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GSOM CASE GROUP
Deliver ce to Every House

                                  Konstantin Andreev
                                Tatyana Aleksandrova
                                          Igor Buryak
                                       Igor Sumbaev



       Saint-Petersburg, 2011
What do we want                                       What do we have
     Sales volume of Inmarko in Russia in                     Two well-equipped
           2011-2015, billion rubles



                                                                                                        ?
25                                                        factories in Tula and Omsk
20
                                                           Own system of distribution
15
10
                                                           and extensive distribution
 5
                                                                   network
 0                                                         Own and rented storage
      2011    2012    2013     2014    2015
                                                         and transportation facilities
                       What should we do                                                      Where
                                                         1
             Distributors                            Cooperation
     1. Replace distributors with low               1. By Acquiring Talosto1;
              CCFOT ratio;                       2. With biggest companies and
       2. Decrease costs on distr. &            retail chains2 (Aeroflot, Russian
                                                   Railways, Starbucks, etc.);
           logistics – build our                  3) Partnership in Sochi 2014
              own branches.
                                      Increase in
                                         Sales
             POS (points                                Supply Chain
              of sales)                                 Methods
     1. Concentrate on less developed           1. VMI with our Key Accounts;
        POS, which are in demand;             2. Aggregated demand forecasting;          1
     2. Individual strategy for each of          3. Available-on-shelf approach            See Appendix 1 and 2
                                                                                         2 See Appendix 3
               three regions!                 4. Usage of railway transportation3
                                                                                         3 See Appendix 4
Northern-West Federal District
              Main distribution problems:                                  New Distributors                   Coverage area
                                                                                                                                           Warehouses,      % of sales
                                                                                                                                                                         CCFOT
                                                                                                                                               vol.          volume
 •         Big distance to northern cities
                                                                                                      Tcherepovets, South-East of
 •         Small volume of warehouses                                        Distributor 2
                                                                                                               NWFD
                                                                                                                                               2000           27%          90%
 •         Low CCFOT of distributors
                                                                             Distributor 5             Murmansk, Severodvinsk                  2000           25%          90%
 •         Remoteness of production facilities
                                                                             Distributor 6                    Arkhangelsk                      1000           18%          88%
 •         Absence of track fleet
                                                                          Warehouses:            11 000 pallets
                                                                                                                                     Main Cities:
                                                                                                                                     Saint-Petersburg
                                                                          Saint-Petersburg                                           Volkhov
                                                                          Novgorod/Pskov 2 000 pallets                               Murmansk
              Acquisition of «Talosto»                                    Arkhangelsk
                                                                                           3 000 pallets
                                                                                                                                     Petrozavodsk
                                                                                      3 200 pallets
                                                                          Tcherepovets                                               Novgorod the Great
                                                                                                                                     Pskov
                                                                                                                                     Arkhangelsk
     Production Facilities in Volkhov (35 000 ton of ice-cream)                                                                      Severodvinsk
                                                                                                                                     Vologda
                                                                                                                                     Syktyvkar
                                                                                                                                     Narnyan-Mar
             Demand 4(See Appendix 5)                                              Consumption
                                                                                                                                              Exclusive     contracts     with
                        Population,            Demand (ton)                                                         Supermarkets                 supermarkets (Talosto) and
          Cities         thousands                                                   3%                                                          wholesalers (big bricks)
                                                                                                14%                 Retailer
                           people       2012     2013     2014     2015                                 32%                                   Increasing number of branded
Saint-Petersburg        4848,7        10114    10277    10439    10601                    12%                       Minimarkets                  kiosks and street retailers
                                                                                                                                                 (impulse purchasing)
Volkhov                 47,2            98      100      102      103                                               Kiosks
                                                                                           16%                                                Development      of     HoReCa
Murmansk                307,6          642      652      662      673                                 23%
                                                                                                                    HoReCa                       segment (Contracts with
Petrozavodsk            266,2          555      564      573      582                                                                            café,    restaurants,    like
                                                                                                                    Street Traders               McDonalds, Baskin Robins
Novgorod the Great      213,8          446      453      460      467
                                                                             Sales                                                               etc.)
Pskov                   201            419      426      433      439
Arkhangelsk             353,3          737      749      761      772
                                                                                                                                                              Inmarko+Talosto
Severodvinsk            193,5          404      410      417      423
                                                                             36%          28%               34%         31%             35%          34%
Vologda                 290,5          606      616      625      635                                                                                         Nestle
Syktyvkar               228,5          477      484      492      500
                                                                                          15%                                                                 Iceberry
