Irish Dairy Board Russian Market Experience Presentation Outline - - PowerPoint PPT Presentation

Irish Dairy Board

Russian Market Experience

Presentation Outline

• Overview of Russian Dairy Market
• Consumer Insights
• Competitive Environment
• Retail Structure
• Competitor Analysis
• Kerrygold Experience in Russia

Irish Dairy Board – Consumer Foods Division

• Kerrygold brand currently marketed in over 50

countries globally

• Key markets in EU, USA & Africa
• Business Development Plan - Growth Agenda

New Markets New Product Development M&A 3

New Business Development Priority Regions

• Africa
• Middle East
• Russia
• Latin America

Russia – Macro Stats

• Population 141.8 m
• 13 cities – over 1 million
• GDP €8,890 per capita
• Household Consumption 53% GDP

Russia – A major food market

• Retail Grocery Sales of €193 bn
• 2nd largest in Europe and 7th largest globally
• Growth of 20% per capita spend pa
• Major Dairy Market
• Liquid Milk market valued at € 2 bn
• Butter market valued at € 2.6 bn
• Cheese market valued at € 5 bn

Russia – Key Dairy Trade Statistics

Large Consumer of dairy products Total Irish production 126,000 mt butter, 158,000 t cheese

Consumption mt Import Volume mt Main Suppliers Butter 350,000 125,000 Belarus, NZ, Finland, Other EU Cheese 700,000 293,000 Germany, Ukraine, Finland, Other EU

Dairy Per Capita Consumption – kg

Russia France Australia Ireland EU Butter 2.5 7.8 3.7 2.5 3.5 Cheese 5.6 26 11.7 6.1 16.6 Milk 70 59.2 106 140 64.5 Population millions 141.8 62.5 22.2 4.5 499.7

Russian per capita consumption of butter and cheese similar to Irish

CONSUMER INSIGHTS

Russian dairy market – Key Consumer Insights/ Trends

• Dairy Products – A fundamental element of diet
• Cheese and butter consumed everyday
• Butter – 2 types distinguished by fat content
• Creamery Butter 82.5% fat
• „Peasant‟ Butter 72.5% fat
• Mainly unsalted sweet cream

Consumer Insights - Butter

• High usage
• All meals
• Sandwiches
• Cooking
• Main criteria for butter selection
• Price
• Fat content
• Brand

Consumer attitude to butter - Qualitative Research

• Extracts from focus group discussions
• “That‟s our “soviet” habit. Since childhood our grannies

passed it to our moms, and moms told us that butter in the morning quenches hunger for the couple of hours and makes your brain work actively”, - females, 26-35 y.o., Moscow

• Many consumers prefer cut and put slices of butter on

bread.

• “I remove butter to the butter dish and then cut a

slice and put it on bread – no need to spread anything”, - females, 21-25, Moscow

COMPETITIVE ENVIRONMENT

Retail Environment

• Highly fragmented /competitive market
• Modern retail outlets account for less than 20 % of total

retail sales

• Main development activity centred in Moscow & St.

Petersburg

• Recent expansion in „regions‟

The Grocery Retail Market – Value Share By Format (%)

57 53 52 50 47 25 24 23 22 13 8 10 10 11 21 7 7 10 11 12 4 6 5 6 8

20 40 60 80 100 2004 2005 2006 2007 2010e

% Share of Trade

Open Markets, Pavillions & Kiosks Soviet Style Grocery Stores Discount Supermarket Hypermarkets / Cash & Carry

Source: Business Analytica, IGD estimates

Top Grocery Retailers 2008

Source: IGD. Note excludes Cash & Carry and members club operations

Retailer Grocery Sales (€m) Grocery Retail Market Share

• f Top 11 (%)

IGD Grocery Retail Market Share (%)

• No. of

Grocery Stores X5 6,044 31.6 3.5% 1,101 Magnit 3,622 17.9 2.1% 2,592 Auchan 2,668 12.8 1.5% 58 Sedmoy Kontinent 1,597 7.7 0.9% 146 Kopeyka 1,435 6.8 0.8% 517 Lenta 1,394 6.8 0.8% 34 Dixy 1,308 6.8 0.8% 481 Victoria 1,074 5.1 0.6% 216 Okey 590 2.6 0.3% 15 Real (Metro Group) 404 1.7 0.2% 12 Billa (Rewe) 263 1.7 0.2% 56

Retail Butter Sector

Estimated at 110,000 tonnes Large diverse range of brands, quality, price

Retail Butter Sector – Price Segmentation

PREMIUM UM

CORE RE

MASS SS MARKET ET

More than 55 rubles From 40 to 55 rubles Less than 40 rubles

* Price for 200 gr package

• Kerrygold
• 33 korovy
• President
• Vologodskoe
• Domik v derevne
• Anchor
• Valio
• Midnight Sun
• Vesiolyi molochnik,
• Vkusnoteevo,
• Vologda,
• Doyarushka,
• Kubanskaya burenka
• Milaya Mila,
• Novaya Izida,
• Prostokvashino
• Savushkin produkt,
• Sloboda,
• Smolenskoye
• Kremliovskoe
• Krestyanka
• Krestyanskoe

