 62%

2 Ice Company Moscow, Yaroslavl, Tver, (Kostroma) 18% 5% 10% 5% 17% 15% 70%

3 Snezhok Smolensk, Bryansk, Kaluga 18% 10% 5% 10% 13% 15% 71%

4 Logistic + Ryazan, Tambov 18% 12% 10% 5% 8% 15% 68%

5 CentralD Orel, Kursk, Belgorod, Voronezh, Lipetsk 0% 15% 10% 10% 20% 15% 70%

1 Santa Company

Krasnodar, Stavropol, Tcherkessk 20% 5% 5% 5% 12% 5% 52%

2 FDG Nalchik, Vladikavkaz, Nazran 8% 9% 10% 5% 16% 5% 53%

3 Antares Kalmykia, Rostov, Astrakhan, Elista 8% 19% 10% 10% 12% 15% 74%

4 Zero Volgograd 24% 0% 5% 10% 5% 15% 59%

See appendix for the assessment of potential distributors

Our team has optimized the distributors to maximize the efficiency of the network in each region

Arktika 63%LED company 60%Sever-Kholod 51%Alfa 53%Beta 54%

Central Logistics 62%Ice Company 70%Snezhok 71%Logistic + 68%CentralD 70%

Santa Company 52%FDG 53%Antares 74%Zero 59%

NWFD rank 56% :

CFD rank 68% :

• more orders through Arktika (esp. to St.Petersburg )• replacing Sever-Kholod by dist 4 due to better coverage (Ukhta)• termination of contracts with Beta in favor of Alfa to cover both Arkhangelsk and Severodvinsk• developing cooperation with Alfa by signing exclusive agreements and granting a premium for higher CCFOT•signing contracts with dist 5 to expand in Karelia

• existing distributors in CFD in general meet our requirements regarding quality • they provide full coverage of the region and have opportunities for increasing their storage capacities to meet the future demand• to eliminate inefficient delivery in the Kostroma region we will cooperate with dist 8 and dist 9 instead of working with Ice Company, which in the short term will decrease the total ranking of the region

• we will pay SantaCo. Extra premium for higher CCFOT and will encourage it to expand to Anapa, Novorossiysk, Gelendzhik due to brisk demand in summer• termination of cooperation with Zero due to lack of incentives to promote our products in Volgograd• we encourage Antares to expand to Volgograd by further developing our relations

Arktika 67,0%LED company 60,3%Distr4 66,0%Alfa 59,5%distr5 50,5%

Central Logistics 62,0%Snezhok 71,0%Logistic + 67,5%distr8 67,5%distr9 63,5%CentralD 70,0%

Santa Company 56,5%FDG 54,3%Antares 77,0%

NWFD rank 63% :

CFD rank 67% :

SFD&NCFD rank 63%: SFD&NCFD rank 59%:

Analysis shows that multiple distribution strategy does not allow us to leverage our strengths and therefore needs to be complemented by a series of M&As

Why do we need our own network?

1. To have better impact on market conditions and pricing2. To hold dominant position on the market in the long run3. To reduce costs in the long run4. To eliminate dependency on distributors5. To increase profitability due to elimination of premiums on sales

0 10

1

M&AsOrganic Growth

Costs

Benefits

How to go about building our own network?

On the graph, we have shown the cost/benefits analysis of the 2 possible ways of growing: M&As and Organic Growth. Besides, the SWOT analysis correlates with this conclusion.

Corollary: M&As

Arktika 67%Distr4 69%Alfa 70%

M&A

NWFD :

CFD : Snezhok 71%CentralD 70%

Antares 77%SFD&NCFD:

Arktika 91%Distr4 76%Alfa 75%

Snezhok 89%CentralD 91%

Antares 86%

•We consider these companies to be easy targets since either they have established business relations with us or we are their unique suppliers•Acquisition of these companies will bring about fewer costs of distribution.

See appendix 1 for the SWOT analysis

As a result the distribution network combining multiple distributors and acquired companies will be capable of meeting the future demand and helping to double the

sales by 2015Final composition of network:

