Unilever-Inmarko has an opportunity to become the leading ice cream producer in the Russian market by modifying its distribution system. The summary proposes modifying distribution in three key regions - Central, North-West, and South - to achieve the number one market position in each region by 2015. In the Central region, Unilever would modify some current distributors. In North-West, it would combine a modified distribution network with logistics centers. And in South, it would establish its own distribution network. This tailored approach in each region aims to leverage Unilever's strengths and overcome weaknesses to double profits by optimizing production and distribution.

1. By MARK@ (Ruska,
Markevichus, Naniev,
Grachev)

2. Emerging russian ice-cream market is good area for different producers as it has
great potential
1. Currently Russian Russian ice-cream market is growing slowly but has a good potential
ice-cream market is
the 4th largest in Trend of ice-cream consumers share
60%
Trend of market volume
terms of amount
produced and 10th 59% 112,80% 113,15%
in terms of value. 58% 115%
2. The market is 57% 110%
growing slowly and 56% 100%
105%
the consumption 55% 100%
less than in the US 54% 95%
and Scandinavian
countries. 53% 90%
3. The ice-cream 2011 2012 2013 2014 2015 2009 2010 2011
market has got good
potential. Differentiated demand provide sufficient market share for main producers
4. Mainly people Trubochka Other
contribute ice- 3% 10%
Main ice-cream categories Share value of main producers, 2011
cream by impulse Sandwich
rather than taking it Bulk
2% Log+Cake 5% Unilever-Inmarko
home. 3% 22%
5. A few leaders have Cone
Nestle
36%
got huge share of 18% Take- Pot Big Iceberry
the market. Fruit Ice home; 4% Brick
3% 32,00% 9% 15% Russki Holod
Tub
10% 6% Talosto
Wafer Cup Stick 7% 14%
21% Other Other
11%
1%
According to current situation on the Russian ice-cream market Unilever-Inmarko has got a great potential acting in this
area. Hence, Unilever-Inmarko could achieve good results by having a good-functioning structure. So the main goal is to
achieve the 1st place in certain areas (Central, North-West, South) of Russia by modifying current distribution system.
© MARK@ 2

3. Current position of Unilever-Inmarko on the market gives huge opportunities for
constructing effective distribution network
Unilever-Inmarko can use its strengths to resist threats and use Acting in competitive market
opportunities to improve weaknesses. with strong players Unilever
Strength Weaknesses has got its own advantages
(Price/quality; Tula – high
•Good position in world and Russian •Bad experience in acting on Russian technology; High quality of
market; ice-cream market;
service) that give company
•Good facilities; •Production capacities not always
•Well-balanced portfolio of brands; cover existing demand;
opportunities for growth.
•High quality of products •Weak position in distribution in
some regions Producer’s CPI
Opportunities Threats
Brand
•Central region has great potential; •Unstable political situation; 10
•Developing economy gives huge •Uncertain tax policy of the 8
Brand 6
opportunities; government; 4 Value shares
•Huge areas that could be used in •Strong competitors portfolio 2
0 Unilever-Inmarko
manufacturing;
•Economy of scale could be used Nestle
Price (from the Effectiveness Iceberry
Unilever has strong positions in Russian market in certain areas, but not good enough to be a point of view… of…
leader in ice-cream sector. Previous bad experience could be a good example for company. Russki Holod
Unilever should use existing capacities of Inmarko and should improve distribution channels. Talosto
Novosibirsk Tula •Good location (Central, South and North-West). Omsk •Fairly modern enterprise.
• Low power and not suited •The high production capacities. •Regular upgrading.
Unilever can optimize to modernization. •Complex for the production of ice cream + logistics •Can produce only 50 mln tons of
distribution network • The shop in Novosibirsk is
center (5,000 tons of finished products).
•By the end 2014 will produce about 120 mln liters of
ice cream per year.
•Partial modernization has
(in Central, North- equipped with only two ice cream (potentially 200 million liters). already begun.
production lines.
West, South regions) •In 2011 - re-equip into the distribution
•I = 100 million euros.
•Produces 60% of Inmarko production.
•Restructuring measures will increase the
production of ice cream up to 75 tons per
using given capacities. warehouse and the logistics center. •Maximum production capacity = 60 million liters of ice cream. year.
•Warehouse (20,000 pallets for 5,000 tons of finished •Later will produce goods for Siberia, the
products). Far East and Kazakhstan.
Using its competitive advantages and existing capacities Uniliver can build effective distribution network
in Central, North-West and South regions based mainly on highly technological plant in Tula.
© MARK@ 3

