Jennifer Flannigan Meredith Green Jon McEvoy Meg Shannon Economic State • Russia’s Financial Crisis of 1998 devalued the ruble and left the country to rely on the US dollar. • With a recent return of confidence, Russia’s population has discovered a new-found sense of wealth and recovery. • The population’s wealth has become highly concentrated. Economic Conditions • Venturing outside of the cities, the “real” Russia is revealed. Life for the largest percentage of the population remains grim and reminiscent of the Soviet Era. • The economic status of Russia leaves pricing considerations: – Price high, attract the small wealthy percentage of the population. – Price low, find new ways to cut costs and expect low profits. Material of Packaging The material would need to be changed from glass to plastic because of: • Rough transporting methods • Consumer methods of getting to and from grocery stores Consider the cost of using glass vs. plastic. Design of the Lid • The metal lid should be changed to plastic because of poor storage conditions and the possibility of rusting. • It would need to have more ridges to ensure no leakage of the product when in transport. • Consider the cost of making plastic lids as opposed to metal lids. Size of Packaging • The competitors offer both large and small sizes of bottles of ice tea. • Russians do not drink cold beverages so refrigerator space is not an issue to consider. • Storage space in Russian homes is limited. • The bottle would have to be almost completely reengineered which would be costly to Lipton. • However, if Lipton used the same design as its Brisk Iced Tea bottle, then extra money would not have to spent on designing a new bottle for the Russian market. Labels of the Competition UniJuice and Nestea labels picture fruits which appeal to Russian consumers. Color and Graphics: • Lipton uses the color yellow on all of its labels to symbolize brightness, vitality and fun. • There are no negative connotations with the color yellow in Russia, so this can remain consistent with the brand as it moves into Russia. • Images on the labels would have to be chosen carefully because Russians do not put ice in their drinks. • Adding pictures of fruit would make the product look more appealing at first glance. Language on the Label • It would be very beneficial for the company’s image to change the wording on the label to Russian. • This flatters Russian consumers and the Lipton company will be better respected. • By placing “Made in the USA” somewhere on the product, Russians will associate it with being of high quality. Caffeine Content of Product • Do not need to change this because Russians are already accustomed to drinking large amounts of caffeine. • Keeping the caffeine content the same would not be an added cost for Lipton. Product Serving Size Caffeine (mg) Lipton Natural Brew Iced Tea Mix, unsweetened 8 ounces 25-45 Lipton Tea 8 ounces 35-40 Lipton Iced Tea, assorted varieties 8 ounces 9-20 Lipton Natural Brew Iced Tea Mix, sweetened 8 ounces 15-35 Flavor Variations • Don’t care for sweet beverages but they really like fruit flavors. • Juices and nectar are some of the top sellers in the beverage market. • Competitors offer fruit-flavored ice teas. • Some flavor variations have already been produced by Lipton and these could be introduced first into the Russian market. •No extra expense to develop these fruit flavors. Food Supply & Logistics Since the collapse of Communism, food supply and logistics have been a major political and economic issue in the states of the former USSR. 3 Fundamental Characteristics of Soviet Supply Chains: •Massively scaled •Centrally controlled •Scarce competition Russia’s 2 largest cities, Moscow and St. Petersburg, are supplied by a small number of large organizations. Vertical Command Structure •Organized food committees estimate a city’s demand for a particular good. •Information is sent directly downward to the processors. •Producers are instructed as to how much product to ship to the processors. No Horizontal Communications Producers cannot share information with other producers and processors cannot form strategies with other processors. Competition •Each processing plant is served by a particular group of farms and the product is supplied to designated retailers. •No competition exists between alternate supply chains or any sector within the supply chain. Factories •Russia is not well equipped to handle mass amounts of distribution. •Most facilities are very old •Factories have no excess capacity Warehousing •There are a small number of large warehouses dating all the way back to before WWII. •Warehouses are controlled by municipal authorities. •Small chambers and multi-level construction create inefficient warehousing. •Corridors and lifts can waste up to 30% of available space •High and inefficient use of labor •Bottleneck in the supply chain Retailing •Most major cities in Russia are moving from traditional shops to modern supermarkets. •St. Petersburg has 30 supermarkets that serve 200,000-250,000 people. •Stores have surprisingly under- developed means of quality and stock control. •Small locally owned shops are disappearing due to poor management and communication with suppliers. •Moscow has 700 bread shops that are supplied by 1 bread factory. Bakeries cannot order more product because the factory has only 2 telephone lines. Transportation of Goods Waterways •95,000km of suitable water routes •33 major workable ports •553 cargo ships, 21 refrigerated cargo ships + Pros: many ports suitable for docking, ease of transferring ship cargo onto rail - Cons: Rivers flow north-south, limited refrigerated cargo ships for food Road Shipping & Trucking •Adequate passage between distributors and producers •Poor quality trucks •Average speed limit of 40km/hr •Small load capacity •Low repair standards •Urban delivery is difficult Trucking Inadequacies No. of Vehicles AVG carrying capacity Rosagroprom 711,000 2.5 tons Rosavotrans 25,000 3.8 tons Centralsoyuz 50,000 N/A Railways •The 87,157km of railways link every major city within Russia. •The average distance covered by a multiproduct train is 230km/day. •While a major source of transportation, the railway system has proven to be unreliable and outdated. Media Forms • The available media forms are: radio, with 420 total AM stations and 447 total FM stations, television, with 7,306 stations countrywide and internet with 6 million users. • Print and billboard media are good opportunities to advertise in the Russian market, especially Russian trade journals and general interest magazines and newspapers. • Trade shows are a very good way for a company to enter the Russian market. • Telemarketing is common but not particularly effective because of the poor state of telecom infrastructure. • Other direct marketing channels, such as catalogs, e-commerce and regular mail are still new and underdeveloped, but growing. The Agricultural Trade Office • The agricultural trade office in Moscow, with the support of satellite offices in St.Petersburg and Vladivostok, works closely with companies to promote the sale of U.S. food, beverage and agricultural products throughout Russia. • The ATO also conducts promotional activities to help introduce new products and promote U.S. food and agricultural products already available in the Russian market. Legal Issues • Advertising tax is a local tax levied on all enterprises that have advertising activity. • Professional services in Russia are expensive, but with complicated tax and legal issues it is necessary to contact and attorney and accountant early on. • Business registration in Russia is regulated by numerous laws and Government resolutions. Conducting business without registration is illegal. Competitor Advertising • Due to a return to culture, Coca-Cola has developed a marketing strategy that will weave the brand into the local culture. In preparation, a creative and planning team from the agency was dispatched to live with Russian families and meet people to get an idea of what was needed to connect with the Russian people. • Coca-Cola is also re-launching its Minute Maid fruit juices. Promotional activity for this brand will be handled in-house with little advertising spending. • Another marketing strategy used by Coca-Cola is to give the Russian consumer a chance to create his or her own TV commercial. • Pepsi is launching two new herbal and fruit drinks under Russian names. These drinks will be promoted primarily with TV commercials and point-of-sale materials.