Naryan-Mar              18,8            39       40      40        41
Cumulative demand of                                                               14%                            14%                         12%             Russkiy Kholod
                                      14 536   14 771   15 005   15 237    7%                          8%                     13% 7%                  12%
main cities
NWFD(Cumulative                                                                                                                                               Others
                                      28 850   29 316   29 780   30 242
NWFD demand)            13831,7
                                                                                   2012                        2014                           2015
Central Federal District
Changes in distribution network                                                                Kiosks
Company name     Cities      Capacity    CCFOT   Margin                     Kiosk’s sales in Moscow ≈ 27% of total sales of ice-cream.
                 (storage)   (pallets)                                      Leader - Iceberry.
CLC              Moscow      10’000      97%     30%                        Construction and modernization of new kiosks
                 Ivanovo     4’000                                          Another solution:
                 Vladimir    3’000                        New way of distribution – Ice-cream vans (trucks)
                                                          Advantages: high mobility, opportunity to trade by the
Logistic +       Ryazan      3’000       92%     20%
                 Tambov      1’500                        underground stations
                                                          Disadvantages: high price (twice the price of a kiosk)
Central ID       Orel        2’000       95%     30%      Conclusion: the increase in sales will overcome the
                 Belgorod    3’000
                 Voroneg     6’000                        additional costs  the project is profitable
                 Kursk
                 Lipeck
                             3’000
                             3’000
                                                                                  Exclusive contracts
                                                                                              Sturbucks:
Snezhok          Smolensk    6’000       90%     20%                        Additional        52 outlets on the present moment
                 Bryansk     2’000                                            sales           High level of popularity
                 Kaluga      2’000                                                            Well-known brend
Ice              Moscow      8’000       85%     20%                                          Plans to implement private-label ice-cream
                 Tver        1’500
                 Yaroslavl   4’000                                            Acquisition of Talosto
                 Kostroma    -                            Acquisition of Talosto will not have great weight on solving
                                                          Inmarko’s problem, as in other regions, however:
                                                          • Due to permanent growth of demand on ice-cream and
Distributor 8    Yaroslavl               89%     20%
                 Kostroma    3’500                        rejection of Ice distribution company, the new additional               +
                 Moscow                                   warehouse in Moscow with the capacity of 12’500 pallets
                                                          will have great value for the company
Distributor 9    Tver                    93%     28%
                 Vladimir    2’500                        • The transportation network of Talosto will allow Inmarko to
                 Moscow                                   cut their costs
Distributor 17   Moscow      6’000       94%     28%                 Sales structure forecast for 2015
(temporary)                                                                                                 Supermarkets
                                                                                   9%                       Retailer
The results of the distributor’s change:                                    10%          26%
                                                                                                            Minimarkets
•Increased CCFOT (from 85% up to 92% in average)                       5%
                                                                                                            Kiosks
•Better communication with Kostroma                                                          13%            HoReCa
•More warehouses and storage place in Moscow (by                             28%                            Street Traders
1000 pallets)                                                                           9%
                                                                                                            Ice-cream vans
South Federal District
          Main problems in the region                         Company      Cities (storage)   Capacity    CCFOT    Margin
          •          Weak position in the region in general   name                            (pallets)
                                                              Santa        Krasnodar          4’000       80%      15-24%
          •          Absence of own branches                  (producer)   Stavropol          3’500       winter
          •          Low CCFOT of distributors                             Tcherkessk         1’200       90%
                                                                                                          summer
              Olympic Games Sochi 2014
                                                              FCG          Nalchik            1’000       89%      25%
              Participation in partnership program of                      Stavropol          8’000
                                                                           Valdikavkaz        2’500
              Sochi 2014 in the category “dairy                            Nazran             1’000
              products” to sell ice cream during Olympic
                                                              Antares      Rostov             5’000       99%      25%
              Games in Sochi. More than 0.5ml people                       Astrakhan          3’000
              usually visit Olympic Games!                                 Elista             1’200
              The main way of distribution – Ice-cream        Zero         Krasnodar          3’500       80%      15%
              vans.                                           (producer)   Rostov
                                                                           Volgograd
           Cooperation with Magnit
Magnit – is the major retailer in Southern
Region. For more profitable cooperation,                      Open our own distribution channel 5:
we     offer   to   implement      Vendor                      - In 2012 building of a warehouse in Rostov-na-
Management Inventory (VMI) to increase                        Donu (the largest city in the region) to substitute
accuracy of planning and thus to reduce                       facilities of local producers (Santa, Zero), because of
costs.                                                        their low CCFOT ratio. To avoid idle capacity, in
      Target distribution of Sales by 2015                    winter season we let on lease our extra spaces.
                                          Supermarkets
                                                               - in the 2013 we will build another warehouse in
                2%                                            Krasnodar. Thus we will have only one major
                       12%                Grosery stores
                              31%                             distributor left - Antares
                                          Minimarkets
                 25%
                                          Kiosks                           + Acquisition of Talosto
                             19%          HoReCa
                                                               New production facilities in Shakhty (25’000
                       11%
                                                               tonnes a year) and warehouse in Krasnodar
                                          Street Traders
                                                                                                   5 See Appendix 6
Conclusions and recommendations
           Main goal:                             Distribution:
          Construct the                           1) Factories
     distribution network in                                                                       Add new chains
       Central, South and                         2) Distribution centers
     North-Western Federal                        3) Warehouses
     Districts to double the
       sales of Inmarko in                        4) Wholesalers
                                                                                                    Acquire existing
      monetary terms up to                        5) Retailers                                     distribution chain +
            2015 year                             6) Consumers                                        reconstruction