4. Modify currently existing system in Central Federal District
Pros and cos of highly populated region with lots of distributors Modification of current distribution network will give Unilever-Inmarko
Central Federal District has the biggest population among the others (37 more effective structure
million). Central region also less suffers from seasonal changes, also, Inmarko’s
plant is situated here. In this region we have a lot of strong and productively working current and
Our current distributors (5) work almost in every city except Lipetsk and Tula. possible distributors. So, we do not have to change distribution network
They have high CCFOT and expectable level of % of sales. Almost all system. But we can change some currently working distributors in different
warehouses are owned. Almost all distributors are huge and highly appreciated cities to possible distributors. Thus we will build efficiently working system.
by companies. They have high rating. Changes will take place in these cities:
We have 10 possible distributors, as well, that gives us opportunity to change Belgorod
something. CentralD -> Distributor 16
In Central Federal District work a lot of companies. That is why it is highly Less % of sales, less CCFOT, but more pallet capacity + ability to rent
concentrated. Minus is that almost all our current distributors work with our Vladimir
competitors. That is why we can’t guarantee that we will get required amount CLC -> Distributor 9
of pallets. Less % of sales, less CCFOT, but more pallet capacity + ability to rent
Kostroma
Ice -> Distributor 8
x2 => 1st The same % of sales, more CCFOT, more pallet capacity
Lipetsk
Wait till Logistic+ will build there warehouse
place in Ryazan
Logistic+ -> Distributor 11
More % of sales, more CCFOT, more capacity
CFD Smolensk
Snezhok-> Distributor 11
More % of sales, more CCFOT, more capacity
Tver
Ice -> Distributor 9
According to predictions demand will grow and capacities of Tula More % of sales, more CCFOT, more capacity
manufactory will grow as well. This will lead to increase of sales and
We made our assumptions according to % of sales, CCFOT, pallet capacity,
increase of profit. Thus, having such structure we will get the 1st place
own/rent, customer price.
in Central Federal District and this will lead to doubling of profit by
2015 Look for calculations in Appendix
© MARK@ 4

5. Combine different systems for North-West Federal District
Pros and cos Modification of current distribution network will give Unilever-Inmarko
more effective structure
Has small population level and hard climatic environment, therefore, we
consider low consumption level in its regions. Inmarko has 5 distributors in
We suppose, that organizing an own distribution network there is not the
North-West district. Besides, Inmarko may have 7 possible distributors here.
most effective option. The better way is to use current distribution channels.
Almost all current distributors have high CCFOT and low % of sales.
Distributors are represented in almost every region.
To make the system work more effectively we should change distributor C
Possible distributors have some optional qualities.
on distributor 4 (higher CCFOT, no contracts with competitors, more pallets,
The main characteristic is low temperatures. That is why demand here could be
own). There is a possibility to change A on 1 and 3, thus we would have got
lower.
entrance on new market, but their KPI is lower. We cab add 5 (and probably
move out E) – that will give us entrance on new market in Murmansk, but
again KPI is worse.
x2 => 1st In our opinion we should combine modified distribution network and
logistics center. The costs will approve themselves. For more calcilations
place in
look in the Appendix.
We made our assumptions according to % of sales, CCFOT, pallet capacity,
NWFD
own/rent, customer price.
Look for calculations in Appendix
According to predictions demand will grow and capacities of Tula manufactory will grow as well. This will lead to increase of sales and increase
of profit. Thus, having such structure we will get the 1st place in North-West Federal District and this will lead to doubling of profit by 2015
© MARK@ 5

