Table of Contents

I- Introduction 2
II- Analysis 3
1- External Analysis 3
i) Porters 5 Force 3
ii) Key Success Factors 4
2- Internal Analysis 5
i) Value Chain Analysis 5
ii) Financial Analysis 6
III- Decision Opinions with Evaluation 6
IV- Recommendation and Implementation 8
1- Short Term Activities 8
2- Long Term Activities 9
V- Exhibits 10
i) Exhibit A: Financial Ratio Analysis and Calculations 10
ii) Exhibit B: Decision Matrix 11
Introduction
First time winner of the Product of the Year category, Ice-Fili, is the top ice cream producer in Russia.
Recently, the company is experiencing tough competition by Nestl and regional ice cream producers. Ice-Filis
current problem is its loss in market share due to their poor quality decision-making after Russia became an
open-market in 1992. Nestl took advantage of Ice-Filis low reaction adjustment and is taking over their market.
What should be Ice-Filis next move? To offer proper advice, an external and internal analysis should be
conducted to analyze their environment.
Analysis
EXTERNAL ANALYSIS
An external analysis allows us to understand the ice cream industry. It includes analyzing Porters 5 forces and
Ice-Filis key success factors in comparison to its competitors.
Porters 5 Forces
1- Threat of New Entrants High
The ice cream market is attractive due to its 15% to 20% profit margin and low initial capital investment.
Ingredients are acquired at low cost because of their commodity nature. Also, the final product and production
process are similar among producers. Products may be easily copied making differentiation difficult to obtain. It
is easy to get through customers and retailers as numerous distribution channels available.
2- Bargaining Power of Suppliers Ingredients: Low & Equipment: High
Identical ingredients may be purchased from numerous suppliers. Changing supplier may be done easily with a
low switching cost. However, only 10 companies can provide the necessary equipment in Russia and some
equipment is highly specialized making suppliers bargaining power high.
3- Bargaining Power of Buyers High
Customers may be indifferent when buying ice cream due to the low switching cost. Also, since ice cream is an
impulse purchase; consumers may just opt for another snack instead. As for retailers, ice cream is easily
produced giving rise to the opportunity for a generic brand.
4- Threat of Substitute Products High
In Russia, ice cream is considered an inexpensive snack to consume on-the-go and may be replaced by other
snacks such as soda, beer, yogurt, chocolate and confectionary candies.
5- Intensity of Rivalry Among Competitors High
Russia is Ice-Filis only target market. Therefore, there will be high rivalry against new entrants. Also, there are
300 ice cream producers and the industry has been experiencing a decrease of 3.5% in production increasing
competition for market share.
Key Success Factors
Ice-Fili has a competitive advantage due to their high quality products. They only use high-quality natural
ingredients and no preservatives. Their production capacity is significantly bigger than other ice cream
producers. Products are priced in the middle-level category and customers may choose from a wide range of
products. Also, Ice-Fili has a good work environment and open and cooperative corporate culture. Referring to
table 1, it is accurate to say that, if Ice-Fili does not step up their game, Nestl will be the only brand in Russia in
a couple of years.
Table 1 | Ice-Fili | Nestl |
Price | + | - |
Advertising | - | + |
Quality | + | - |
Variety | + | - |
Distribution Network | +/- | + |
Availability | - | + |
INTERNAL ANALYSIS
Focusing on Ice-Filis core competencies with the use of the value chain and its financial position will allow us
to have a better knowledge of the companys capabilities.
Value Chain Analysis
Ice-Filis core competencies are the quality of its products and the large selection (170 types), their production
capacity (200 tons) and their good corporate culture. Nevertheless, Ice-Fili has three main weaknesses. First,
their marketing is poor and competitors are taking this opportunity to use their strong marketing experience.
Second, 80% of Ice-Filis distribution is through kiosks and mini-markets. The issue is that the market is
saturated with street kiosks and mini-markets carry limited range of food products. Third, customers have twice
the likelihood of finding a Nestl product rather than an Ice-Fili one which illustrates their low product
availability. Focusing on their core competency is the solution to gain market share.
Financial Analysis
With the use of financial ratios the following conclusions were deducted (see exhibit A for calculations). Ice-Fili
is in good financial position since they are profitable given their positive working capital and no long-term debt.
Their current ratio has increased over the past 4 years which is a good indicator of liquidity but also illustrates an
inefficient use in cash.
Their cash flow position is weak in 2001 since the cash conversion cycle is at its highest point compared to
previous years. Customers pay within 31 days whereas Ice-Fili pays their suppliers in 21 days. Ice-Fili is not
using their customer's funds to pay suppliers, but rather their own funds. Also, inventory is turning at a lesser
rate than prior years which indicate that their inventory level may be too high which ties up cash flow that could
be used for investments or to pay suppliers.
Decision Opinions with Evaluation
To compensate for their low quality decision-making from 1992 to 2001, Ice-Fili must choose any of the three
alternatives presented below to regain market share.
Option 1: Focus on Differentiation
Ice cream companies must differentiate themselves from substitutes and competitors. In fact, the ice cream
industry was comprised of 300 companies in 2002. As the threat of new entrants is high, Ice-Fili should
demonstrate their uniqueness. Ice-Filis tangible difference is quality given it is one of their main core
competencies and their intangible is their Russian identity due to their long history. Ice-Fili also differentiates
itself by being the first food company to win the Product of the Year award. The company must invest a
considerable amount in marketing to build brand awareness. It is a smart investment in the long-run.