            Main problems:                      Exclusive contracts, new channels of sale                 Increase the share of home
                                                                                                          buyers up to 45% (summer)
•   Tough competition                                                                                          and 65% (winter)
•   Low CCFOT of some distributors New distributors, construction of own distribution channels
                                                                                                        Key Accounts           15%
•   Low capacity of warehouses
                                                                                                        Modern Trade           30%
•   Low coverage of NWFD and SFD Strategic acquisition of new production facilities (“Talosto”)
•   Lack of necessary production                                                                          Traditional          45%
    facilities to increase sales                                                                            Trade
                                Recommended time table of implementation6
                                         2012             2013              2014            2015               Market Shares, 2015
                                                                                                                               Inmarko +
    Acquisition of “Talosto”                                                                                                   Talosto
                                                                                                                               Iceberry
    New Distributors                                                    Resign of some                       34%        35%
                                                                      distributors in SFD                                      Nestle

    Increase of Track fleet                                                                                   7%      12%      Russkiy Kholod
                                                                                                                   12%
    Creation of new contracts                                                                                                  Others


                                                                                                                    6   See Appendix 7
Appendix 1
                    Description of Unilever-Inmarko and its most strong competitors 1
                             Nestle             Iceberry          Russkiy Kholod            Talosto        Unilever-Inmarko
                                                                                         St.Petersburg
                                                                      Barnaul               Volkhov               Tula
       Factories         Zhukovsky 2             Vologda
                                                                      Moscow                Shakhty               Omsk
                                                                                           Moscow

                        Branches in the                                                Branches in such
                        biggest cities in                      14 branches               big cities as
                                                                                                              10 branches
                            Russia        Powerful branches throughout Russia              Moscow,
                                                                                                           throughout Russia
       Branches         (St.Petersburg,    in Moscow and     (Kursk, Vologda,           St.Petersburg,
                                                                                                            (Moscow, Qazan,
                       Moscow, Samara, Saint-Petersburg         Astrakhan,                Krasnodar,
                                                                                                               Tula etc.)3
                       Nizniy Novgorod,                        Moscow etc.)             Yekaterinburg,
                           Perm etc.)                                                  Rostov-on-Donu

