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Goal Strategy Distribution Logistic Summary Appendix The achieving the Goal of Doubling Inmarko Sales in Monetary Term in Russia with building NEW Distributional Network in Central, North-West, South, and North Caucasus regions is impossible without NEW Distribution and Logistic Strategy X2 ↑ sales in $ in Russia means X2.4 ↑ in West* Strategy Results: NEW Distributional Network** Inflation** “2012-2015” Main points: OWN retail network ↑ in 1.3 times development M&A actions Essential Growth** 100% regions covering Key Accounts relationship development ↑ in 1.09 times HoReCa relationship Distribution development Usage of rail transport in cross-regions ↑ in 1.85 times transportations* West Russia **Calculation of sales growth due to exogenous factors – see Appendix #1.1 **Look Big Map in Appendix#9
Goal Strategy Distribution Logistic Summary Appendix The analysis of current problems in D (further – “D”) suggests itself the possible ways to solve the problemsWhat do we have: Current problems in D What should we do: ActionsComplex Distribution scheme CHANGE IT (D Reconstruction -Own Network Expansion)Missed Regions 100% regions coverageContracts with non efficient distributors Changes in Distributors Portfolio(with low CCFOT)Distributors not interest in sales increase System of Distributors Stimulations Own Network ExpansionSmall Shelf Share Categorical Management Projects* Development of OWN RETAIL NETWORK*: Development of NEW CHAINS of sales: Non standard Kiosks*: GIANT ICE CREAM HoReCa Projects*: In MSk & SPb Partnership with Academy of Hospitality NOBODY has ever done it! Exclusive contracts with café and restaurants Standard Branded Kiosks Network In big cities Competition with IceBerrry! Sochi 2014 Project: Sell Ice Crème during Olympic Games: New way of Distribution*: ICE CRÈME CARS → HUGE increase in sales! “AVON-model Project” In MSk & SPb NOBODY has ever done it! •More about the project - see Appendix #7-8
Our goal Strategy Distribution Logistic Summary Appendix Strategy of expanding OWN Network and reducing the levels of D to 2 Tula Plant Scheme of D: Target Distribution by channels Less D Levels 2015: • X5 Retail Group • Lenta Direct Shipments to Key in accordance with Market needs • OKey Accounts, Ice Crème Cars Central D Center • Magnit Distributors: only for Tula • Achan dealing with TT and far • HoReCa Suppliers regions incl. Metro Delivery to kiosk should be Own Warehouses: Cash&Carry) flexible •MSK Logicians services use only •SPb* for transportation!!! •Stavropol* Distributors** •Krasnodar* Kiosks Network Traditional Trade Traditional trade SPB Key accounts Cross Regions Shipment Modern trade Ice Crème Cars Inter Region Shipment MSK A c t i o n s b y D i s t r i c t s MSK&SPb Central District North-West District South District North Caucasus Region Arktica Acquisition OWN Kiosks Arktica Acquisition Santa Acquisition NEW Distributiors: # Chechnya OWN Kiosks “Ice crème car” Project Magnit contacts # Dagestan Distributors # “Ice crème car” Project # Murmanskaya oblast’ Sochi 2014 # Karelia*Due to Arktica and Santa Acquisitions ** The criterias of choosing the Distributor – see appendix #3*** Means that Shipment could be both from own warehouses or Distributor warehouses
