Ice Lyli

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Ice-Fili (АЙС-θИЛИ)
You cannot defeat a nation that enjoys ice cream at minus 40 Celsius. — Winston Churchill
To survive in Russia’s ice cream industry during the 11 years since the collapse of the former Soviet Union was no small feat (see Exhibits 1 and 2). To be successful in these turbulent times was nothing short of amazing to industry observers. In 2002, Ice-Fili, a midsized Russian company with more than $25 million in sales, was Russia’s top ice cream producer. Surprisingly, it had outlasted several well-known international companies such as Ben & Jerry’s, which exited the Russian market in 1997, and Unilever, which left in 2001. Ice-Fili had not only successfully transitioned from the tight controls of the Soviet regime to the infant Russian open-market economy in 1992, but it had also successfully navigated its way through the difficult times of Russia’s 1998 financial crisis. Ice-Fili was fighting to maintain its market share leadership in the increasingly competitive Russian ice cream market, which had decreased over the past few years to about a half-billion dollars in sales. Nestlé, which advertised heavily, was Ice-Fili’s fiercest competitor. While most ice cream producers were left to fight in an already saturated ice cream kiosk system, Baskin & Robbins and Haagen-Dazs1 had positioned themselves as premium ice cream producers, distributing through franchised restaurant and café networks. At the other end of the competitive spectrum, the small regional ice cream producers, which were believed to have lower production costs than Ice-Fili and other Moscow-based producers, were now making strong inroads in the major metropolitan markets. Anatoliy Shamanov, Ice-Fili’s CEO, wrestled with some fundamental strategic questions: Could Ice-Fili maintain its market lead over Nestlé? Should Ice-Fili invest in its own chain of cafés in order to find new retail avenues for its ice cream products? How could Ice-Fili compete with regional producers without engaging in a price war? And how could Ice-Fili attract the talent necessary to manage in a competitive market economy?

Consumption of Ice Cream in Russia
There are many stories explaining how the Russians came to love ice cream. According to one story, Czar Peter the Great brought ice cream back from France in the seventeenth century; yet another claimed that ice cream achieved its popularity after the Bolshevik Revolution in 1917 when it became available to the masses and not just the noble classes.2 Another Russian ice cream legend maintained that ice cream sellers were as numerous in winter’s subzero climate as they were in the summer. According to a Baskin-Robbins manager in Russia: “Russians eat even more in the winter, although it sounds strange. Perhaps it’s because in summer it melts by the time you get it home. In winter you can eat it as long as you want.” 3

Despite those casual observations, industry statistics indicated that Russian ice cream consumption peaked during the summer months, exhibiting strong seasonal differences (see Exhibit 3). In 2001, Russians consumed 2.5 kilograms of ice cream per capita, compared with the 16 kg consumed in the United States, 17 kg in France, and 18 kg in Canada.4 Ice cream was considered primarily as an inexpensive snack consumed “on the go,” resulting in a greater number of spontaneous purchases from kiosks or street stalls than from supermarkets and grocery stores (see Exhibit 4). According to a Russian business analyst: “Domestic [Russian] manufacturers have done little to position ice cream as a family product, being satisfied with spontaneous, impulsive consumption. Ice cream is not an expensive product, and many people can afford it. But people still don’t consider it to be something they can have at home for dessert.”5 In contrast, over a third of the $20 billion U.S. ice cream market was from in-home consumption. Traditional Russian ice cream contained about 15% milk fat, compared with the 10% found in premium...
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