                                                                                   Low-temperature
                        Large national or                        Big distribution   warehouses in     Own warehouses
                             regional            Common         center in Moscow     St.Petersburg,  in Tula, Omsk and
    Storage facilities
                           warehouses       distribution center and rented storage      Moscow,         several rented
                       located near clients                          facilities    Yekaterinburg and storage facilities
                                                                                       Krasnodar
                       Own specialized       Own 20 units of     Own specialized                            Own specialized
                                                                                          Own big
         Fleet         trucks and rented      refrigeration      trucks and rented                          trucks and rented
                                                                                       specialized fleet
                             ones               machines               ones                                       ones
1 In this description we consider companies, which are main competitors of Inmarko in all three dsctricts: CFD, NSFD, SFD
2 Company closed factory in Timashevsk in 2011 and transferred equipment to factory in Zhukovsky
3 According to web-site of the company http://inmarko.ru/, Inmarko has 10 branches throughout Russia on the November 2011
Appendix 2
       Analysis of the most strong competitors in all three districts: CFD, NSFD, SFD




                                  Iceberry




                                                 Russkiy



                                                           Talosto
                                                 Kholod
    Factories            Nestle
                                                                     Talosto has factories and
                                                                     storage facilities in all
    Branches                                                         three districts, in which
                                                                     Unilever-Inmarko holds
                                                                     an interest.
Storage Facilities


      Fleet                                                          Acquisition of Talosto
                                                                     till the end of 2013
                                                                     enables         Unilever-
                       Unilever-Inmarko has better position          Inmarko to achieve
                                                                     undoubtedly its goal.
                       Unilever-Inmarko has worse position
                       Equivalent position with competitor
Appendix 3
             The common components of strategy for all three districts

• Partnership with the biggest Russian airlines
(Aeroflot, Transaero, S7 Airlines, Rossiya) and its
suppliers, which implies that we will provide the
boards with special ice-cream


• Analogous partnership with the Russian Railways


• The prevalent usage of railways to transport ice-
cream in refrigerated rolling stock from factory in
Tula       to        some        remote       cities
(Murmansk, Arkhangelsk, Vladikavkaz etc.)
Appendix 4
     Reasonableness of prevalent usage of refrigerated rolling stock in some routes
Route: Tula-Murmansk
         (Tula-Moscow-St.Petersburg-Murmansk)

Usage of specialized trucks costs:
a) 30000 rubles for 20 tons of weight for route Tula-
   St.Petersburg
b) 41520 rubles (1384 km * 30 rubles) for 20 tons of
   weight for route St.-Petersburg-Murmansk
Total: a)+b) = 71520 rubles

    One refrigerated rolling stock can carry 35 tons of ice-
cream. According to JSC Refservice (the subsidiary of the
Russian Railways) the transportation of 35 tons of ice-
cream costs in average 50 rubles per km. The distance
between Tula and Murmansk is 2336 km of railway. Thus
this transportation costs 2336 * 50 = 116800 rubles or
(116800 * 20) / 35 = 66742 rubles for 20 tons of weight.

    So it is more reasonable to use refrigerated rolling
stock in this route than trucks.
Appendix 5
                                Forecasts and predictions

Calculations of annual demand are based on following assumptions:
1) The share of consumers of ice-cream is 55% in 2012 and increases by 1% every year;
2) The population of Russian Federation decreases by 0,2% every year;
3) The annual consumption of ice-cream is 3,8 kg per year for individual;
4) The Data concerning population of districts and cities was taken from RosStat web-site
Forecast of market share bases on:
1) Increase of sales through supermarkets/retailer with “Talosto” distributional channels
     and exclusive contracts;
2) The annual growth of share is expected to be 3% with the growth of demand and
     strengthening of company position in street trade and kiosk segment;
3) As we cannot predict the weather, we consider it will not change dramatically over 5
     years;
4) As we cannot predict the crisis or other critical situations, or actions of competitors, we
     consider that nothing will change (there will not be crisis, our competitor will not be
     answering irrationally on our actions).
Appendix 6
                            Creation of own distributional channel in SFD
                               2011        2012          2013          2014                       2015
     Own warehouse
                                   0           12000          24000            24000              24000
       (pallets)
   Distributors (pallets)       33900          21900           9200             9200              9200

