Nicolas Clarke

Competitive Strategy
November 2nd 2017

Ice-Fili Case Summary

When first told about Ice-Fili, a Russian company selling ice-cream in Russia, I was
very skeptical as to how successful they could ever become. It just seems that Russia, being
one of the coldest countries in the world, would not be the ideal market for ice-cream. After
reading the case however, I was fascinated to learn about how a local ice-cream maker
became so successful in an industry that doesn’t seem so attractive.
Looking at this industry as a whole in Russia, it seems like it may be a better idea to
seek revenue in a different way. The barriers to entry in the ice-cream industry are relatively
low which allows competitors to easily enter the market. All you need to start an ice-cream
business is some machinery that is very available and can easily be rented, and some
ingredients and raw materials that are not costly. This means that pretty much anyone can
start an ice-cream business and compete in the industry. In addition, the Russian
government incentivizes businesses to enter this industry and thus creates even lower
barriers to enter the industry.
The extremely low barriers to entry result in a very competitive market. With over
300 competitors in the industry, it is very hard to differentiate an ice-cream from its
competitors. Price is also very hard to adjust because ice-creams are a cheap good in
general. This tough competition saw a lot of companies go out of business. Ice-Fili thankfully
managed to stay in the industry largely thanks to their “Lakomka” ice-cream. It consisted of
a whipped chocolate glaze and differentiated their ice-cream from many of their
competitors. This increased their sales volume by 30% but competition soon realized how
easy it was to copy and replicate this concept and sell it for a cheaper price.
Ice-Fili is able to reach strong economies of scale with their suppliers. This is a big
advantage for them. Being able to purchase all their raw materials and ingredients in bulk
helps them reduce their costs significantly. Their ingredients are one of the main reasons
they are so successful. The use of only natural flavors and ingredients as well as using only
Russian produced milk helps Ice-Fili set their brand apart. These ingredients offered their ice
cream a unique richer flavor.
Even though Ice-Fili was using all these premium ingredients, their price point was
still very reasonable. Selling each ice-cream at around 6 Rubles, Ice-Fili was middle of the
pack when it came to price. This put them in a great spot to maximize their sales.
Ice-Fili clearly had some strong value drivers and cost drivers that allowed them to
have strong market share in the ice-cream industry. Moving forward as a company they
need to link their drivers together in order to come up with an optimal strategy. One thing
they were missing out on is marketing. They only allocated $500,000 a year to market their
product which most likely hurt their market share and sales. This didn’t allow them to reach
all their potential customers and tell them about their amazing ice-cream. With more
money allocated towards marketing, Ice-Fili could have advertised their amazing natural
local flavors to a larger target market. In addition, they need to emphasize all their value
drivers on their label.
As an ice-cream maker, it is generally hard to compete for shelf-space and market
share with the top international companies like Ben & Jerry’s and Nestle. The larger
companies have such great capital and cash that they can easily enter new markets and
locations and be successful. The Russian industry is a little bit different however. Consumers
don’t have the same tastes as people in other regions and that is why Ice-Fili was able to
gain such good market share. Their ice-cream tasted a lot different than generic ice-creams.
With a lot less sugar and only natural flavors and ingredients, their ice-cream tasted a lot
richer. On top of that, their on-the-go packaging that was convenient and easy to use help
them reach more market share.
Ice-Fili had a great business model and production of natural ice-creams. With the
second largest ice-cream factory in the world they were producing over 25 tons of ice-cream
every single day. With such large operations, and such good profits, Ice-Fili could have taken
steps to make their operations even more effective and efficient than they already were.
Ice-Fili needs to take some power away from their suppliers. With over 90% of
equipment imported from other places gives the suppliers a lot more power to charge
higher prices. Making more of these products and getting more of these ingredients from
within Russia would make things cheaper, easier logistically, and less reliance on others.
Also while doing this, Ice-Fili could even move horizontally and vertically, potentially making
them more money.
In addition, Ice-Fili needs to improve their distributions. It is clear that kiosks are
great to reach their on-the-go consumers but there simply isn’t much growth potential in
that area. They need to move towards larger distribution centers and maybe start
considering online distribution. This will allow them to gain more market share and grow
significantly as a brand.
Finally, in order to deal with all the small local competitors, Ice-Fili has the cash and
ability to acquire these brands. This would help them minimize competition and maximize
their market share.
Even though the ice-cream industry in Russia does not seem very attractive, Ice-Fili’s
brand has managed to create a product that good battle the negative aspects of this
industry. Consumers have different tastes around the world and Ice-Fili was able to create
one that greatly appealed to the Russian market. This allowed them to grow quickly and
beat out international competitors such as Ben & Jerry’s and Nestle. In order to keep their
growth and success they need to re-invest a lot of cash into their production, distribution,
and marketing.
 Appendix

