CASE ANALYSIS – ICE FILI

Group-12
BM, Section C

Introduction and Situational Analysis:

Ice Fili is an ice cream producer, rather currently a leader in ice cream production. In 2002, Russia
had a market of approximately $480 million. Ice-Fili, a midsize Russian company with more than $25
million in sales, was Russia’s top ice cream producer. Ice-Fili was fighting to maintain its market
share leadership in the increasing competitive Russian ice-cream market. Nestle, was Ice-Fili’s
fiercest competitor, other competitors included Premium ice-cream brands like Baskin & Robbins
and Haagen-Dazs and other small regional ice-cream producers, which were believed to have lower
production cost than Ice-Fili.

Ice-Fili

Product  Ice Creams

 Different flavours, modifications in ice cream products
Price  Premium
Place  Kiosks (70%)
 Minimarts
 Gastromoms
 Restaurants
 Supermarkets
Promotion  No significant promotion as such
 Poor marketing strategy
 Very few advertisements
Market  Russian Ice-Cream market
Competitors  Nestle
 Baskin Robbins
 Other regional producers
Current  Nestle about to overtake Ice-Fili for the first position
Scenario

To analyse the macro environment, Pestle Analysis done is as follows:

PESTEL Analysis

Political  Anti-alcohol campaign

Economic  Dissolution of Soviet union in 1998

 1991 economic crisis
 Increasing Exports, Decreasing imports

1 Ice Fili Case Study Analysis, Marketing Management-I, Group-12, BM Section-C

Social  Russians’ inclination towards Ice-Cream since ancient history

Technological  75 ice-cream factories

 Introduction of new equipments
 Increase in production capacity
 Introduction of “Lokomka”
Environmental  Too Cold and frigid weather
 Change in environmental rules for production
Legal  Impossible to patent and register trademarks
 Lack of ISO regulations

Key questions to be analysed upon:

 How structurally attractive is the Russian Ice Cream market? How is it likely to evolve.
 What are the potential sources of competitive advantage in the Russian Ice Cream Market.
 How well positioned is Ice-Fili relative to its key competitors.
 What strategic options does Ice-Fili has and which one to be recommended.

Analysis and Insights:

SWOT Analysis

Strengths  Leader of Russian Ice Cream market

 Experience in Russian Ice Cream Market, oldest -> better understanding
about the market
 High quality
 Good taste : Natural Ingredients
 Innovation and Wide Product range
Every year Ice-Fili added about 20 new products, which typically involved the
modification of traditional recipes or more advanced add-ins, such as candy-
coated ice cream that exploded in the mouth. Other Ice-Fili product
innovations included a diabetic ice cream reintroduced in 1998 for the
140,000 diabetics in Moscow alone and, in 2002, its first ice cream product
with American-style taste and texture (vanilla with dried fruit) for at-home
consumption in Russia
 Loyal Employees: Ice-Fili employed approximately 550–600 people at its
Moscow-based factory of whom 200 were seasonal workers. More than 40%
of the employees had been working there for more than 20 years.
 No Long term liabilities
 Mid-ranged competitive prices

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Weaknesses  Highly reliable on kiosks (old distribution channels)
 Less exports (1%)
 Poor differentiability : No brand differentiation
 Inefficiency in production department, Production capacity not used fully
(only 7-12%).
 Old technology
 Highly reliable on imports for raw material (during 1990’s)
 Poor marketing strategy, improper advertisements (no mention of name of
product or brand).
 Decreasing market share and profits

Opportunities  Availability of natural ingredients from domestic resources

 One of the cheapest ice creams (6 rubles)
 Steady increase in per capita consumption ---from 2.1 kg per capita in 1980 to
2.6 kg per capita in 2002
 Very less home consumption (as compared to US market)
 Small and positive penetration of distribution channels --Minimarts,
gastronoms, restaurants, supermarkets
 Opportunity to export
 Vertical integration

Threats  Season dependent

 Old technology for production
 Increasing competition (from regional as well as international)
 Price war
 Switching cost of consumer is very less
 Less demand (A market constraint)
 Low entry barriers
 Cheaper substitutes
 Fluctuating raw material price

Some of the improvement steps on the basis of SWOT analysis can be:

 More focus on in-home consumption, of course without effecting the quality

 Increase production to meet full production capacity
 Better advertising strategy – to create brand differentiability
 New market penetration using new distribution channels

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Porter’s Five Forces Analysis:
Bargaining Power of Buyers
HIGH (for both consumer and distributors)
 No differentiability for brand
 Switching cost is very less
HIGH bargaining power of buyers results in
low profit and high price competition
Bargaining Power of Suppliers
LOW
 Many Suppliers
 Easily available raw material: mostly commodities
 No great differentiability
 Exception: suppliers of equipment, but not needed
regularly hence does not impact the power much.

