Although the Russian ice cream market may initially look attractive due to its consistent growth in ice cream production/demand in recent years, after evaluating the market through the five forces framework, it becomes clear that the market far from attractive.
Since the open market economy was first introduced to Russia in 1991, ice cream producer competition has more than tripled in sized to 300 firms by 2002. Significant funding would be required for ice cream manufacturing/distribution and a new entrant would also need to consider the market’s pre-existing loyalty to domestic brands. There is also a luxury tax associated with ice cream production, which negatively affects the potential for current and future profit.
While many foreign competitors exited the market during the economic crisis of 1998, the companies that remained presented significant competitive pressure and prowess. For instance, Nestlé leveraged their international brands and large advertising budget to “push” their products into distribution channels for the Russian consumer. Without Nestlé’s scale, a significantly smaller company would have difficulties competing in on the same advertising caliber.
There are various ice cream substitutes available to the Russian consumer including beer, soda, yogurts, chocolates, and other confectionery candies. Demand for these substitutes is also higher than demand for ice cream because they have chosen to adopt aggressive and expensive advertising and branding strategies. Although one can argue that the increased demand is due to the larger advertising spend, the change in consumer preferences may also be a critical factor, further pointing to the unattractiveness of the ice cream market.
Ice cream production requires supply from equipment vendors and raw material retailers. However, data shows that neither equipment vendors nor raw material suppliers have much bargaining... [continues]
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