Collaboration:
Shane Rhodes
Griffin Tietz
Trey Robinson
Zack Blumkin
Nick Clarke

APPENDIX A - Porter’s 5 Forces (Question 1)

Barriers to Entry: Low (unattractive)
(Supply-side) Economies of Scale:
High economies of scale
The more supplies ice-fili buys the cheaper they will get. When purchasing condensed
milk, sugar, oils, milk powder, butter, flavourings and all other ingredients, Ice-Fili is
purchasing it all in bulk, thus bringing the costs down.
(Demand-side) Economies of Scale:
Medium/Low Economies of scale
Customers do not feel a network effect when buying Ice-Fili because there is no
additional benefit of having many Ice-Fili consumers. Some customers may feel a
network effect by seeing their friends or close ones eating Ice-Fili but it is a generally
low demand economies of scale.
Customer Switching Costs:
Low switching costs
Switching costs for consumers are very low in the Ice-Cream industry. Russian
consumers have many different options when it comes to ice-cream and all their
options are at similar price points meaning that it easy very easy for customers to
switch from the Ice-Fili brand to another ice-cream brand.
Capital Requirements:
Low capital requirement
The manufacturing equipment can be easily acquired or rented for affordable costs.
This machinery is available to anyone willing to start their ice-cream business and can
be used for a variety of other products too. This means that the initial investment
needed is low.
Incumbency Advantages Independent of Size:
Medium incumbency advantage independent of size
Ice-Fili has the incumbent advantage of having existing manufacturers that have
already marketed their product.
Unequal Access to Distribution Channels:
Low unequal access to distribution channels
Access to distribution channels is high. There is a lot of players in this industry all
with the ability to enter kiosks and grocery stores. This makes it even easier to enter
this industry.
Restrictive Government Policy:
Low government policy
The Russian government actually encourages new entrants to enter the market. They
invited local producers as well as foreign companies to take capitalize on the
opportunities.
The Power of Suppliers: Moderate (Attractive)

The suppliers for Ice-Fili had some power, given that both the raw materials and equipment
were imported to Russia, though a moderate amount. Ice-Fili used three to four suppliers for
each of its major ice cream ingredients, though it was not a problem to find new suppliers
since they were constantly receive offers from new ones. Therefore, supplier power was
reduced by the ingredients because these were in high number, and a lot of companies could
supply what they needed. Though following the 1998 devaluation, the competitive situation
had changed, and Russian producers relied much more on local suppliers for their raw
materials with the local supplier base growing fast. Russian ice cream equipment was still of
low quality, narrow assortment, and lacked flexibility to be used for production, so more than
50% of their equipment was imported, dominantly by the US. In 1990 90% of their
equipment was imported, so suppliers had gained some power here.

The Power of Buyers: High (Unattractive)

In the Russian Ice cream industry buyer power is very high due to a numerous amount of
factors. When producing ice cream, the actual process that goes into the creation of ice cream
is simple and does not require a unique skill set. With that being said, the domestic product
base is not highly differentiated which enables producers to copy their competitor's methods.
Also ice cream producers have risen tremendously from 100 producers in 1996 to 300
producers in 2002. Furthermore, the switching costs for buyers is extremely low due to the
amount of products available in the market as well as the low prices associated with ice
cream. With the amount of substitute products available in the marketplace, this also causes
buyer power to remain attractive. The typical Russian ice cream consumer tends to buy ice
cream at kiosks and convenience store where there are plenty of available substitute products.
The last component that causes buyer power to remain high within the ice cream industry in
Russia is the fact that there are so many different establishments that sell the product. With
the wide variety of buying outlets it gives consumers many options when looking to buy ice
cream in Russia.