Threat of New Entrants Threat of Substitutes

HIGH HIGH
 Low entry barrier  Beer, soda, yoghurt, chocolate and confectionary
 No Switching cost products
 No brand differentiation  Low Switching cost
 So many regional producers  More advertisement from substitute companies
 High possibility of Forward integration

Competition
HIGH
 Many players
 International : Nestle and Baskin Robbins, great marketing skills and strategy
 Regional producers: aggressive growth strategy

Implications: Market is not very attractive with very low growth prospects and profit margins.
Declining market (-3.5 % in 2000). There are too many competitors and less brand differentiation
hence less brand loyalty.

Competitive Analysis:
To understand what drove consumer value addition, we can first start by analyzing the strategy and
functioning of each of the players involved in the Russian ice cream industry in the given time frame.

Ice Fili: A domestic ice cream manufacturer, which primarily focused on preserving the quality of its
product, especially in terms of adhering to Russian standards of using milk fats only. The company
took great pride in making its ice cream the Russian way, depending solely on natural ingredients.
Coming from a background in the Soviet Era, Ice Fili was inexperienced in advertising and marketing,
and its initial forays into the same had failed to leave a lasting impact. Ice Fili primarily sold through
kiosks and mini markets, supplied to by Eskimo Fili or Service Fili, and operated out of a factory in
Moscow.

Baskin Robbins: It was a foreign premium ice cream brand, which priced one serving of its ice cream
at 30 rubles, when the prices usually ranged from 2-5-15 rubles. One of the first franchises to enter
the market, it opened exclusive cafes, and initially imported all its ice cream from its operations

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elsewhere. Even after setting up a plant in Moscow, it continued to source most of its ingredients
from abroad, citing poor quality of domestic ingredients. Clearly high product quality and premium
dining experience were its points of focus

Unilever: A foreign company that first came into the Russian scenario (1994) through its sales of
household items ventured into the ice-cream space in 1998. It relied on imports from its overseas
operations, and domestic outsourcing to two firms within Russia, to secure its ice cream supplies.
Selling 17 brands of ice cream, Unilever started off decently; with its flagship brand Algida doing
decently in the market. Unilever also spent a lot of money marketing, over 7 million USD, and yet
had to close its operations, citing losses.

Ben And Jerry: A foreign company that focused on sourcing most of it ingredients from Russia and
adapting its recipes to suit the local conditions, while at the same time providing Russia with its
much in demand exotic flavours. This firm too shut down its operations citing high operation costs
and lack of modern wholesale distribution system in Russia.

Regional Producers: Leveraging on lower rent and labour costs in non-metropolitan areas, and lower
manufacturing costs thanks to their inception post USSR era, the regional producers typically priced
their products at 3-4 rubles, featured limited product range, often employed simple backward
integration, and were known to be flexible enough to meet consumer preference and demand, had a
burgeoning market share

Nestle: A company that placed most of its products in the 8-13 ruble price range, Nestle also relied
on aggressive marketing like Unilever, with data suggesting that the two of them accounted for
three quarters of total TV advertising in the ice cream industry. Nestle differed in its product
offering, for it produced non traditional Russian ice cream, using both milk and vegetable fats. Nestle
operated out of two factories, one in the Moscow region, and one in the Krasnordarskiy Krai region
(South). Nestle had also, early on, invested in creating a domestic infrastructure of storage and
distribution facilities.

Avg price Market Share

Ice Fili 6 5.70%
Nestle 10 4.70%

The table above(for 2001), shows us that although one might initially believe price is a major driving
force behind market share, or in other words, consumer preference, that might not be the case.

Similarly, while both Unilever and Nestle used aggressive marketing tactics, only Nestle could
survive, showing us that marketing also doesn’t really shape consumer preference.