Our goal Strategy Distribution Logistic Summary Appendix D system changing steps to achieve the goal of doubling sales in Russia by 2015: Timeline 2012 2013 2014 2015 2015 Result** ARCTICA: Attack SPb market1. Acquisition* 1. Sales Increase: 9% SANTA: foothold on SOUTH market + 16500 pallets Review of Distributors Portfolio. Change ZERO to DISTRIBUTOR #18 CHANGE if necessarily + CCFOT Control2. Distributor 2. Sales Increase: 0.5% Change +500 Pallets Review of Distributors +8% CCFOT DISTRIBUTOR #1, #5, #22 Portfolio. ADD if necessarily3. Distributor 3. Sales Increase: 2% + 8900 pallets in Murmansk, Petrozavodsk, Contract with MAGNIT in Groznyi, Mahachkala South Region4. Work with 4. Sales Increase: 4.5% CATEGORIAL MANAGEMENT PROJECTS 40% Shelf Share5. Contracts with 5. Sales Increase: 10% HoReCa 5% of Sales through HoReCa In MSK and SPb In Big cities GIANT ICE CREAME GIANT ICE CREAME6. 6. Sales Increase: 2% Development of branded kiosks network 7. Sales Increase: 2 %7. In MSK and SPb by Summer 2012 In big cities by Summer 2014 *The Calculations why acquisitions is more profitable – see in Appendix #10 **See Excel Calculations
Our goal Strategy Distribution Logistic Summary Appendix Logistics should be structured in terms of effectiveness and low costs: VS Refrigerated truck Refrigerated rolling stock Criteria of choosing the way of transportation: The Choice: 1. COST of transportation Rolling Stock* 2. Speed of Delivery Truck 3. Well developed railway system in a region Rolling Stock 4. Well developed highways system in the region Truck *Cost comparison The FINAL choice: Routes Costs (rolling Costs (truck), For cross regions For inter region stock), rub.1 rub.2 transportation transportationTula-SPb 24114 30150Tula-Stavropol 44200 52400Tula-Krasnodar 38000 46500Tula-Murmansk 66743 71520* Calculation of Transportation coats see in Table or in Appendix #6
Our goal Strategy Distribution Logistic Summary Appendix Doubling Inmarko Dustribution Strategy: X2 ↑ sales in $ in Russia Sales in Monetary means X2.4 ↑ in West* Main Points Term in Russia OWN retail network development: Kiosks Network Need only 1.85 times increase through ICE CRÈME CAR Project NEW Distribution NEW Logistic M&A actions: Strategy Strategy Acquisition of “Arctica” to attack SPb Market Acquisition of “Santa” to Foothold the TARGET: increase in sales in value in 2.4 times South Market (Forecast Value Share:32%) Russian ice-cream market *(sept. 2011 – trend Dec.2015) 100% regions covering: 10 ADD in Portfolio Distributor #22, # 9 NestleAverage price (euro/kg) 8 Key Accounts relationship 7 32% development: 6 Iceberry Exclusive Contracts 5 Categorical management Projects Talosto Inmarko- 4 Unilever 3 HoReCa relationship development: 2 Russki Holod Contracts with StarBucks, Chocoladnitsa, 1 Cofe House, e.t.c 0 0 10 20 30 40 50 60 70 80 Sales volume (th. tons) Logistic Strategy: Circle size means Value Share of manufacturer Main Points: 31,67% - forecast Value Share of Inmarko in 2015 Usage of Rolling Stocks are preferable in * Calculation of Value Share – see Appendix #1.2 cross regions transportation
Our goal Strategy Distribution Logistic Summary Appendix #1 Appendix#1.1. Calculation of necessarily growth in Sales on West of Russia if Total Sales will grow up in 2 times Structure of sales: 60% west, 40% - east Volume, Inmarko (west), Growth of east in 2011/2015 – 1.3 th. tons 60 Required growth of west (in volume term) – 1.85 50 Required growth of west (in value term) – 2.4 times 40 30 20Growth of the West market 2011 2012 2013 2014 2015 Total 10Growth in value 1 1,24 1,24 1,24 1,24 2,40 0Growth in volume 1 1,19 1,16 1,16 1,15 1,85 2011 2012 2013 2014 2015 Volume, Inmarko (European Russia), th tonsExogenous drivers of growth 2011 2012 2013 2014 2015 TotalInflation 0 0.044 0.071 0.076 0.08Average consumption 5.08 5.22 5.22 5.22 5.22Consumers share in total population 0.55 0.56 0.57 0.58 0.59Population 145.3 145 144.7 144.4 144.1Annual exogenous growth 1 1.090021 1.08787 1.092607 1.096338 1.420432 Appendix# 1.2. Value Share Evolution: Inmarko 2011 2012 2013 2014 2015Sales in East (Inmarko), bn euro 0,11 0,13 0,14 0,15 0,16Sales in West (Imarko), bn euro 0,17 0,21 0,27 0,33 0,41Sales in Russia (Inmarko), bn euro 0,29 0,34 0,40 0,48 0,58Russian market, bn euro 1,28 1,40 1,53 1,67 1,82Inmarko share 22,40% 24,28% 26,43% 28,88% 31,67%