* Acquired company

# Name Coverage %of sales CCFOT

type of company

other contracts

Stock Fleet Total

25 20 10 10 20 15 100

1 Arktika* SPB, Novgorod, Pskov 25% 16% 10% 10% 15% 15% 91%

2 Alfa* Arkhangelsk+Severodvinsk 25% 16% 5% 10% 5% 15% 76%

3 distr4* Ukhta, Syktyvkar 25% 16% 5% 10% 7% 12% 75%

4 distr5 Murmansk, Apatity, Severodvinsk 8% 10% 13% 10% 5% 15% 61%

1 Central Logistics

Moscow, Ivanovo, Vladimir 0% 17% 5% 5% 20% 15% 62%

2 Snezhok* Smolensk, Bryansk, Kaluga 25% 16% 10% 10% 13% 15% 89%

3 Logistic + Ryazan, Tambov 18% 12% 5% 5% 8% 15% 63%

4 CentralD* Orel, Kursk, Belgorod, Voronezh, Lipetsk 25% 16% 5% 10% 20% 15% 91%

5 distr8 Vologda, Yaroslavl, Kostroma 20% 13% 5% 10% 7% 15% 70%

6 distr9 Tver, Vladimir, Moscow 9% 13% 10% 5% 12% 15% 64%

1 Santa Company

Krasnodar, Stavropol, Tcherkessk 17% 13% 5% 5% 12% 15% 67%

2 FGD Nalchik, Vladikavkaz, Nazran 8% 13% 10% 5% 16% 15% 67%

3 Antares* Kalmykia, Rostov, Astrakhan, Elista 25% 19% 5% 10% 12% 15% 86%

•Apart from that, we suggest paying more attention to Traditional Trade (kiosks and retail chests) in SFD&NCFD region since it is the most effective way of selling ice-cream in touristic places•In NWFD ice-cream should be sold primarily through Key accounts and Modern Trade as these means are more popular among people living in severe climatic conditions•In CFD regions, especially in big cities, it is preferable to use a combination of these methods

As a result of all the alterations the distribution network of Inmarko in each region will account for the following % according to our rating: NWFD 76% CFD 73% SFD&NCFD 73%:While currently it is as follows:NWFD rank 56%CFD rank 68% SFD&NCFD 59%

So far these measures are the most effective to double the sales by 2015

Appendices

Appendix 1

Strengths:• Time and money savings• Reduction of fixed costs (salaries)• Better control of distribution network

SWOT analysis of M&A

Weaknesses:• High transactional costs • Difficulties in integration of acquired companies in Inmarko’s structure

Opportunities:• Lots of potential targets to acquire(small companies which lack resources for development)• Decrease in competition among distributors (favorable situation for distributors working for Inmarko)

Threats:• Difficulties in negotiating (some companies may be reluctant to be acquired)

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

value share projected 17,4 20,1 22,7 23,65 22,15 20,69861 19,34232 18,0749 16,89053

value share required 17,4 20,1 22,7 23,65 22,15 21,31664 20,51463 19,74279 19

projected growth rate -0,06553

required growth rate 0,962376

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

volume projected, th tons 388 412 423 381 396 404 424 444,4871 465,9641 488,4788

average volume share 17,21

inmarko production projected th tons 66,7748 70,9052 72,7983 65,5701 68,1516 69,5284 72,9704 76,49623 80,19241 84,0672

inmarko production required, th tons 66,7748 70,9052 72,7983 65,5701 68,1516 69,5284 74 85 93 106

average price for inmarko icecream, rub for kilo 163 174,41 186,6187 199,682 213,6597

inflation 0,07

assumptions

Appendix 2 Market growth and production level (projections)