Competitors in Butter Sector

Domestic Brands Positioning Imported Brands Positioning Vologodskoe Premium Valio ( Finland) Premium 33 Korovy Premium Anchor ( NZ ) Mid-Prem. Domik v Derevne Premium President (France) Premium Krestyanskoe Low Price Lurpak ( Denmark ) Premium Sloboda Mid-Price Doyarushka ( NZ ) Mid –Prem. Smolenskoye Mid-Price Kremliovskoe Low Price

Market Shares Valio 11.1%, Anchor 2.4%, President 0.7%. Vologodskoe and Krestyanskoe – leading domestic brands

BRAND AWARENESS, CONSUMPTION, LOYALTY - MOSCOW

20 40 60 80 100 Vologodskoe Anchor Valio 33 korovy Kremliovskoe Domik v derevne Krestyanskoe Vologda Smolenskoye President Doyarushka Vesiolyi molochnik Sloboda Krestyanka Milaya Mila Novaya Izida Vkusnoteevo Prostokvashino Midnight Sun Kubanskaya burenka Savushkin produkt Kitezh 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 AWARENESS CONSUMPTION LOYALTY CONVERSION RETENTION % Affinity

MMI, Moscow 2006-2

The most popular brands in Moscow are Vologodskoe, Anchor, Valio, 33 Korovy and Kremliovskoe

BRAND AWARENESS, CONSUMPTION, LOYALTY

• ST. PETERSBURG

20 40 60 80 100 Valio Vologodskoe Anchor Krestyanskoe Vologda Vesiolyi molochnik Domik v derevne Prostokvashino President Krestyanka Kremliovskoe 33 korovy Doyarushka Sloboda Midnight Sun Smolenskoye Milaya Mila Novaya Izida Savushkin produkt Vkusnoteevo Kubanskaya burenka Kitezh 0.2 0.4 0.6 0.8 1 1.2 AWARENESS CONSUMPTION LOYALTY CONVERSION RETENTION % Affinity

• MMI. St. Petersburg 2006-2

Small sample

The most popular brands in St. Petersburg are Valio, Vologodskoe, Anchor, Krestyanskoe and Vologda

BRAND AWARENESS, CONSUMPTION, LOYALTY REGIONAL CITIES

20 40 60 80 100 Krestyanskoe Krestyanka Kremliovskoe Domik v derevne Vesiolyi molochnik Vologodskoe Prostokvashino Sloboda Vkusnoteevo President Kubanskaya burenka Anchor Vologda Smolenskoye Valio Doyarushka Milaya Mila 33 korovy Kitezh Savushkin produkt Novaya Izida Midnight Sun 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 AWARENESS CONSUMPTION LOYALTY CONVERSION RETENTION % Affinity

• MMI. Cities 2006-2

The most popular brands in main cities are Krestyanskoe, Krestyanka, Kremlevskoe, Domik v derevne, Vesiolyi molochnik

Kerrygold in Russia

• Initial market research in 2006/2007
• Quantitative & qualitative analysis
• What place does Kerrygold have in this

market ?

• Positioning
• A premium imported butter from a country with strong

dairy tradition

• made from milk produced from pasture-fed cows
• Presented in signature gold foil pack – 200g
• Launched in Nov 2007

Kerrygold Sales & Distribution

• Moscow-based specialty food distributor appointed
• Listings achieved in key supermarket accounts
• Hired Sales/Marketing Exec
• Appointed local advertising

agency

• Marketing campaign

implemented

KERRYGOLD MARKETING IN RUSSIA

Below-the-line approach, focussed on in-store activity and direct consumer communication

In-store Sampling and Promotion

• Intensive sampling and

demos in key retail accounts

• Auchan, Metro, Karusel,

Perekriostok

• 3-day slots in key store

location

• Effective in creating brand

awareness

Themed events

• St. Patricks Day parade

Moscow

• Event Sponsorship
• Moscow Jazz festival
• Irish Film festival

Advertising

• Magazine ads
• Gift items / Giveaways
• Trade Incentives

Seasonal / Point-of-Sale / Price promotions

Kerrygold – Current business in Russia

• Established in Moscow region as premium imported

butter brand

• Retail distribution in key accounts - Auchan,

Perekriostok, Metro

• Smaller presence in St. Petersburg - Karusel
• Strong competition from

Valio, Lurpak, President

• Sales growing but limited

to premium segment

Key Challenges

• Highly competitive market – multiple brands
• Kerrygold in upper premium segment
• Government regulation / Bureaucracy
• Demanding certification and packaging requirements
• Compliance with Russian milk testing and production

regulations

• Restrictive import system – 15% duty on dairy products
• 10% VAT
• Currency exchange rate volatility – exposure to ruble

weakness

Key Challenges

• Trading terms & conditions
• Raw material price increase / negotiation with

trade

• Demanding conditions for imported brands
• Distribution Costs / Logistics
• Bulk butter produced in Ireland
• Packed by IDB subsidiary in Germany
• Transported overland to Moscow
• Extensive area - need for multiple distributors

Short-medium term strategy for IDB

• Build distribution in Moscow & St. Petersburg
• Expand distribution in Regions
• Add more skus – 400g, tubbed
• Improve supply logistics
• More integrated packing and distribution
• Pack in Ireland or Russia
• Introduce Kerrygold cheese range
• Cheddar and Dubliner cheese

New Kerrygold logo and pack design

34

Current New design

Existing and new pack for Russia

Longer term Strategy

• Strategic Market Evaluation
• Identify broader opportunity areas
• New Products, Partnerships, JVs
• Establish larger in-market presence
• Platform for growth & development

Spasibo