Ben and Jerry’s, which offered a plethora of exotic flavours, and focused on reducing its reliance on
imports could also not stay afloat, showing us that product diversity alone doesn’t matter much.

Nestle, which by its non-adherence to the sacrosanct Russian milk ice cream standards, should have
been rejected by the consumers, seems to be doing well, and on the verge of catching up with Ice
Fili. This observation disproves the theory that High product quality, the USP of Ice Fili is the single
defining factor of consumer preference.

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The success of both Nestle and regional producers tells us that the prime factor driving consumer
willingness to pay is availability of the product. While other manufacturers focused primarily on
Moscow alone, Nestle had a well established marketing network, and also operated out of two
factories in geographically separated regions. This gave Nestle access to much more market space,
and as an executive of Ice Fili pointed out, increased the likelihood of Nestlé’s product reaching a
given consumer. We believe, a mix of the factors above (highlighted in bold), ultimately decides a
customer’s willingness to pay, with the customer always valuing that factor whose marginal utility is
the most (i.e., one that is a more clear differentiating factor given the conditions).

The relative cost position of each brand also depends on the same concept, with the contribution of
all factors, at the respective weights of importance associated with them, determining how highly a
customer values a product, given its price. We believe Ice Fili fares better than Nestle on most
factors mentioned above (Price, Diversity of products, and product quality) and fall short in terms of
marketing and distribution. Its latter drawback could be very damaging to its position as the market,
given the importance consumers seem to attach with availability. Ice Fili’s refusal to use
preservatives only exacerbated distribution problems, owing to the lower shelf life of its products.

Outside the consumer perspective, Nestle has been said to invest a lot in training and development
of its local staff and being a conglomerate can draw from its rich experience and knowledge base,
while Ice Fili can’t. Also, Ice Fili’s roots in the Soviet era, when the markets it operated in were
different only adds to the complication. Further, Ice Fili’s policy of compensating its senior
management – a salary plus a bonus, but with smaller premiums and larger penalties, places a cap
on innovative thinking and justified risk taking. This is a further disadvantage for Ice Fili.

GE Analysis:
We have tried to analyse the Ice cream market in Russia and analyse where Ice Fili currently stands
using the GE Model. We have plotted the industry attractiveness versus the strengths of Ice Fili as a
company for this analysis.

Market Attractiveness:

 Growth: Growth is one of the major factors in considering the market attractiveness but
without the size of the market, it doesn’t get that value. If you invest $10 in a business and
make $20 out of it, growth is 100%, but at the end you made just 10$. In a $5 billion market
10% growth would be huge. Hence the weight for growth was restricted to 0.1. Also the
growth is recent years has been low and unstable, hence a rating of 5/10.
 Size: As stated in the example above, the size is the major factor that defines market
attractiveness. Especially in case of Russian ice cream market where the size is $0.5 billion
while the US Ice Cream market is $20 billion. Hence size was given a weightage of 0.2 and a
lower rating of 6.
 Per Capita Consumption: It is again a measure to estimate the size of the market but
reconsidering that the value was 3.15kg in 1990 and has decreased to 2.6kg in 2002, this
factor has a scope for growth we have weighted it as 0.1 with a rating of 4.
 Competition: The competition in a market defines it attractiveness. More the competition,
lesser the profits. Hence it has a weightage of 0.1. The Russian ice cream market has high
competition from regional players, national producers and international brands, so we have
rated it as 5.

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  Political & Economic Factors: These external factors are particularly significant in this
market following dissolution of USSR and devaluation of the Rubel. Hence we have weighted
them as 0.15 and since they are not very good, they receive a rating of 6.
 Barriers to Entry: Markets with low barriers to entry are generally attractive. Any player can
enter this market. We weight this as 0.15 and rate it as 8.
 Profitability: Every industry that is profitable, finds new players investing in it. We have
weighted this as 0.15. The profitability is 15-20% in this industry, which is good considered
to any other food industry. Thus the rating of 8.
 Relationships: The loyalty from customers is not a very significant consideration as
compared to others. We weighed it at 0.05. There is not much loyalty from customers and
they shift easily between the various brands. We rate this as 3.

