Ice Fili

Executive Summary

Ice-Fili had been successful in the past, surviving various tumultuous times including the transformation of the Russian closed economy into an open economy and the financial crisis in 1998. As Russia’s largest domestic ice cream producer, they had held onto their market leadership for many years. However, increasing competition from foreign companies, along with the emergence of regional producers of ice cream led to Ice-Fili’s market share erosion in the recent years. Porter’s five forces model was the primary method to analyze Ice-Fili’s industry and its competitiveness in the industry. Segmentation analysis was used for further study of the ice cream industry in Russia. The analysis was carried on key variables like distribution channel, buying behavior, geographic locations, and product characteristics. Based on this model, various alternatives were considered. From these alternatives, it was possible to form a recommendation: Ice-Fili will need to focus on the strengthening of its distribution channel through various efforts including marketing and raising of capital while focusing on its long history and brand recognition. Above all, availability of its product to the consumers is the key to Ice-Fili’s success.

Porters Five Forces

In order to analyze the industry and environment of Ice Fili, Porter’s five forces model will be used to assess its competitiveness in the market. An illustration of the model specific to Ice Fili is displayed in Exhibit 1. The analysis will lead to the identification of various opportunities for Ice Fili, along with determination of the most appropriate strategy and associated milestone for the strategy.

Buyers are people or organizations who create demand in an industry. If buyers have significant bargaining power, industry returns can transfer to buyers in the form of lower prices. Buyer power is determined by various factors such as switching costs, the relative volume of purchases, the standardization of the product, elasticity of demand, brand identity, and quality of the products. Buyers are presented with many choices when selecting a product in the ice cream industry while distributors have the power to decide which products will be available to customers. Absence of preservatives and a high proportion of milk fat differentiate the domestic Russian ice cream from the foreign producers’. However, due to a vast number of similar products and the lack of protection for innovation leads to indifference between various domestic products. Customers are able to substitute one brand of ice cream to another or from ice cream to other foods altogether at any point in time. Pricing information is also readily available to customers and only large differences in price will affect the customers’ buying behavior. It should be noted that the buyers of ice cream for Ice Fili or any other ice cream producers are the distribution channel members, not the end consumers. As such, it could be inferred that the buyer power of the distribution channel members relative to the ice cream producers is high, and the buyer power of the end consumers to the distribution channel members is also high. It could also be implied that through this chain relationship, the end consumers also impose buyer power on the ice cream producers.

The main suppliers in the ice cream industry comprise suppliers of raw materials or ingredients and equipments. Factors affecting the bargaining power of suppliers include the threat of forward integration and the concentration of suppliers. There exist numerous potential suppliers of ingredients. The ingredients provided by each supplier are not unique or greatly differentiated. Furthermore, ice cream manufacturers are able to switch between suppliers quickly and cheaply. Therefore, the bargaining power of suppliers of ingredients is rather low. In terms of the equipment, most of the equipment used by domestic ice cream manufacturers were imported from other countries. Although the local supplier base has been developing rapidly, approximately 10 ice cream equipment suppliers exist in Russia, Ukraine, and the Baltic countries, which is relatively low compared to the total number of ice cream manufactories at around 300. The suppliers of equipment are concentrated in this industry and make it difficult for ice cream manufacturers to exercise leverage over the suppliers and obtain lower prices by inducing competition among them. Furthermore, switching costs for large capital equipments are high. Even though the development of new domestic equipment suppliers jointly financed by Russian ice cream producers such as those converted from military facilities may present opportunities for forward integration, the bargaining power of the suppliers of equipment is relatively high compared to that of the material suppliers.

Barriers to entry deter new competitors from entering the market and creating more competition for established firms. There are several major barriers to entry which include economies of scale, initial capital requirements, product differentiation, cost disadvantages, access to distribution channels, government policy, and competitors’ responses The ice cream industry has considerably low barriers to entry since most equipment can be rented, purchased, or utilized for multiple purposes, while employees need not be highly experienced and trained. Also, there are no unique ice cream manufacturing techniques or processes that are employed. In general, brand loyalty presents a problem for new entrants because existing firms have already marketed their products and possess a large number of loyal customers. A new entrant must spend considerable resources in order to get their name out and convince consumers to begin purchasing their products instead of what they previously used. However, due to Ice–Fili’s weak marketing and promotion, Russian customers tend to be indifferent consumers of ice cream based on brand differentiation. Therefore, these non-loyal customers tend to switch from one brand of ice cream to another rather easily. In terms of the product, there is low differentiation and demand elasticity, contributing to a lower barrier to entry. The real threat originated from regional producers. They tended to cut costs by taking advantage of lower wages. Regional producers accounted for 30% of the domestic ice cream market. This was in part led by a shrinking of the frozen food imports market, which had been impacted by the 1998 Russian economic crisis. Many former frozen-meat and fish wholesalers found it easy to set up for ice cream production since they could utilize their cold storage and production capabilities. By 2002, these flexible and aggressive regional producers set up manufacturing factories and also penetrated the

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