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Ice Fili Case Solution
Ice-Fili was favorably positioned against competition in the use of its raw materials as well. The company prided itself in using only high quality raw materials. Moreover, it made sure that no preservatives or chemicals were used for ice cream production. Ice-Fili focused on providing the best to the consumers regarding taste and flavor, and that meant not compromising on quality through cost saving alternatives. For the same purpose, Ice-Fili also used imported raw materials where necessary. The same was also communicated to consumers, who also positioned the brand favorably against other players.
Following questions are answered in this case study solution:
How structurally attractive is the Russian ice cream industry and how is it likely to evolve?
How well positioned is Ice-Fili about its competitors regarding resources and capabilities?
What strategic options does Ice-Fili have? What are your recommendations for Ice-Fili moving forward?
Case Study Questions Answers
1. How structurally attractive is the Russian ice cream industry and how is it likely to evolve?
• Attractiveness of the Russian Ice cream Industry
The Russian ice cream industry is dynamic with a lot of changes as well as challenges and competitors. Survival in the industry is considered to be a big feat. Before the dissolution of the USSR, the ice cream industry operated under tight controls in which the state decided the planning, production and distribution schedules for the food products, including ice cream. During this period, ice cream factories in Russia totaled to 76, resulting in a high production rate of 468,000 tons in 1990. However, this growth did not last long, and the ice cream industry, like all other Russian industries, suffered and was influenced by two important events.
Firstly, the dissolution of the UUSR created an open market condition for the ice cream industry, in which free enterprise and price liberalization were encouraged. This led to an increase in the influx of foreign ice cream producers such as Ben and Jerry’s, Nestle, Unilever, and Baskin Robins to enter the Russian market. As a result of the efficiency and economies enjoyed these foreign competitors, the production of the Russian market fell drastically. This is because the local producers had previously focused on manufacturing and storing ice cream, and had not paid attention to other value chain activities that were now needed to compete. Further, local manufacturers were also pressured to enhance their distribution networks and update their technology and marketing solutions to be able to cater better to the growing consumer demand.
The second event that has influenced the Russian ice cream industry’s structure is the financial crisis of 1998. The devaluation of the ruble led to a decrease in the level of imports in the country as the purchasing power of the consumers decreased. Local ice cream manufacturers also saw a decline in the local demand for ice cream. Moreover, they also lowered the use of imported raw materials in their ice cream products and focused more on exporting ice cream than producing it for local consumption. As a result, Russia was exporting 11000 tons of ice cream to members of the former USSR by 2000.
The two challenges have shaped and strengthened the Russian ice cream industry. Open market conditions allowed local manufacturers to enhance their capabilities and develop their manufacturing and marketing functions to be able to stay competitive. The financial crisis allowed the local manufacturers to identify and explore export opportunities. Both these factors have allowed Russian ice cream industry to become a competitive and attractive for investments.
• Porters Five Forces Analysis
To assess the competitiveness and attractiveness of the Russian ice cream industry Porters Five Forces Model is used which will look at the rivalry, ease of entrance, ease of substitution, and the bargaining power of buyers and suppliers in the industry.
The Russian ice cream industry faces high levels of rivalry, not only from local manufacturers but also foreign entrants. Open market conditions led to ease of entry for players like Nestle and Unilever. Competition is pivoted on factors of distribution, differentiation and marketing, and how the product is placed in the consumers mind. For example, Baskin and Robin are positioned to be a premium product.
The ease of entrance in the ice cream industry is assessed to be moderate. This is because there are no barriers of entrance owning to the open market conditions. However, strong financial muscle is needed for setting up operations. In this regard, many foreign companies find it easier to enter the market than local companies.
The rate of substitution for ice cream is high. Products such as soft drinks, beer, sweets, candies, chocolates, and yogurt compete for the consumer’s dollar. In such a situation, the ice cream is easily substituted with any of the food product that is available on the go and is affordable.
The buyer power is assessed to be high given the fact that they are vulnerable to price changes and are highly price sensitive, as any increase in price or devaluation in the currency drastically impacts their purchasing behavior. Similarly, the bargaining power of suppliers is assessed to be low as the industry has the choice from choosing amongst numerous foreign as well as local suppliers. Against the concentrated industry players who are large, the fragmented suppliers have low bargaining power.
• Ice-Fili and Future Prospects
Russians love ice cream and consume it during the summer as well as the winter seasons. The future for the ice cream industry is opportunistic if players act wisely and capitalize on international trends and techniques. Seen primarily as an inexpensive and an affordable product, ice cream is consumed on the go. This means that the ice cream industry in Russia is yet to tap into the home-dessert category for ice creams. The home category reflects on how ice creams are enjoyed as family desserts at home, one of the largest segments in the USA. The players can also make use of modern marketing techniques to differentiate themselves from other players based on unique positioning and placement.
2. How well positioned is Ice-Fili about its competitors regarding resources and capabilities?
• Ice-Fili Competitive Positioning
Established in 1937 by the USSR government, Ice-Fili is a local well-known ice cream brand that has withstood the challenges of time and economy. Reestablished as Ice-Fili in 1992, after the dissolution of the USSR, the company has also undergone three major equipment modernizations, which have made it capable of producing 200 tons of ice cream per day in 2001 from 25tons of ice cream per day in 1937. Since the dissolution, the company has seen a revamping of not only its production facilities but also its marketing, technology, and management capacities. This restructuring and revitalization of the company were an important step to ensure that it remained competitive in the open-market circumstances and performed well. Since the company has survived for so long and has successfully evolved better from the challenges of dissolution and financial crisis, it can be gauged that the company has been strategically managing its resources and goals. Moreover, acknowledging that the company has been able to survive the tough competition by local and foreign players successfully, and has proven itself to be a market leader in the ice cream industry, it can be confidently stated that the company is well positioned against its competitors on more than any one aspect.
Ice-Fili has improved the consumer experience for Russians by providing them with innovative and new flavors by offering new products. In 2002, the company introduced 170 new products and added 20 new products annually since then. The additional products included a mix of traditional and innovative products that allowed the company to keep up with western trends. A commendable innovation can be seen through the introduction of diabetic ice cream in 1998. Moreover, the local production of ice cream cost less, and thus Ice-Fili products were priced less and were cheaper than their competitors, allowing it to penetrate a larger consumer base. The product innovations and affordable product pricing allowed the company to maintain its competitive position against foreign players that had a wide product variety in their portfolio.
Ice-Fili also enjoyed a favorable position compared to the competition in manufacturing as well. The company had invested in updated and modern infrastructure and technology to ensure that the quality of the product matched that of the competition, as well as ensured value added services in its product lines. Moreover, being locally placed, the company could predict the demand trends based on external factors more quickly than foreign players, and accommodate production accordingly. However, being locally situated also meant that it was directly influenced by the external forces, such as that of the 1998 financial crisis, which led to a downward consumer demand trend as well a decrease in export.
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