The Threat of Substitutes: High (unattractive)

The Ice Cream market in Russia has many substitutes. This includes cakes, candy,
soda, and chocolate. The switching costs are very minimal so for a consumer to go to a
different product is simply a preference at the time. On top of this, the substitutes invest more
into advertising than the ice cream companies do. Soda companies will invest around $200
million a year into marketing while the ice cream companies are only around $5 million. The
consumers are also only looking at the ice cream for a quick snack while the substitutes can
be an at-home bite to eat or drink. Although there are rumors that Russians will eat more ice
cream in the winter, the seasonality sales do not represent this. Due to the temperatures, there
is a decline in cream being consumed in the winters and is instead substituted with warmer
snacks. Overall, the threat of substitutes is high for this market and is therefore unattractive.

Rivalry Among Existing Competitors: (High, Unattractive):

Following the collapse of the Soviet Union, Russian ice cream markets began to
experience immense change. In the early 1990’s, the once communist government began a
process of decentralization. Markets like the ice cream industry began to experience a
process of privatization. Open-market economies allowed for the introduction of foreign
competitors, and domestic ice cream producers were challenged with new rivalry. For
example, Ben & Jerry’s created a joint-venture called Iceverks. Iceverks targeted the growing
Russian ice cream markets and was intended to promote global cooperation. However, by
1997 Ben & Jerry’s had to exit the venture due to extremely high operating expenses and
unequal access to distribution, thus demonstrating the high degree of rivalry.
One of the largest challenges faced by industry competitors was the difficulty of
creating unique products. Although there were over 300 competitors, recipes were largely
undifferentiated. When Ice-Fili introduced Lakomka, their sales volume increased by over
30%. Unfortunately for Ice-Fili, Lakomka was founded during the era of Soviet control
meaning that the Lakomka brand faced restrictions against trademarking their products.
When privatization became popular in the early 1990’s, competitors were able to easily
mimic the Lakomka recipe and lower Lakomka’s market share. Domestic producers aimed to
differentiate themselves through an increased ratio of milk fat. While most western producers
used a recipe calling for 10% milk fat, many Russian producers used 15% milk fat instead.
This helped to add value by creating a more distinguishable flavor.
So although there are small steps that manufacturers can take to help differentiate
themselves, many competitors position themselves as cost leaders. This allows consumers to
become price sensitive, which further promotes rivalry. Large producers like Nestle, Ben &
Jerry’s, Baskin & Robbins, Haagen-Daz, and Ice-Fili compete both amongst themselves as
well as small regional manufacturers. Russian consumers benefit from having many options
when selecting ice cream. Most companies offer alternative/substitute products to one
another. The Russian ice cream market is extremely competitive.

APPENDIX B - (Question 2)
SWOT Analysis

Strengths:
- Very established, have been around for 65 years
- Loyal workers, high retention rates for the past 20 years
- Natural flavors and ingredients
- Great company culture
- Tendency towards innovation
- Raw materials are easily available
- Response to price change isn’t drastic, consumers will still purchase
Weaknesses:
- Excess on production capacity
- Sales dependent on older Soviet brands
- Very low exports
- Low portfolio differentiation
- Distribution channels are out of date
Opportunities:
- International appreciation for Russian ice cream
- Increase in consumption per capita
- At-home market almost untouched
- Rising concerns to meet international standards
- One of the cheapest ice creams in the world
 - Availability of natural ingredients
Threats:
- Unstable political atmosphere
- Fluctuating prices of raw materials
- Underdeveloped distribution channels
- Many substitutes
- Intense competition

Barney’s Framework

Resource Valuable Rare Costly to Organization Value

Imitate to Exploit

Factory Yes Yes Yes Yes Long term

sustainable
advantage

Equipment Yes Yes Yes Yes Relative

competitive
advantage

Distribution No No No Yes Lower

competitive
advantage

Ingredients Yes No Yes Yes Competitive

advantage

Structure Yes Yes Yes Yes Long term

competitive
advantage

Ice-Fili is a very strong and unique ice cream company for Russia. The factory is the
second largest ice cream factory in the world, with three major renovations and
improvements done over the years. These renovations and improvements have made it one
of the best ice cream facilities in the world, and according to Barney these are some of their
strongest assets. Ice-Fili has been able to receive heavy investment from the Soviet
government, and another huge asset for them is their organizational structure. Ice-Fili is a
very old based company that has remained strong and very effective in their corporate
structure even though Russia has experienced a lot of problems politically and economically.
Lastly, Ice-Fili has very smart and convenient packing, which allows the consumer to eat the
product on the go when they are buying it at the Kiosk, one of their dominant distribution
centers for the product at over 49%.
Resource Based View