Our goal Strategy Distribution Logistic Summary Appendix#2 Appendix#2. Sales by regions and channels, dynamics Share of sales channel (%) 2011 2012 2013 2014 2015 Traditional trade 75% 75% 74% 74% 74% Key accounts 10% 11% 12% 13% 14% Modern trade 15% 14% 14% 13% 13% Distribution by channels 2011 Distribution by channels 2011: Increase the Key Account Share Traditional trade Key accounts Traditional trade Key accounts Modern trade Modern tradeVolume, Inamrko (europe), th. tons 2011 2012 2013 2014 2015NWFD (w/o St.Pb.) 3,07 3,66 4,25 4,92 5,67CFD (w/o Moscow) 16,02 19,10 22,20 25,68 29,59SFD 2,75 3,28 3,82 4,41 5,09NCFD 1,86 2,21 2,57 2,97 3,43St.Petersburg 0,54 0,64 0,75 0,87 1,00Moscow 3,58 4,26 4,96 5,73 6,61
Our goal Strategy Distribution Logistic Summary Appendix #3 Appendix#3. Capacity sufficiency The capacity of Tula’s DC is enough The needs of capacity in North-West and South are covered by Arktika’s and Santa’s warehouses. In case of seasonal peak, the capacity can be freed by reducing the inventory period (through VMI or more sophisticated planning) 2011 2012 2013 2014 Production in Tula (monthly), th. tones 2,68 3,13 3,59 4,08 Average stock level in Tula, th. pallets 10,73 12,54 14,37 16,34 max Capacity of DC in Tula, th. pallets 20 25 30 35 Inventory period DC, Tula, days 30 30 30 30 Inventory period DW, days 30 30 30 30 Capacity requirements, pallets 2011 2012 2013 2014 2015 NWFD (w/o St.Pb.) 920 1 097 1 275 1 475 1 700 CFD (w/o Moscow) 4 806 5 730 6 659 7 703 8 878 SFD 826 949 1 062 1 181 1 306 NCFD 557 640 716 796 880 St.Petersburg 162 187 212 238 266 Moscow 1 073 1 240 1 404 1 576 1 762
Our goal Strategy Distribution Logistic Summary Appendix #4 Appendix #4. Description of Inmarko and its most strong competitors in all three districts Nestle Iceberry Russkiy Kholod Talosto InmarkoFactories Zhukovsky 1 Vologda Barnaul St.Petersburg Tula Moscow Volkhov Omsk Shakhty MoscowBranches Branches in the Powerful branches 14 branches Branches in such 9 branches biggest cities in in Moscow and throughout Russia big cities as throughout Russia Russia Saint-Petersburg (Kursk, Vologda, Moscow, (Moscow, Qazan, (St.Petersburg, Astrakhan, St.Petersburg, Tula etc.)3 Moscow, Samara, Moscow etc.) Krasnodar, Nizniy Novgorod, Yekaterinburg, Perm etc.) Rostov-on-DonuStorage facilities Large national or Common Big distribution Low-temperature Own warehouses regional distribution center center in Moscow warehouses in in Tula, Omsk and warehouses and rented storage St.Petersburg, several rented located near facilitiesMoscow, storage facilities clients Yekaterinburg and KrasnodarFleet Own specialized Own 20 units of Own specialized Own big Own specialized trucks and rented refrigeration trucks and rented specialized fleet trucks and rented ones machines ones ones1Company closed factory in Timashevsk in 2011 and transferred equipment to factory in Zhukovsky
Our goal Strategy Distribution Logistic Summary Appendix #5 Appendix #5. Description of local competitors of Inmarko in CFD, NSFD, SFD St.Petersburg St.Petersburg Alter-West Petro-Kholod Khladokombinat #1Factories St.Petersburg St.Petersburg Troizk Essentuki Frankfurt (Germany) Kalisz (Poland)Branches Well-developed The only branch in 6 branches in branches throughout St.Petersburg European Russia (Orel, Russia from Kaliningrad, Kolomna, Kaliningrad to Kaluga, Moscow, Vladivostok Troizk)Storage facilities Big warehouse in 4 modern warehouses in Well-equipped St.Petersburg with St.Petersburg warehouse in Troizk capacity of 23000 tons of products. There are railway facilities.Fleet Own specialized trucks Own specialized trucks Own specialized trucks
