Ice-Fili - Porter’s Five Competitive Forces

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Revenues:

The production volume from Ice-Fili has been reducing since 1998, resulting in a market share decrease from 10.3% to 4.3%. How do they increase their production volume? They need to create more demand and make more of their product available. In this regard I would recommend focusing on the following areas:

- Adjust their marketing message using their strong brand recognition

- Introduce lifestyle elements of at home consumption. This would increase the amount of consumption as the product would be in the home a consumable at any time. Being able to eat in doors rather than when simply out “on-the-go” would also reduce the seasonal fluctuation and provide more consistency of sales throughout the year.

- Move people away from the “on-the-go” snack, thus reducing the threat of substitute products at the smaller point of sale locations.

- Elevate its positioning to more of a premium brand potentially by introducing a new product line, with different ingredients and a higher price point.

- Transition distribution channel

- Currently Ice-Fili has 70% of its distribution going to kiosks. A further 10% through mini-markets. These kiosks and mini-markets are small in nature and have little storage. They also sell only small portions as “on-the-go” snacks – all of the above factors lead to lower volumes of sales. These snacks would also have a higher proportion of packing to larger volume items which increases the cost of these products.

- With a marketing focus on household consumption, I would recommend transitioning their distribution to a higher proportion to Supermarkets initially and then to restaurants. Distributing through supermarkets should provide for higher volume sales, albeit at lower price per pound.

Expenses:

- Production costs

- 25% of production volume still produced by older generation equipment. An assessment should be made on the capital cost to upgrade this machinery and the potential production savings that would be generated from acquiring the new equipment.

- The company currently has no long term debt. The age of the company should provide for some attracting financing options should they look to acquire this new equipment through a debt issuance.

- Packaging costs

- Currently 13% of the manufacturing price of ice cream goes to packaging. This cost could be reduced where the product is sold in larger volume quantities as would be the case through supermarkets.

- Ingredients

- Reassess its value proposition of only using natural ingredients. The foreign producers use preservative thus elongating shelf life and reducing cost while at the same time commanding higher prices due to their more premium image.

- As indicated in Exhibit 7, Dairy Fat substitutes could provide up to 50% savings on the cost of ingredients.

- Using some artificial flavorings could reduce the import duties on the currently used flavorings.

- Rents and labor costs

- Ice-Fili had 550-600 Moscow based employees, 200 of which were seasonal.

- Regional labor rates were 50% of Moscow rates and rent would likely be substantially cheaper in regional areas.

- I would therefore suggest an assessment be conducted on the opportunity to relocate the company. This may potentially free up some cash from the sale of Moscow based property and would then bring about substantial ongoing cost savings.

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