Ice Cream Industry in 2002
Essay Preview: Ice Cream Industry in 2002
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1 – How attractive is the Russian ice cream industry in 2002?
The main data about the attractiveness of this market are:
– The consumption is about 6 times lower than in France, Canada, US because of a different mode of consumption. Indeed, Russians consider Ice Cream as an “on the go” snack and not as a dessert they can have at home.
– producing in Russia implies a certain adaptability of recipes since traditional Russian ice creams contain less fat and are made with natural ingredients plus one must take into account the high seasonality of consumption.
– While the demand for beer, soft drink and confectionary industries is increasing, the demand for ice cream and therefore its production keep on decreasing.
2 – What are the key trends affecting the attractiveness of the Russian ice-cream market over the next five years?
We chose to answer this question through the five forces analysis of Porter .
BARRIERS TO ENTRY: The ease with which a new business can enter the Russian Ice cream market is affected by: ¤ Product differentiation : Brands that entered the market earlier have an advantage as they already have loyal customers. It will cost a lot to a new brand to convince customer to choose their products instead of those he was used to buy. In another hand we can think that advertising expenses being very low, the brand differentiation is not very effective in Russia concerning Ice Cream and especially for producers as Ice-Fili whose less renowned than Nestlé for instance.
¤ Access to distribution channels: it should not be a barrier as we saw in the exhibit 10 that each channel of distribution have different brands. It seems quite easy to gain access to distribution channels.
INTENSITY OF RIVALRY: The strength of the competition between firms already in the industry is affected by:
¤ Rate of industry growth : Ice cream is a shrinking industry whereas soda, beer etc. are experiencing high growth.
¤ Number of competitors and the balance between them : there is a relatively large number of producers (300 in 2002à whatever they are regional or well-known foreigners (Nestle, Haagen-Dazs).
¤ Differentiation of rival products/services : as there are no clear differentiations between the products/services offered, the competition is likely to be more intense.
¤ Brand equity : Some brands in the market have a higher perceived value than others since they produce a lot of other products
¤ Level of advertising expenditure : Brands as Ben&Jerrys, Baskin-Robbins and Nestlé have access to greater financial resources to spend on advertising.
BARGAINING POWER OF BUYERS:
¤ Buyers price sensitivity: we learned that only a 50% price would make a difference in consumers purchasing behavior.
¤ Product differentiation : if there is a relatively small number of ice cream products comparing to foreign countries, the fact there are still about 200 varieties involves that buyers can easily purchase any product from a brand or another.
¤ Information : access to information about products and other suppliers is easy, that strengthens their power.
BARGAINING POWER OF SUPPLIERS:
¤ forward integration : strong alliances between some buyers and some suppliers do not seem to exist
¤ the concentration of suppliers : zs there are a lot of suppliers of ingredients and as equipment can be imported for many other countries, the bargaining power of suppliers is rather low
THREAT OF SUBSTITUTION: The threat of comparable products will depend upon:
¤ Existence of close substitutes: we saw in this case that customers are likely to ask for more substitutes products as beer, yogurts, soda etc. than for Ice cream. It is exemplified by the fact the demand of Ice Cream is the only one decreasing in 2002.
¤ Buyers propensity to substitute: the high level of advertising for substitute products tends to raise the buyers propensity to substitute. That is shown by the following figures : “In 2000 the production of ice cream was down 3,5% from the year before; In contrast, the production of confectionaries was up 8%, soft drinks 25% and beer 23%.
3 – What is Ice-Filis strategy? How sustainable is their position as market leader?
Objective of the firm: Raise $50 million capital to diversify geographically into eastern Europe and Germany and also potentially taking advantage of a “cash cow” opportunity for producing dry ice and selling it abroad for construction purposes, medical uses and beverages.
Products innovation at the heart of the strategy: 20 new products a year
Price