Ice-Fili, Russian ice cream company

Essay by tchiudaUniversity, Master'sA, February 2007

download word file, 3 pages 4.0

Downloaded 116 times

In the early 1990s the ice cream industry was state regulated. It had artificial market, where all production was sold despite huge overproduction in the industry. During transition from state governed to market economy, the industry shrank rapidly and was unattractive mainly because of political and financial turmoil. Once Russian economy reemerged from the crisis, in the late 2001, the industry stabilized. Industry forces started to play major part in its attractiveness and macro factors did not overshadowed them anymore.

From 2002 and on, the industry became attractive and firms were able to provide above average rate of returns.

For any given raw material, firms had an option to choose from 3-4 suppliers. They had plenty of new offers from potential suppliers. However, suppliers could dictate seasonal price fluctuations of some materials. Additionally, the new domestic suppliers of production equipment were emerging. It resulted in lower power of foreign equipment suppliers.

Even though barriers to entry were quiet high (e.g. capital investment was high (1-1.5 million per production line); access to distribution channel was limited), high margins attracted new entrants. The market almost tripled from 1996 to 2002.

The substitutes (e.g. beers, sodas, candies) stole significant market share from the industry, because these firms had huge advertisement budgets. They were able to change consumers' buying habits.

Consumers did not incur any switching costs, but it did not translated into higher bargaining power.

The competition in the industry was growing, but there was still lot of growth opportunities. In comparison with foreign countries, the consumption of ice cream was very low and very seasonal. The firms should reposition products by focusing on family and restaurant business consumption. This will expand the overall industry market and reduce seasonality effects. At the same time it will lower storage costs, smooth production and distribution.