Appendix 3 Analysis of current and potential distributors

# Name Coverage %of sales CCFOT type of company contracts with competitors Warehouses transport Total

25,00 20,00 10,00 10,00 20,00 15,00 100,00

1 distr1 SPB, Petrozavodsk 0,08 0,12 0,10 0,05 0,08 0,05 0,48

2 distr2 Velikiy Novgorod, Cherepovets, SPB 0,03 0,10 0,10 0,10 0,08 0,12 0,52

3 distr3 Velikiy Novgorod, Pskov 0,25 0,07 0,05 0,05 0,04 0,13 0,59

4 distr4 Ukhta, Syktyvkar 0,15 0,08 0,10 0,10 0,07 0,12 0,62

5 distr5 Murmansk, Apatity, Severodvinsk 0,08 0,10 0,10 0,10 0,05 0,05 0,48

6 distr6 Arkhangelsk 0,18 0,09 0,10 0,05 0,06 0,05 0,52

7 distr7 Arkhangelsk 0,08 0,08 0,10 0,10 0,04 0,05 0,45

8 distr8 Vologda, Yaroslavl, Kostroma 0,20 0,09 0,05 0,10 0,07 0,13 0,64

9 distr9 Tver, Vladimir, Moscow 0,08 0,13 0,10 0,05 0,12 0,15 0,62

10 distr10 Yaroslavl, Vladimir, Ivanovo 0,03 0,11 0,10 0,05 0,12 0,15 0,56

11 distr11 Moscow, Ryazan, Smolensk 0,05 0,13 0,10 0,05 0,09 0,13 0,55

12 distr12 Moscow, Kaluga, Bryansk 0,08 0,10 0,10 0,10 0,09 0,05 0,51

13 distr13 Bryansk, Kursk, Belgorod 0,20 0,04 0,05 0,05 0,08 0,05 0,47

14 distr14 Orel, Lipetsk 0,23 0,08 0,10 0,10 0,06 0,05 0,62

15 distr15 Voronezh 0,20 0,10 0,10 0,10 0,07 0,05 0,62

16 distr16 Voronezh, Belgorod, Lipetsk 0,03 0,11 0,10 0,05 0,08 0,13 0,50

17 distr17 Moscow 0,00 0,14 0,10 0,05 0,09 0,15 0,53

18 distr18 Volgograd, Astrakhan 0,08 0,08 0,10 0,05 0,07 0,05 0,43

19 distr19 Volgograd, Rostov 0,03 0,09 0,05 0,05 0,07 0,05 0,34

20 distr20 Elista, Rostov, Astrakhan 0,03 0,14 0,10 0,05 0,07 0,15 0,54

21 distr21 Krasnodar, Stavropol 0,08 0,10 0,10 0,05 0,06 0,15 0,54

22 distr22 Grozny, Machachkala, Narzan 0,10 0,09 0,05 0,05 0,05 0,05 0,39

23 distr23 Vladikavkaz, Nalchik, Tcherkessk 0,13 0,13 0,10 0,05 0,07 0,15 0,62

AS-IS average 0,53

NWFD

1 Arktika SPB, Novgorod, Pskov 0,08 0,14 0,05 0,10 0,11 0,15 0,63

2 LED company SPB, Novgorod, Cherepovets, Vologda 0,12 0,12 0,10 0,05 0,06 0,15 0,60

3 Sever-Kholod Komi 0,24 0,05 0,10 0,05 0,02 0,05 0,51

4 Alfa Arkhangelsk 0,18 0,10 0,10 0,05 0,05 0,05 0,53

5 Beta Severodvinsk 0,18 0,11 0,10 0,05 0,05 0,05 0,54

CFD average 0,56

1 Central Logistics Moscow, Ivanovo, Vladimir 0,00 0,17 0,10 0,05 0,20 0,10 0,62

2 Ice Company Moscow, Yaroslavl, Tver, (Kostroma) 0,18 0,05 0,10 0,05 0,17 0,15 0,70

3 Snezhok Smolensk, Bryansk, Kaluga 0,18 0,10 0,05 0,10 0,13 0,15 0,71

4 Logistic + Ryazan, Tambov 0,18 0,12 0,10 0,05 0,08 0,15 0,68

5 CentralD Orel, Kursk, Belgorod, Voronezh, Lipetsk 0,00 0,15 0,10 0,10 0,20 0,15 0,70

SFD&NCFD average 0,68

1 Santa Company Krasnodar, Stavropol, Tcherkessk 0,20 0,05 0,05 0,05 0,12 0,05 0,52

2 FDG Nalchik, Vladikavkaz, Nazran 0,08 0,09 0,10 0,05 0,16 0,05 0,53

3 Antares Kalmykia, Rostov, Astrakhan, Elista 0,08 0,19 0,10 0,10 0,12 0,15 0,74

4 Zero Volgograd 0,24 0,00 0,05 0,10 0,05 0,15 0,59

average 0,59

Appendix 4 Optimization of current distributors

possible distr 0,1 Coverage %of sales CCFOT type of company contracts with competitors warehouses transport total

NWFD


2 LED company SPB, Novgorod, Cherepovets, Vologda 0,12 0,12 0,10 0,05 0,06 0,15 0,60

3 Distr4 Ukhta, Syktyvkar 0,15 0,10 0,12 0,10 0,07 0,13 0,67

4 Alfa Arkhangelsk 0,18 0,09 0,13 0,10 0,05 0,05 0,60


CFD 0,61







SFD&NCFD 0,67


2 FDG Nalchik, Vladikavkaz, Nazran 0,08 0,10 0,10 0,05 0,16 0,05 0,54

3 Antares Kalmykia, Rostov, Astrakhan, Elista, Volgograd 0,08 0,19 0,10 0,10 0,15 0,15 0,77

4 0,63

Appendix 5 Optimization of current distributors taking into consideration M&As

# Name Coverage %of sales CCFOT type of company

contracts with competitors warehouses transport total

NWFD


2 Alfa Arkhangelsk+Severodvinsk 0,25 0,16 0,05 0,10 0,05 0,15 0,76

3 distr4 Ukhta, Syktyvkar 0,25 0,16 0,05 0,10 0,07 0,12 0,75


CFD 0,76







SFD&NCFD 0,73


2 FGD Nalchik, Vladikavkaz, Nazran 0,08 0,13 0,10 0,05 0,16 0,15 0,67

3 Antares Kalmykia, Rostov, Astrakhan, Elista 0,25 0,19 0,05 0,10 0,12 0,15 0,86

0,73

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