Delivering Ice to Every HouseOlga Belevantseva Andrey Belykh Dmitriy Polyektov Said Ibragimov

Changellenge Cup Moscow 2011

MGIMOGINATION

The target of Unilever is to double the sales of ice cream in Russia by 2015

* See Appendix 1

The maximum production capacity of Unilever allows to reach the target. However the market is growing at a lower rate than necessary. Therefore the company needs to increase its market share. Attention should be concentrated on structuring the distribution and logistic systems in order to confront the competitors

To reach the target Unilever should increase its share on the ice cream market*

• See Appendix 1** Where the company holds strong positions

CompetitorMarket share

Coverage**Target

audience**Distribution channel**

Sales channel**

Inmarko 22%

One price category

Traditional trade

Iceberry 14%Traditional

trade

Russkiy Kholod

7%Modern trade

Traditional trade

Talosto 6% Modern trade

Nestle 15%Premium segment

Modern trade

•Inmarko holds strong positions on the Far Eastern and Siberian markets while its market share in the European part of Russia is not so significant. The worst positions are in the Northern region where the company is only on the 7th place.•The main competitors of Inmarko on the ice cream market in the European part of Russia are Nestle, Talosto and Iceberry.•Nestle is mainly operating in the premium segment while Inmarko and the other two companies are operating in the lower price category. Therefore Nestle poses no competition to them.•Talosto is strong in North West and is characterized by the well developed own system of distribution and logistics. It operates in Modern trade segment. •The main competitor of Inmarko operating in the same sales channel is Iceberry. Its structure of distributional channels is similar to Inmarko’s. However it should be noted that the major part of branches of Inmarko falls on the Eastern part of Russia. On the European part the most developed own distribution system of Inmarko is in Moscow.

1. Develop own distribution system ?2. Increase the share of the Modern trade?

To increase the market share Unilever should start from developing its own distribution system

Strength- advanced level of influence on the market - additional advertising through a net of branded kiosks and chests- ability to implement own marketing strategies - establishing long-term relations with customers

Opportunities

- ability to react fast on changing demand- implementation of latest WMS- optimisation of transportation that will lead to decrease in cost

Threats

- decline in demand in the areas of representation - growth of maintenance costs due to external factors (growth of tariffs on electricity, gas , heating etc.)

Weaknesses- requires large amount of investments- significant fixed costs connected with maintenance of the network- inability to leave a certain region in case of falling demand without considerable losses- long pay-off period

Strength

- well-organized dealer system- admission to small retailers and stores which mainly buy products in from regional distributors

Opportunities

- ability to send low-volume batches in order to respond properly to the retail demand- no need for having large sales departments

Threats

- possibility of overpricing- in case of non-exclusive contract distributors could give preference to another client in terms of delivery order

Weaknesses

- need to possess at least 25-30% market share and strong brand in order to avoid overpricing - the end customer is beyond the control due to complicated chain

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• Despite the fact that the own distribution system (ODS) implies high costs and long pay-off period it provides a lot of benefits and helps to prepare the ground for the further steps and in particular for expanding relationships with distributors when the maximum production capacity reaches 200 mln litres.

• ODS allows to offer lower prices to consumers which automatically boosts sales.

• Moreover ODS contributes to gaining the market share and establishing strong brand on the market which eliminates most weaknesses and threats of expanding the share of distributors services in future. That will help to diversify distribution channels and reduce costs in the long-run according to our estimations.

Development of own distribution network will increase loyalty of customers, lower prices and, ultimately, will boost sales

Unilever should take into account seasonal features when developing its own distribution system

Seasonality of sales, by type

Two main sales

channels

Two main sales

channels

Modern Trade / Key accounts

Traditional Trade

• There is a stable demand throughout the year for home consumption purposes.

• Modern Trade accounts for only 25% in total sales of Inmarko.

• The demand is driven mainly by impulse consumption which is most active during four months – from May to August.

By increasing the share of Modern trade in the sales channel structure Unilever could enlarge sales during the cold months reduce costs of transportation and warehousing

Enlargement of retail branches (shops, stalls) and installation of branded stalls as part of the marketing program

• According to our estimations it is better to have the own stalls than to rent them due to several reasons. First of all, rental costs are very high. Moreover the group possesses the production facilities which reduces the costs.

• Branded stalls provide better recognizability among customers and increase loyalty.

The enlargement of retail branches will help the company to meet the demand during the ‘high season’, increase recognizability of the brand and facilitate the access to the production – all this factors jointly will lead to the boost in sales

Timeline guide for Unilever

Actions 2012 2013 2014 2015

Increase the number of stalls in Northern regions and in the South region

Increase the share of Modern trade

Enlarge retail branches in Western regions

Enlarge transport park upon necessity

Enlarge relationships with distributors

• The priority for Unilever is to improve its situation in the Northern regions, and in particular in St. Petersburg where the company holds the low 7th place.

• The second step is to increase the share of Modern Trade in order to meet the demand in cold months.• Enlargement of retail branches will help to gain the market share and build stronger relations with the customers.• Due to the increase in the production capacities additional transport fleet may be necessary.• There is an option to start enlarging relationships with distributors in 2014-2015. The company will have competitive advantage by then and will be

able to negotiate necessary terms successfully.

In this case the target of doubling the sales by 2015 will be reached

Appendix 1

2011 2012 2013 2014 2015mln litres 60 80 100 120 200ths tons 41,1 54,8 68,5 82,2 137price 200,9 215,8 231,3 246,4 259,2potential sales(mln rub) 8258,1 11825,6 15846,3 20251,6 35507,8potential sales(mln euro)* 283,52 295,6 396,2 506,3 887,7

* Conversion rate of 40 rubles per euro was used

  2011 2012 2013 2014 2015mln people 79,5 81,2 82,5 83,9 85

consumption per person (litres) 3,8 3,9 4,0 4,1 4,2

consumption per person (kg) 3,04 3,13 3,21 3,28 3,36

total consumption 241,68 254,25 264,78 275,20 285,50price  200,9 215,8 231,3 246,4 259,2sales (mln rub) 48560,134 54866,88 61252,93 67800,89 73995,9sales (mln euro) 1214,00335 1371,672 1531,323 1695,022 1849,89

30,65%

The market share of 30,65% should be achieved in order to reach the target by 2015.