Tangible Assets:
- Ice cream factory
- Updated equipment
- Raw materials
- Non ice cream dairy products
- Distribution network
- Shelf space
- 170 ice cream products

Intangible Assets:
- Marketing efforts
- Manufacturing process
- Performance based pay
- Passionate labor force
- Open market economy
- Organizational structure
- Brand equity

APPENDIX C - (Question 3)
Value Drivers:
- A lot of focus on high quality ingredients
- All natural russian milk based ice-cream
- Diabetic ice-cream
- Lakomka - ice-cream snack with a whipped chocolate glaze
- Different flavor than regular ice-cream - richer flavor and less sweet
- Accessibility and convenience of selling through kiosks
- Smart and convenient packaging - easy to use for the consumer

Cost Drivers:
- Economies of scale on raw materials - milk, powder sugar, flavor additives, butter
ect…
- New imported technology and equipment created a more efficient manufacturing
process allowing them to produce a lot more than before the technology.
- Marketing/Advertising - $500,000 a year
- Sold ice-cream at 6 Rubles - medium-level category

Competitive Advantage:
- Use packaging to make consumers aware of the quality ingredients
- Place a lot of emphasis on being a local company selling at a cheaper price than most
of the international companies
- Take advantage of experience in the market to get better shelf space
APPENDIX D - (Question 4)
Ice-Fili Nestle / Unilever Ben & Jerry / Baskin
Robbins

Product Line Higher quality, Lower quality, use Medium quality, lots
natural, traditional of preservatives and of variety
coloring

Target Customer On the go customers at At home customers Restaurants/cafe

Segment smaller distribution through larger retail goers
channels

Product-market High quality ice cream Lower cost ice Tons of flavors with
positioning with natural flavors cream with longer decent quality
shelf life

Production per day 200 tons 45 tons 62 tons

Pickup and delivery Kiosks and mini Supermarkets Restaurants and cafes
markets

Marketing and sales Medium High Low

HR Management and Base salary plus Strong union Very equal

Company rewards, open culture distribution, try to
Infrastructure keep executives and
lower level workers
similar

Procurement High Lower Medium

International Minimal High High

Operations

Appendix E (Question 5)
Ice-Fili is a very well-established and dominate force in the ice cream industry, though there
is room for growth and improvements as they move forward. Below we have suggestions
and decisions that they should consider in order to remain competitive and dominant leader in
the industry:
1. Decrease the amount of importation of supplies for their ingredients and equipment
tools as to gain more power from the suppliers, and less reliance on other nations and
people for their supplies.
a. Having over 90% of their equipment, and a dominant amount of their
ingredients be imported forces a lot of reliance to produce ice cream on other
 people. Making more of these products and getting more of these ingredients
from within Russia would make things cheaper, easier logistically, and less
reliance on others. Also while doing this, Ice-Fili could even move
horizontally and vertically, potentially making them more money
2. Start to acquire more of the smaller regional ice cream manufacturers, as to help
reverse the declining market share.
a. Regionally owned manufactures are often more effective in creating flavors
that are differentiated with unique tastes. This would help larger producers
regain a greater control over declining market shares.
3. Create a unique ice cream making process that other competing firms cannot recreate
or use to make their product.
a. By creating a patented process to produce ice cream, Ice-Fili can control the
market and even start distributing to MNE’s.
4. Use more modern distribution methods to allow for more consumers to purchase the
product
a. Kiosks work for some distribution but by slowly putting the product in larger
distribution centers it will gain more attention.
5. Create an in-home product that can compete with other ice cream companies such as
Nestle and Ben & Jerry’s
a. Many consumers only get Ice-Fili as an on the go snack rather than eating at
home so this will allow for a new product in that market
6. Increase marketing efforts to make people more aware of quality ingredients and local
production.
a. They are currently not spending enough money to market their product and are
missing out on a big market share
b. Need to focus on their long history and brand recognition