6. Make own distribution network in South Federal District
Pros and cos
Own distribution network
Has high level of demand depending on season. In this region we should make
own distribution network. We have 4 distributors here and 6 potential
distributors. (RUR) 2010 SFD
To make work more efficient we should add distributor 5 (entrance on new FC 5 400 000
market) or add distributor 5 and 6 and put out distributor B, because they have VC
better KPI but less capacities. Distributor C is the most interesting from the
point of view of M&A. He works only with us, he is one of the most trusted Kiosks 219 157 198
distributors and has logistics contract as well. Quantity of subjects in region 6
Chests 80 660 744
Quantity of chests 2504,653696
x2 => 1st
Trucks 145 859 245
Consumption per year 810 329
Truck's roads per year 51
place in Total costs 445 677 187
SFD Consumption per year
Population 14 686 261,00
Consumption per district (liters) 30 694 285,49
Inmarko consumption in region (liters) 1 841 657,13
Inmarko consumption in region (kg) 810329,1369
According to predictions demand will grow and capacities of Tula manufactory will grow as well. This will lead to
increase of sales and increase of profit. Thus, having such structure we will get the 1st place in South Federal
District and this will lead to doubling of profit by 2015
© MARK@ 6

7. Each region requires individual structure of distribution depending on different
strategic options of channels
Having certain demand and knowing capacities in Tula we can calculate what structure will give us the least costs.
Take- •Russia’s location Demand in Russian ice-cream market
home •Low HoReCa highly depends on season, but in
32% •Pretty high price volume we have huge numbers. As
for quality ice- most purchasing are made buy
Impuls impulse than we should mainly
e cream (185,7
concentrate on Traditional trade
68% rubles in 2010)
Every region needs individual approach according to its characteristics and given market features
(For more information refer to Appendix)
Central Federal District has the biggest population among the others (37 million). Central region also less suffers from seasonal changes, also,
Inmarko’s plant is situated here.
Our current distributors (5) work almost in every city except Lipetsk and Tula. They have high CCFOT and expectable level of % of sales. Almost all
warehouses are owned. Almost all distributors are huge and highly appreciated by companies. They have high rating.
We have 10 possible distributors, as well, that gives us opportunity to change something. Own network
In Central Federal District work a lot of companies. That is why it is highly concentrated. Minus is that almost all our current distributors work with our •Long-term strategy
competitors. That is why we can’t guarantee that we will get required amount of pallets. •Kiosks (average cost 150 – 200 000 RUR)
In this region we have a lot of strong and productively working current and possible distributors. So, we do not have to change distribution network
system. But we can change some currently working distributors in different cities to possible distributors. Thus we will build efficiently working system. •Labor-intensive
North-West FD Has small population level and hard climatic environment, therefore, we consider low consumption level in its regions. Inmarko has 5 •Refrigeration equipments
distributors in North-West district. Besides, Inmarko may have 7 possible distributors here. •Vehicles
Almost all current distributors have high CCFOT and low % of sales. •Chest boxes
Distributors are represented in almost every region.
Possible distributors have some optional qualities. •Warehousing
The main characteristic is low temperatures. That is why demand here could be lower. •Own Sales Department
We suppose, that organizing an own distribution network there is not the most effective option. The better way is to use current distribution channels. Logistics
South FD has high level of demand depending on season. In this region we should make own distribution network. We have 4 distributors here and 6
potential distributors. •Delivery between cities
To make work more efficient we should add distributor 5 (entrance on new market) or add distributor 5 and 6 and put out distributor B, because they •Delivery within city
have better KPI but less capacities. Distributor C is the most interesting from the point of view of M&A. He works only with us, he is one of the most Distributors
trusted distributors and has logistics contract as well. •Compensation to distributors
•(discounts + bonus for CCFOT)
As we are considering that Inmarko’s interaction with distributors in European regions is not absolutely effective, we should change the existing system of distribution so
that in every region (North-Western, Central and Southern Federal Districts ). According to our reasoning we should built own distribution network in Central region and
use services of current distributors in North-West and South region
© MARK@ 7