           Trucks                  6           7 (+1)         10(+3)              10                10
     Investments (ml)           17.28           2.88           8.64               0                 0
 In 2012 – construction of an warehouse in Rostov-na-Donu (12’000).
 By the end of 2013 – construction of a warehouse in Krasnodar (12’000).
 To calculate number of trucks we need: 1) Distance between Tula (our production facility) and Rostov-na-
 Donu – 900km, each month a truck can do 5 tours back and forth 2) We decided to buy FRACOLD C 415
 8SP (loading capacity – 16 tonnes), as Hyundai's’ trucks are more expensive. So in a year each truck can
 transport 960 tonnes of ice cream during the year.                                 Sales (in ths. tonnes)
 Our sales (in thousand tonnes) will change in next 4 years according       20

 following assumption:                                                      15

 1. Value of demand in 2011 was calculated, using the population            10

 of the region (14 mil.) and ice cream consumers share (given in appendix), 5
 2. Approximate sales share of Inmarko was determined from Appendix          0
                                                                               2011    2012    2013   2014 2015
 «Regional sales Distribution» using cities of Rostov and Sochi).
As the premium of distributors is around 25% and average price of ice cream 180.3 RUR, building our own
distributional network has economic sense (even if we add other supplementary costs such as
fuel, wages, taxes, local transportation).
Appendix 7
The distribution network of Inmarko by 2015

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Gsom case group, 2 место, 1 Тур, Английская секция,

