How attractive is the Russian ice cream market? How is it likely to evolve? Market attractiveness refer to all the characteristics that contribute to the success of organizations within the market. Profitability is one and Exhibit 9 suggests profit margins for retailers and distributors are about 30% - 50%, and producers’ is about 15%. This is high in the Russian food industry where, the profitability in the confectionary industry was only 6% - 8%. The russian ice cream industry had about 300 companies in 2002. The largest domestic competitor, Ice Fili only had about 5% market share. The rest were shared among foreign competitors and small regional producers. There is no legal barrier to entry and exit except for the official standard (GOST) set by the Association of Russian Ice Cream Producer to determine ice cream classification. Private ice cream equipment companies also developed quickly in the region. This lowers the entry cost as ice cream manufacturers no longer need to import the equipment. Russian ice
Figure 1: Porter’s model of five competitive forces
Applying the above information in the model and
Market does not look attractive.
Face strong competition from foreign ice cream producers.
Compared to other With the dissolution of the Soviet Union, foreign ice cream companies poured into Russia to capitalize on this new market. The domestic ice cream producers did not know how to adjust to a free market economy manufacturers’ profit margin fell from 15% - 20% in 1999. As of 2002, domestically produced Russian ice cream filled the low to medium level price category, whereas foreign ice creams were positioned in the premium ice cream category, selling at almost double price.