8. Appendix 1. Unilever-Inmarko SWOT-analysis
Strengths Weaknesses
• Unilever is the world's biggest ice cream manufacturer • Unilever came on the domestic market twice, in 1997 and
• Inmarko - the leading manufacturer of ice cream in Russia, 2003, both times did not last more than one season (1st -
and has a strong position in the market Algida brand +crisis, 2nd – huge costs)
• The production capacities in Tula did not provide complete
• Good facilities and good location of plants, ensuring a high
coverage of the rapidly growing demand in central and north-
coverage of demand. western region
• Well-balanced portfolio of brands, aimed at medium and high • The factory in Novosibirsk seemed low power and not suited
price categories, as well as different tastes of consumers. to modernization.
• High quality of the products and a continuous expansion of • Weak positions in distribution in North-West, Central and
the range + active communication with consumers. South regions
• 3 factories (Omsk, Novosibirsk, Tula) are equipped with the
latest innovative technologies and have the necessary
capacity to meet demands in the Russian market
• Tremendous capacity (9 branches in major cities across
Russia)
Opportunities Threats
• Central region has great potential • Unstable political situation
• Developing economy gives huge opportunities • Uncertain tax policy of the government
• Huge areas that could be used in manufacturing • Strong competitors
• Economy of scale could be used as Unilever is large company
© MARK@ 8

9. Appendix 2. Central current distributors
Distribut Coverage % of sales CCFOT Type of Contracts with Stock (pallet capacity) Own/ Transport (own/rent)
or volume company competitors Rent
CLC Moscow, Ivanovo, 30% 97% Distributor + Own, 10000(Moscow) + Own + Rent
Vladimir (Central 4000(Ivanovo)
A Disrtict) +3000(Vladimir)
Ice Moscow, Yaroslavl 20% 85% Distributor + Own, 8000(Moscow) + ?
(25% to Kostroma), 4000(Yaroslavl) +1500(Tver)
B Tver
Snezhok Smolensk, Bryansk, 20% + 80-90% Local Own, 6000(Kaluga) + Own
Kaluga indexing producer 2000(Smolensk) +
C 2000(Bryansk)
Logistics + Ryazan, Tambov 20% 92% Distributor + Own, Possible rent
3000(Ryazan)+1500(Tambov).
D possible rent
CentralD Orel, Kursk, Belgorod, 30% 95% Distributor _ Own, 6000 (Voronezh) +
Voronezh, Lipetsk 2000 (Orel) + 2000(Belgorod)
+3000 (Kursk) + 3000
(Lipetsk, 30% rent) + 1000
E rent in Belgorod
© MARK@ 9

10. Appendix 3. Central potential distributors
Distributor Coverage % of sales CCFOT Type of company Contracts with Stock (pallet
volume competitors capacity)
Own/ Rent
1 Distributor 8 Yaroslavl Kostroma 20% 89% Local producer - Own 2000
Rent 1500
2 Distributor 9 Moscow Tver Vladimir 28% 93% Distributor + Own 6000
Rent 2500
3 Distributor 10 Moscow Yaroslavl Vladimir 27% 91% Distributor + Own 7000
Ivanovo Rent 2000
4 Distributor 11 Moscow Ryazan Smolensk 26% 93% Distributor + Rent 6000
5 Distributor 12 Moscow Kaluga Bryansk 25% 90% Distributor - Own 2000
Rent 3500
6 Distributor 13 Bryansk Kursk Belgorod 20% 84% Local producer + Own 2000
Rent 3000
7 Distributor 14 Orel Lipetsk 19% 88% Distributor - Own 3000
8 Distributor 15 Voronezh 20% 90% Distributor - Rent 3500
9 Distributor 16 Voronezh Belgorod Lipetsk 27% 91% Distributor + Own 5000
Rent 2500
10 Distributor 17 Moscow 28% 94% Distributor + Own 6000
© MARK@ 10

11. Appendix 4. Central distributors
© MARK@ 11

12. Appendix 5. North-West current distributors
Distributor Coverage % of CCFOT Type of Contrac Stock (pallet
sales company ts with capacity) Own/
volume competi Rent
tors
A Arktika St. Petersburg, 25% 94% Local + Own, 6000
Novgorod, producer Rent 2000
Pskov
B LED St. Petersburg, 20-25% 92% Distributor + Own, 5000 rent
Novgorod, 1200
Tcherepovets,
Vologda
C Sever- Ukhta, 10% + 85% Distributor + Rent, 1500
Kholod Syktyvkar 7% (50% for
Inmarko, rest
for others)
D Alfa Arkhangelsk 20% 90% Distributor + Rent 3000 (part
of it)
E Beta Severodvinsk 20% 91% Distributor - Rent 3000 (part
of it)
© MARK@ 12