  • 1. GSOM CASE GROUP Deliver ce to Every House Konstantin Andreev Tatyana Aleksandrova Igor Buryak Igor Sumbaev Saint-Petersburg, 2011
  • 2. What do we want What do we have Sales volume of Inmarko in Russia in Two well-equipped 2011-2015, billion rubles ? 25 factories in Tula and Omsk 20 Own system of distribution 15 10 and extensive distribution 5 network 0 Own and rented storage 2011 2012 2013 2014 2015 and transportation facilities What should we do Where 1 Distributors Cooperation 1. Replace distributors with low 1. By Acquiring Talosto1; CCFOT ratio; 2. With biggest companies and 2. Decrease costs on distr. & retail chains2 (Aeroflot, Russian Railways, Starbucks, etc.); logistics – build our 3) Partnership in Sochi 2014 own branches. Increase in Sales POS (points Supply Chain of sales) Methods 1. Concentrate on less developed 1. VMI with our Key Accounts; POS, which are in demand; 2. Aggregated demand forecasting; 1 2. Individual strategy for each of 3. Available-on-shelf approach See Appendix 1 and 2 2 See Appendix 3 three regions! 4. Usage of railway transportation3 3 See Appendix 4
  • 3. Northern-West Federal District Main distribution problems: New Distributors Coverage area Warehouses, % of sales CCFOT vol. volume • Big distance to northern cities Tcherepovets, South-East of • Small volume of warehouses Distributor 2 NWFD 2000 27% 90% • Low CCFOT of distributors Distributor 5 Murmansk, Severodvinsk 2000 25% 90% • Remoteness of production facilities Distributor 6 Arkhangelsk 1000 18% 88% • Absence of track fleet Warehouses: 11 000 pallets Main Cities: Saint-Petersburg Saint-Petersburg Volkhov Novgorod/Pskov 2 000 pallets Murmansk Acquisition of «Talosto» Arkhangelsk 3 000 pallets Petrozavodsk 3 200 pallets Tcherepovets Novgorod the Great Pskov Arkhangelsk Production Facilities in Volkhov (35 000 ton of ice-cream) Severodvinsk Vologda Syktyvkar Narnyan-Mar Demand 4(See Appendix 5) Consumption Exclusive contracts with Population, Demand (ton) Supermarkets supermarkets (Talosto) and Cities thousands 3% wholesalers (big bricks) 14% Retailer people 2012 2013 2014 2015 32% Increasing number of branded Saint-Petersburg 4848,7 10114 10277 10439 10601 12% Minimarkets kiosks and street retailers (impulse purchasing) Volkhov 47,2 98 100 102 103 Kiosks 16% Development of HoReCa Murmansk 307,6 642 652 662 673 23% HoReCa segment (Contracts with Petrozavodsk 266,2 555 564 573 582 café, restaurants, like Street Traders McDonalds, Baskin Robins Novgorod the Great 213,8 446 453 460 467 Sales etc.) Pskov 201 419 426 433 439 Arkhangelsk 353,3 737 749 761 772 Inmarko+Talosto Severodvinsk 193,5 404 410 417 423 36% 28% 34% 31% 35% 34% Vologda 290,5 606 616 625 635 Nestle Syktyvkar 228,5 477 484 492 500 15% Iceberry Naryan-Mar 18,8 39 40 40 41 Cumulative demand of 14% 14% 12% Russkiy Kholod 14 536 14 771 15 005 15 237 7% 8% 13% 7% 12% main cities NWFD(Cumulative Others 28 850 29 316 29 780 30 242 NWFD demand) 13831,7 2012 2014 2015
  • 4. Central Federal District Changes in distribution network Kiosks Company name Cities Capacity CCFOT Margin Kiosk’s sales in Moscow ≈ 27% of total sales of ice-cream. (storage) (pallets) Leader - Iceberry. CLC Moscow 10’000 97% 30% Construction and modernization of new kiosks Ivanovo 4’000 Another solution: Vladimir 3’000 New way of distribution – Ice-cream vans (trucks) Advantages: high mobility, opportunity to trade by the Logistic + Ryazan 3’000 92% 20% Tambov 1’500 underground stations Disadvantages: high price (twice the price of a kiosk) Central ID Orel 2’000 95% 30% Conclusion: the increase in sales will overcome the Belgorod 3’000 Voroneg 6’000 additional costs  the project is profitable Kursk Lipeck 3’000 3’000 Exclusive contracts Sturbucks: Snezhok Smolensk 6’000 90% 20% Additional 52 outlets on the present moment Bryansk 2’000 sales High level of popularity Kaluga 2’000 Well-known brend Ice Moscow 8’000 85% 20% Plans to implement private-label ice-cream Tver 1’500 Yaroslavl 4’000 Acquisition of Talosto Kostroma - Acquisition of Talosto will not have great weight on solving Inmarko’s problem, as in other regions, however: • Due to permanent growth of demand on ice-cream and Distributor 8 Yaroslavl 89% 20% Kostroma 3’500 rejection of Ice distribution company, the new additional + Moscow warehouse in Moscow with the capacity of 12’500 pallets will have great value for the company Distributor 9 Tver 93% 28% Vladimir 2’500 • The transportation network of Talosto will allow Inmarko to Moscow cut their costs Distributor 17 Moscow 6’000 94% 28% Sales structure forecast for 2015 (temporary) Supermarkets 9% Retailer The results of the distributor’s change: 10% 26% Minimarkets •Increased CCFOT (from 85% up to 92% in average) 5% Kiosks •Better communication with Kostroma 13% HoReCa •More warehouses and storage place in Moscow (by 28% Street Traders 1000 pallets) 9% Ice-cream vans