Option 2: Focus on Distribution
Availability is key leverage. Ice-Fili mentioned that they did not participate in the distribution process because of
the huge capital investment and economies of scale required to develop these networks. They have valid
arguments but distribution should be seriously considered especially when there is twice the likelihood of finding
a Nestl product versus an Ice-Fili one in Russia.
Kiosks and mini-markets represent 80% of their distribution channels. The issues are 1) kiosks carry a narrow
range of ice cream types, 2) street markets are saturated, 3) mini-markets hold a limited range of food and 4)
each channel holds competitors products.
Option 3: Acquisition of Local Producers
Local producers represent 30% of the domestic market. They are small and newly established companies which
make them attractive and easy to acquire. Ice-Fili should adjust their cash flow problem which will free up
capital and with no long-term debt it will be able to make such an investment. This will in turn reduce
competition and inadvertently obtain access to the local producers markets increasing their presence in Russia.
Another advantage of acquiring local producers is that these producers can supply popular and inexpensive
flavors that Ice-Fili does not have access to.
Recommendation and Implementation
Based on the decision matrix found in exhibit B, differentiation is currently a better alternative for the company
given their business life cycle and core competencies. When a brand is well established, consumers will be aware
of the product and will remember the brand when purchasing ice cream.
Short Term Activities
At first, Ice-Fili should clearly demonstrate their uniqueness by focusing on the use of all natural ingredients
which emphasizes superior quality. Since 1992, good marketing has been lacking which created a big
opportunity for abroad producers to use their marketing experience. Therefore, marketing should be the focus of
their short-term activities by working on. Ice-Fili estimates marketing and advertising costs to be $500,000 per
year. In order to allocate more capital to marketing, Ice-Fili can negotiate with its suppliers to reduce costs.
Suppliers will generally accept since they do not want to loose a client and they are aware that a new supplier
can easily be found.
Ice-Fili should follow the following:
Advertising
1- End the agreement with Advice due to their poor performance.
2- Hire an experienced Western advertising agency that is specialized in the food industry and knowledgeable
about foreign marketing. Meet with the agency to discuss the different aspects of the company and establish
detailed expectations. The agency will be responsibility for television advertising and developing a new
packaging concept.
3- Choose few products to focus on, preferably top sellers such as Lakomka and Batonchik Fili.
4- Ensure that advertisements clearly mention the brand and the featured products name and portray the
companys core competencies.
5- Launch the advertising campaign and keep track of the agencys work and future advertising ideas/projects.
Packaging
1- Develop a modern and easy to recognize packaging.
2- Inform customers of the packaging change before launching it either by featuring the new packing on current
products or mentioning it in advertisements.
3- Distribute the products with the new packaging after the old ones have been sold.
Long Term Activities
In the long run, Ice-Filis management must keep track of the agencys work. New products may be created
based on new trends (home consumption). Ensure to patent every new product to avoid being immitated. Since
proper marketing is implemented, Ice-Fili could now concentrate on improving their distribution. Ice-Fili should
increase their availability by focusing on supermarkets which is the fastest-growing channel currently. By doing
the following, Ice-Fili will be able to increase its market share and remain #1.
Exhibit A
Financial Ratios Calculations
(in thousand dollars)
| 2001 | 2000 | 1999 | 1998 | Meaning |
Short-term |
Current Ratio | 5.12(6,338/1,194) | 4.52(6,373/1,155) | 2.8(7,812/2,643) | 2.15(11,611/6,680) | +/- |
Days Sales Outstanding (DSO) | 31.0 days((2211+2055)/2)/25147*365 | 17.9 days((2055+620)/2)/27206*365 |
23.4 days((620+3570)/2)/32672*365 | 29.6 days((3570+2275)/2)/35988*365 | - |
Days Payables Outstanding (DPO) | 21.4 days((1161+1124)/2)/19512*365 | 28.6
days((1124+2642)/2)/24004*365 | 35.9 days((2642+3016)/2)/28798*365 | 34.7
days((3016+2945)/2)/31307*365 | +/- |
Inventory Days | 71.1 days(3801/19512*365) | 60.4 days( 3971/24004*365) | 82.7 days( 6521/28798*365) |
80.4 days( 6896/31307*365) | - |
Cash Conversion Cycle | 80.7 days(31-21.4+71.1) | 49.7 days(17.9-28.6+60.4) | 70.2 days(23.4-35.9+82.7) |
75.3 days(29.6-34.7+80.4) | - |
Long-term |
Total Debt Ratio | 10.09%(11832-10638)/11832 | 10.89%(10606-9451)/10606 | 20.9%(12645-10002)/12645 |
27.68%(18350-13270)/18350 | + |
Profitability |
Profit Margin | 6.77%(1,702/25,147) | 6.35%(1,727/27,206) | 6.40%(2,090/32,672) | 7.62%(2,742/35,988) | + |
Gross Margin | 22%(5635/25147) | 12%(3202/27206) | 9%(2874/32672) | 13%(4681/35988) | + |
Return on Equity | 16%(1,702/10,638) | 18.3%(1,727/9,451) | 20.9%(2,090/10,002) | 20.7%(2,742/13270) | - |
Return on Assets | 14.4%(1,702/11,832) | 16.3%(1,727/10,606) | 16.5%(2,090/12,645) | 14.9%(2,742/18,350) |
+/- |
Exhibit B
Decision Matrix
Decision Criteria | #1 Differentiation | #2 Distribution | #3 Acquisition |
Cost | High | Medium | High |
Difficulty | Medium | Medium | High |
Feasibility | High | High | High |
Ability to improve customer service | Low | High | Low |
Return on Investment | High | High | High |
Priority | 1 | 2 | 3 |
Leverages core competencies | High | N/A | Low |