13. Appendix 6. North-West possible distributors
Distributor Coverage % of CCFOT Type of Contracts Stock
sales company with (pallet
volume competitor capacity)
s Own/ Rent
1 Distributor 1 St. Petersburg, 25% 92% Distributo + Own 5000
Petrozavodsk, r
Velikiy Novgorod
2 Distributor 2 Tcherepovets, St. 27% 90% Distributo - Own 2000,
Petersburg r Rent 2500
3 Distributor 3 Velikiy Novgorod, 18% 87% Local + Own 1500
Pskov producer
4 Distributor 4 Ukhta, Syktyvkar 22% 88% Distributo - Own 3000,
r Rent 1000
5 Distributor 5 Murmansk, Apatity, 25% 90% Distributo - Rent 2000
Severodvinsk r
6 Distributor 6 Arkhangelsk 21% 89% Distributo + Own 1500,
r Rent 1000
7 Distributor 7 Arkhangelsk 18% 88% Distributo - Own 1000
Vologda r
© MARK@ 13

14. Appendix 7. North-West distributors
© MARK@ 14

15. Appendix 8. South current distributors
Distributor Coverage % of sales CCFOT Type of Contrac Stock (pallet capacity)
volume company ts with Own/ Rent
compet
itors
A Santa Krasnodar, 15-24% 80-90% Local Own, 4000 + 3500 +
Stavropol, producer 1000
Tcherkessk (summer) +
Distributor
(winter)
B FGD Stavropol, 25% 87% Distributor - Own 2000 + 6000
Vladikavkaz, Rent, own 2500, rent
Naltchik, 1800, rent 1000)
Nazran
C Antares Kalmykia, 20% 90% (99% Distributor - Own, 1200(Elista) +
Rostov, for logistics) 5000(Rostov) +
Astrakhan 3000(Astrakhan)
D Zero Volgograd 15% 80% Local - Rent, 3500 (share
producer with own goods)
© MARK@ 15

16. Appendix 9. South possible distributors
Distributor Coverage % of CCFOT Type of Contracts Stock
sales company with (pallet
volume competitors capacity)
Own/ Rent
1 Distributor 18 Volgograd, 25% 88% Distributor + Own 4000
Astrakhan
2 Distributor 19 Volgograd 27% 89% Local + Own 3000
Rostov producer Rent 1000
3 Distributor 20 Elista Rostov 27% 94% Distributor + Own 3800
Astrakhan
4 Distributor 21 Krasnodar 25% 90% Distributor + Own 3000
Stavropol
5 Distributor 22 Grozny 24% 89% Local + Rent 1900
Makhatchkala producer
Nazran
6 Distributor 23 Vladikavkaz 23% 93% Distributor + Own 3500
Naltchik 4000 Rent
Tcherkessk 1200
© MARK@ 16

17. Appendix 10. South distributors
© MARK@ 17

18. Appendix 11. ice-cream density
m=pV
Depending on kind of an ice-cream its density
(p) could be different.
According to our own empirical data (ice-
cream’s wrapper) we found that 1 liter of ice-
cream in average weight 0,44 kg.
© MARK@ 18

19. Appendix 12. Chests
The chest boxes with a metal lid
Size: 200 - 700 liters
Price: from $ 500 - $ 700 to $ 800 - $ 1000 (Europe)
from $ 350 -$ 500 to $ 700 $ - $ 800 (Russia)
If we consider the highest size for foreign chest we will give 600$ for 3 years ((1000/5)*3) + 150$ (average delivery costs) =
750$, for Russian chest we will give the whole value 800$ for the same period of time. So, foreign chest is more profitable
and we will choose it.
The chests with a glass straight sliding lid
Size: 200- 600 liters
Price: from $ 550 - $ 600 to $ 800-900 (Europe)
from $ 370 - $ 500 up to $ 700 (Russia)
If we consider the highest size for foreign chest we will give 540$ for 3 years ((900/5)*3) + 150$ (average delivery costs) =
690$, for Russian chest we will give the whole value 700$ for the same period of time. So, foreign chest is more profitable
and we will choose it.
The chests with a sagged (bent) glass cover
Increases the exhibit space + increasing sales volume up to 30%
Cost higher by 30 $ -100 $
Price: from $ 580 - $ 630 to $ 900-1000 (Europe)
from $ 400 - $ 530 up to $ 800 (Russia)
We use similar calculations as for the chests with a glass straight sliding lid. Foreign chest is more profitable and we will choose
it.
© MARK@ 19