  • 5. South Federal District Main problems in the region Company Cities (storage) Capacity CCFOT Margin • Weak position in the region in general name (pallets) Santa Krasnodar 4’000 80% 15-24% • Absence of own branches (producer) Stavropol 3’500 winter • Low CCFOT of distributors Tcherkessk 1’200 90% summer Olympic Games Sochi 2014 FCG Nalchik 1’000 89% 25% Participation in partnership program of Stavropol 8’000 Valdikavkaz 2’500 Sochi 2014 in the category “dairy Nazran 1’000 products” to sell ice cream during Olympic Antares Rostov 5’000 99% 25% Games in Sochi. More than 0.5ml people Astrakhan 3’000 usually visit Olympic Games! Elista 1’200 The main way of distribution – Ice-cream Zero Krasnodar 3’500 80% 15% vans. (producer) Rostov Volgograd Cooperation with Magnit Magnit – is the major retailer in Southern Region. For more profitable cooperation, Open our own distribution channel 5: we offer to implement Vendor - In 2012 building of a warehouse in Rostov-na- Management Inventory (VMI) to increase Donu (the largest city in the region) to substitute accuracy of planning and thus to reduce facilities of local producers (Santa, Zero), because of costs. their low CCFOT ratio. To avoid idle capacity, in Target distribution of Sales by 2015 winter season we let on lease our extra spaces. Supermarkets - in the 2013 we will build another warehouse in 2% Krasnodar. Thus we will have only one major 12% Grosery stores 31% distributor left - Antares Minimarkets 25% Kiosks + Acquisition of Talosto 19% HoReCa New production facilities in Shakhty (25’000 11% tonnes a year) and warehouse in Krasnodar Street Traders 5 See Appendix 6
  • 6. Conclusions and recommendations Main goal: Distribution: Construct the 1) Factories distribution network in Add new chains Central, South and 2) Distribution centers North-Western Federal 3) Warehouses Districts to double the sales of Inmarko in 4) Wholesalers Acquire existing monetary terms up to 5) Retailers distribution chain + 2015 year 6) Consumers reconstruction Main problems: Exclusive contracts, new channels of sale Increase the share of home buyers up to 45% (summer) • Tough competition and 65% (winter) • Low CCFOT of some distributors New distributors, construction of own distribution channels Key Accounts 15% • Low capacity of warehouses Modern Trade 30% • Low coverage of NWFD and SFD Strategic acquisition of new production facilities (“Talosto”) • Lack of necessary production Traditional 45% facilities to increase sales Trade Recommended time table of implementation6 2012 2013 2014 2015 Market Shares, 2015 Inmarko + Acquisition of “Talosto” Talosto Iceberry New Distributors Resign of some 34% 35% distributors in SFD Nestle Increase of Track fleet 7% 12% Russkiy Kholod 12% Creation of new contracts Others 6 See Appendix 7
  • 7. Appendix 1 Description of Unilever-Inmarko and its most strong competitors 1 Nestle Iceberry Russkiy Kholod Talosto Unilever-Inmarko St.Petersburg Barnaul Volkhov Tula Factories Zhukovsky 2 Vologda Moscow Shakhty Omsk Moscow Branches in the Branches in such biggest cities in 14 branches big cities as 10 branches Russia Powerful branches throughout Russia Moscow, throughout Russia Branches (St.Petersburg, in Moscow and (Kursk, Vologda, St.Petersburg, (Moscow, Qazan, Moscow, Samara, Saint-Petersburg Astrakhan, Krasnodar, Tula etc.)3 Nizniy Novgorod, Moscow etc.) Yekaterinburg, Perm etc.) Rostov-on-Donu Low-temperature Large national or Big distribution warehouses in Own warehouses regional Common center in Moscow St.Petersburg, in Tula, Omsk and Storage facilities warehouses distribution center and rented storage Moscow, several rented located near clients facilities Yekaterinburg and storage facilities Krasnodar Own specialized Own 20 units of Own specialized Own specialized Own big Fleet trucks and rented refrigeration trucks and rented trucks and rented specialized fleet ones machines ones ones 1 In this description we consider companies, which are main competitors of Inmarko in all three dsctricts: CFD, NSFD, SFD 2 Company closed factory in Timashevsk in 2011 and transferred equipment to factory in Zhukovsky 3 According to web-site of the company http://inmarko.ru/, Inmarko has 10 branches throughout Russia on the November 2011