Company Strengths:

 Market Share: One of the major parameters that shows the strength of a company. We
weight this as 0.25. Ice Fili has the highest market share in the Russian ice-cream market and
we rate it as 8.
 Price Attractiveness: Prices look like a major player but do not really affect much. Each
player has a price range and a customer base. Hence we weigh this as 0.1. Ice Fili is in the
mid-price range and a rating of 7.
 Expertise and Capacity: More the production capacity and efficiency, more is the strength of
the industry. We weight this as 0.15. Ice Fili has the highest production capacity in Russia
and we rate it at 9
 Marketing & Advertisements: As foreign players are entering this market, this is an
important sector. We weigh it at 0.15. Ice Fili lags behind Nestle in this aspect and we rate it
as 5.
 Cost of Manufacturing: This factor decides the profitability of a product. We weigh it as 0.1.
Nestle is manufacturing products at a cheaper cost by using preservative. We rate it as 6.
 Financial Strength: Shows the overall strength and capacity of a company. Not a major
deciding factor. We weigh it at 0.05 and Nestle being an international firm Ice Fili is rated as
5.
 Distribution Network: One of the major factor is the availability of ice cream. We weight it
as 0.2. Ice Fili has a weaker network as compared to Nestle. We rate it as 6.

Taking into consideration all these ratings and weights, we come up with the GE Matrix for Ice Fili as
follows:

Market Attractiveness
Rating for
Parameter Explanation Weightage Ice cream
Market
Growth Sales by volume comparison. 0.1 5
Small compared to US market. Approx 0.5
Size 0.2 6
billion dollars.
Per capita consumption not yet highest.
Per Capita Consumption 0.05 4
Scope for growth.
Competition High 0.15 5

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Political and economic Unstable. Disintegration of USSR and
0.15 6
conditions devaluation of rubbles. Fluctuation of taxes.
Barriers to entry Low: Anybody can start to make ice cream. 0.15 8
Profitability Good. Margins around 15%-20% 0.15 8
Relationships Low. Less loyalty from customers. 0.05 3
Conclusion Moderately Positive 1

Company Strength
Rating
Parameter Weightage
for Ice fili
Market Share 0.25 8
Price attractiveness 0.1 7
Expertise and Capacity 0.15 9
Marketing and advertisement 0.15 5
Cost of Manufacturing 0.1 6
Financial Strength 0.05 5
Distribution Network 0.2 6
Conclusion 1

Based on this graph, Ice Fili needs more investments. These investments need to be mainly around
the distribution channels and marketing sectors where it lags behind its nearest competitor Nestle.

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Ansoff Matrix Analysis:

Ansoff Analysis

Market Expanding sales from existing products in existing markets.

Penetration Strategies: heavy promotions, PR, price discounts etc
Strategy  Invest more in marketing
 Promote using advertisements
 Price discounts method might work for promotions
Market Entering new markets with existing products
Development
Strategies: introductory offers, trial brochures, radio etc
Strategy
 Might get a first mover’s advantage but competitors would soon come over and
lack of marketing strategy and promotions would create the same market scenario
again.

Product Launching new products in existing markets

Development Strategies: developing new products, additional features of existing products
strategy Introductory promotion of new products etc

 Already following innovation, producing new products with different flavours

Though helping in maintaining the leader position, still not helping in increasing the
growth, while the competitors are reaching up to their level.

Product Launching new products in new markets

Diversification Strategies: developing new products, additional features of existing products
Strategy Introductory promotion of new products etc
 Same as the product development, more new products won’t help
 Even if new markets are penetrated, the issue remains the same. Ice Fill might
initially get a first mover’s advantage but competitors would come over hence
creating the same situation in as today.

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Recommendations:
 Potential exports to former USSR states and Eastern European Countries (Not much to
Western, given change of taste preferences)

 Use of regional equipment to upgrade Lakomka production too (the Soviet era brands
making 25% sales volume are still being made on old machinery) - Regional equipment
because it won't prove to be as expensive as foreign.

 Tie up with regional producers and look for ways to improve distribution reach

 Consolidate product variety - and bring out real change in products rather than just
increasing the number of add in features

 Invest in better advertising, one that would be more impactful

 Capitalise on the feeling of Nostalgia - a Trump card that Ice fili with its rich history has

 Strengthen the brand equity through advertisements, might shift towards owning it’s own
distribution channels.

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