20. Appendix 12. Chests (continue)
For Russia: normal & “tropical” version.
“tropical” versions
Thicker layer of heat-insulation of the box + additional capacitor.
For remote trading or in outdoor cafes and in zones of moderate climate.
Cost 20% higher than on the ordinary ones.
10% - defect.
This version isn’t profitable because of higher costs and % of defected equipment. That is why we won’t choose this variant.
Customs costs (15%) of the imported products
Delivery = 50 - 200 $.
Often choose imported chests: 1) small scale of production of chests (Inmarko can buy in Russia no more than 7,000 per year for delivery in the Central
Federal District, North-West, South and North-Caucasus Federal District), 2) chests are not always high-quality equipment (average service life of a
foreign chest is 5 years, of the Russian one - 3 years).
According to quantity/price index we will choose the 3rd type of chests - The chests with a sagged (bent) glass cover (foreign)
Quantity of chests = Q (consumption per year in District) * % spontaneous purchases / Average volume of chest
Costs on chests = Quantity of chests * Average price * Customs duty + Quantity of chests * average price + Quantity of chests * Average cost for delivery of
1 chest
During Summer -> rent 5,000 - 10,000 rubles per month - average = 7,500 RUR per month
(We assume that we have enough chests and we won’t need to rent additional chests, because we can always move acquired chests from 1 region to
another one)
Quantity,
Type of chest Min/max liters Average price, $ Average price, RUR Bonus Quantity/price
1 min 200 600 18960 0,33
max 700 900 28440 0,78
2 min 200 575 18170 0,35
max 600 850 26860 0,71
3 min 200 605 19118 0,3 0,63
max 600 950 30020 0,3 0,93
© MARK@ 20

21. Appendix 13. Kiosks
Price: 150 – 200 thousand RUR
Average = 175 000 RUR
We assume that in 1 kiosk we have 2 chests
Quantity of kiosks = Quantity of chests / 2
Costs on kiosks = Quantity of kiosks * Average
price
© MARK@ 21

22. Appendix 14. Trucks
Truck Volume, sq m Loading capacity, tons Price (VAT incl), RUR
FRASCOLD C415 8SP 10,8 16 2 880 000
Hyundai HD25 10,8 16 3 586 600
Hyundai HD170 10,8 9 3 002 000
We will chose FRASCOLD C415 8SP trucks because for less money paid we
will get the same (16 tons) loading capacity.
Quantity of truck’s roads per year required to satisfy demand in District =
Q/loading capacity Q (consumption per year in District) = Share of Inmarko
in District * total consumption of ice-cream in Russia
Quantity of truck’s roads per year = quantity of required trucks because we
need not only external trips but also internal.
Costs on trucks = Quantity of trucks * payment for purchasing + Average
petroleum costs + Average wages
We will use our own trucks to deliver products between cities and logistic
services trucks for within city delivery.
© MARK@ 22

23. Appendix 15. Consumption per district
Population of District * Share of ice-cream
Consumption * Share of Unilever-Inmarko in
District* Ice cream consumption in Russia per
capita consumption (3,8 liters) = Consumption
in liters
1 liter ice cream = 0,44 kg ice cream
© MARK@ 23

24. Appendix 16. Model of own distribution network
• Our goal is to achieve minimum costs
• FC = sales department* + warehouse**
•
• * Federal and regional levels are fully equipped; territory positions are equipped
on 33%. We should take additional 67%. We will take average salary, because the
model is constructed such that it is applicable for every region.
•
• ** As not in every district there are not enough warehouses we could either buy
or rent it. But to buy warehouse is not profitable because they are too expensive
and every year distribution network changes. That is why it’s economically more
profitable to rent warehouse. We can rent warehouses using our connections with
distributors.
•
• VC (Q) = kiosks + chests + trucks (including petroleum and wages of truck drivers)
•
• TC = VC + FC ––> min
© MARK@ 24