  • 8. Appendix 2 Analysis of the most strong competitors in all three districts: CFD, NSFD, SFD Iceberry Russkiy Talosto Kholod Factories Nestle Talosto has factories and storage facilities in all Branches three districts, in which Unilever-Inmarko holds an interest. Storage Facilities Fleet Acquisition of Talosto till the end of 2013 enables Unilever- Unilever-Inmarko has better position Inmarko to achieve undoubtedly its goal. Unilever-Inmarko has worse position Equivalent position with competitor
  • 9. Appendix 3 The common components of strategy for all three districts • Partnership with the biggest Russian airlines (Aeroflot, Transaero, S7 Airlines, Rossiya) and its suppliers, which implies that we will provide the boards with special ice-cream • Analogous partnership with the Russian Railways • The prevalent usage of railways to transport ice- cream in refrigerated rolling stock from factory in Tula to some remote cities (Murmansk, Arkhangelsk, Vladikavkaz etc.)
  • 10. Appendix 4 Reasonableness of prevalent usage of refrigerated rolling stock in some routes Route: Tula-Murmansk (Tula-Moscow-St.Petersburg-Murmansk) Usage of specialized trucks costs: a) 30000 rubles for 20 tons of weight for route Tula- St.Petersburg b) 41520 rubles (1384 km * 30 rubles) for 20 tons of weight for route St.-Petersburg-Murmansk Total: a)+b) = 71520 rubles One refrigerated rolling stock can carry 35 tons of ice- cream. According to JSC Refservice (the subsidiary of the Russian Railways) the transportation of 35 tons of ice- cream costs in average 50 rubles per km. The distance between Tula and Murmansk is 2336 km of railway. Thus this transportation costs 2336 * 50 = 116800 rubles or (116800 * 20) / 35 = 66742 rubles for 20 tons of weight. So it is more reasonable to use refrigerated rolling stock in this route than trucks.
  • 11. Appendix 5 Forecasts and predictions Calculations of annual demand are based on following assumptions: 1) The share of consumers of ice-cream is 55% in 2012 and increases by 1% every year; 2) The population of Russian Federation decreases by 0,2% every year; 3) The annual consumption of ice-cream is 3,8 kg per year for individual; 4) The Data concerning population of districts and cities was taken from RosStat web-site Forecast of market share bases on: 1) Increase of sales through supermarkets/retailer with “Talosto” distributional channels and exclusive contracts; 2) The annual growth of share is expected to be 3% with the growth of demand and strengthening of company position in street trade and kiosk segment; 3) As we cannot predict the weather, we consider it will not change dramatically over 5 years; 4) As we cannot predict the crisis or other critical situations, or actions of competitors, we consider that nothing will change (there will not be crisis, our competitor will not be answering irrationally on our actions).
  • 12. Appendix 6 Creation of own distributional channel in SFD 2011 2012 2013 2014 2015 Own warehouse 0 12000 24000 24000 24000 (pallets) Distributors (pallets) 33900 21900 9200 9200 9200 Trucks 6 7 (+1) 10(+3) 10 10 Investments (ml) 17.28 2.88 8.64 0 0 In 2012 – construction of an warehouse in Rostov-na-Donu (12’000). By the end of 2013 – construction of a warehouse in Krasnodar (12’000). To calculate number of trucks we need: 1) Distance between Tula (our production facility) and Rostov-na- Donu – 900km, each month a truck can do 5 tours back and forth 2) We decided to buy FRACOLD C 415 8SP (loading capacity – 16 tonnes), as Hyundai's’ trucks are more expensive. So in a year each truck can transport 960 tonnes of ice cream during the year. Sales (in ths. tonnes) Our sales (in thousand tonnes) will change in next 4 years according 20 following assumption: 15 1. Value of demand in 2011 was calculated, using the population 10 of the region (14 mil.) and ice cream consumers share (given in appendix), 5 2. Approximate sales share of Inmarko was determined from Appendix 0 2011 2012 2013 2014 2015 «Regional sales Distribution» using cities of Rostov and Sochi). As the premium of distributors is around 25% and average price of ice cream 180.3 RUR, building our own distributional network has economic sense (even if we add other supplementary costs such as fuel, wages, taxes, local transportation).
  • 13. Appendix 7 The distribution network of Inmarko by 2015