Our goal Strategy Distribution Logistic Summary Appendix #6 Appendix #6 Usage of refrigerated rolling stock in several routes Routes: Tula-St.Petersburg, Tula-Stavropol,Tula-Krasnodar, Tula-Murmansk. One refrigerated rolling stock can carry 35tons of ice-cream. According to JSC Refservice(the subsidiary of the Russian Railways) andTkvsm ltd. (forwarding agency) the transportationof 35 tons of ice-cream costs in average 50 rublesper km. Routes Distance, Transportation Transportation km. costs (rolling costs (truck), stock), rub.1 rub.2 1,2 Transportation costs Tula-St.Petersburg 844 24114 30150 were derived from JSC Tula-Stavropol 1547 44200 52400 Refservice and Tkvsm ltd. (forwarding agency). Tula-Krasnodar 1330 38000 46500 Tula-Murmansk 2336 66743 71520 Thus it is more profitable to use refrigerated rolling stock in those routes than trucks. NB! It is important to mention that in short routes it is more beneficial for company to use refrigerated trucks in order to decrease time of ice-cream transportation (Ex. Distance between Tula and Moscow is just 194 km.). In some routes (Ex. Tula-Arkhangelsk, Tula-Murmansk) highway is at very poor quality, so refrigerated rolling stock is also more preferable.
Our goal Strategy Distribution Logistic Summary Appendix #7 Appendix#7. Distribution through HoReCa• Active usage of partnership with the Academy of hospitality to promote ice-cream in market HoReCa (Ex. lobbying in state structures). • Exclusive contracts with developing café chains in Russia such as Starbucks. • Development of own ice-cream café chains Ben & Jerry’s in big cities such as Moscow, St.Petersburg, Sochi etc.
Our goal Strategy Distribution Logistic Summary Appendix #8 Appendix#8. Special ProjectsGIANT ICE GREME Project:Special kiosk in Shape of different Ice Crème.• Main Goal: to attract new consumers• Plus such a kiosks can provide higher brand recognition• Also we can use kiosks instead of outdoor Ads• We can make a PR project: competition between students from architect Universities named “The constriction Best Project of Ice Crème House!” ICE CRÈME CAR Project • Special Trucks with Ice Crème in Moscow and Saint- Petersburg: experimental project • In Summer time their mobility allows us to sell Inmarko Ice Crème not only in Moscow and Spb, but in it’s Suburbs too. Categorical Management Project: • Project in cooperation with key accounts: merchandising of Ice Crème according to value share of manufacturer • Pluses for Inmarko: get the maximum place on Shop “Shelf” • Pluses for Key Accounts: huge growth in sales of all category of Ice Crème
Our goal Strategy Distribution Logistic Summary Appendix #10 Appendix#10. Logistics services + own sales network vs. Distributor (ex. NWFD)Logistics services and use of own sales network RUR tons places/per daySales manager salary 30 000Tula-St.Pete 30000 50 6500 10 7 Month costsSales manager 64 1920000Operational expences 1920000Number of big races/month 65 1947977,517Number of small races/day 14 2110308,977Cost, RUR (month) 7 898 286 DistributorVolume, tons 3246,6292Value, RUR 584031262% 16,175Costs, RUR (year) 94467056,6 To run the branch is less expensive if there are noCosts, RUR more than 65 sales managers *(month) 7 872 255 *branches on the basis of Arktika and Santa