Irish Dairy Board Russian Market Experience Presentation Outline - PowerPoint PPT Presentation

Irish Dairy Board Russian Market Experience

Presentation Outline • Overview of Russian Dairy Market • Consumer Insights • Competitive Environment • Retail Structure • Competitor Analysis • Kerrygold Experience in Russia

Irish Dairy Board – Consumer Foods Division • Kerrygold brand currently marketed in over 50 countries globally • Key markets in EU, USA & Africa • Business Development Plan - Growth Agenda New Markets New Product Development M&A 3

New Business Development Priority Regions • Africa • Russia • Middle East • Latin America

Russia – Macro Stats • Population 141.8 m • 13 cities – over 1 million GDP € 8,890 per capita • • Household Consumption 53% GDP

Russia – A major food market • Retail Grocery Sales of € 193 bn • 2 nd largest in Europe and 7 th largest globally • Growth of 20% per capita spend pa • Major Dairy Market • Liquid Milk market valued at € 2 bn • Butter market valued at € 2.6 bn • Cheese market valued at € 5 b n

Russia – Key Dairy Trade Statistics Consumption mt Import Volume mt Main Suppliers Butter 350,000 125,000 Belarus, NZ, Finland, Other EU Cheese 700,000 293,000 Germany, Ukraine, Finland, Other EU Large Consumer of dairy products Total Irish production 126,000 mt butter, 158,000 t cheese

Dairy Per Capita Consumption – kg Russia France Australia Ireland EU Butter 2.5 7.8 3.7 2.5 3.5 Cheese 5.6 26 11.7 6.1 16.6 Milk 70 59.2 106 140 64.5 Population 141.8 62.5 22.2 4.5 499.7 millions Russian per capita consumption of butter and cheese similar to Irish

CONSUMER INSIGHTS

Russian dairy market – Key Consumer Insights/ Trends Dairy Products – A fundamental element of diet • • Cheese and butter consumed everyday Butter – 2 types distinguished by fat content • • Creamery Butter 82.5% fat • „Peasant‟ Butter 72.5% fat Mainly unsalted sweet cream •

Consumer Insights - Butter • High usage • All meals • Sandwiches • Cooking • Main criteria for butter selection • Price • Fat content • Brand

Consumer attitude to butter - Qualitative Research • Extracts from focus group discussions • “That‟s our “soviet” habit. Since childhood our grannies passed it to our moms, and moms told us that butter in the morning quenches hunger for the couple of hours and makes your brain work actively”, - females, 26-35 y.o., Moscow • Many consumers prefer cut and put slices of butter on bread. • “I remove butter to the butter dish and then cut a slice and put it on bread – no need to spread anything”, - females, 21-25, Moscow

COMPETITIVE ENVIRONMENT

Retail Environment • Highly fragmented /competitive market • Modern retail outlets account for less than 20 % of total retail sales • Main development activity centred in Moscow & St. Petersburg • Recent expansion in „regions‟

The Grocery Retail Market – Value Share By Format (%) Open Markets, Pavillions & Kiosks Soviet Style Grocery Stores Discount Supermarket Hypermarkets / Cash & Carry 100 4 5 6 6 8 7 7 10 11 12 8 10 80 10 11 21 25 24 % Share of Trade 23 22 60 13 40 57 53 52 50 47 20 0 2004 2005 2006 2007 2010e Source: Business Analytica, IGD estimates

Top Grocery Retailers 2008 Retailer Grocery Grocery Retail IGD Grocery No. of Sales Market Share Retail Market Grocery ( € m) of Top 11 (%) Share (%) Stores X5 6,044 31.6 3.5% 1,101 Magnit 3,622 17.9 2.1% 2,592 Auchan 2,668 12.8 1.5% 58 Sedmoy Kontinent 1,597 7.7 0.9% 146 Kopeyka 1,435 6.8 0.8% 517 Lenta 1,394 6.8 0.8% 34 Dixy 1,308 6.8 0.8% 481 Victoria 1,074 5.1 0.6% 216 Okey 590 2.6 0.3% 15 Real (Metro Group) 404 1.7 0.2% 12 Billa (Rewe) 263 1.7 0.2% 56 Source: IGD. Note excludes Cash & Carry and members club operations

Retail Butter Sector Estimated at 110,000 tonnes Large diverse range of brands, quality, price

Retail Butter Sector – Price Segmentation • Kerrygold • 33 korovy • President • Vologodskoe • Domik v derevne PREMIUM UM • Anchor • Valio More than 55 rubles • Midnight Sun • Vesiolyi molochnik, • Vkusnoteevo, • Vologda, CORE RE • Doyarushka, • Kubanskaya burenka • Milaya Mila, • Novaya Izida, From 40 to 55 rubles • Prostokvashino • Savushkin produkt, • Sloboda, • Smolenskoye MASS SS MARKET ET • Kremliovskoe • Krestyanka Less than 40 • Krestyanskoe rubles * Price for 200 gr package

Competitors in Butter Sector Domestic Brands Positioning Imported Brands Positioning Vologodskoe Premium Valio ( Finland) Premium 33 Korovy Premium Anchor ( NZ ) Mid-Prem. Domik v Derevne Premium President (France) Premium Krestyanskoe Low Price Lurpak ( Denmark ) Premium Sloboda Mid-Price Doyarushka ( NZ ) Mid – Prem. Smolenskoye Mid-Price Kremliovskoe Low Price Market Shares Valio 11.1%, Anchor 2.4%, President 0.7%. Vologodskoe and Krestyanskoe – leading domestic brands

BRAND AWARENESS, CONSUMPTION, LOYALTY - MOSCOW The most popular brands in Moscow are % 100 0.8 Affinity Vologodskoe, Anchor, Valio, 33 Korovy and AWARENESS Kremliovskoe 0.7 CONSUMPTION 80 LOYALTY 0.6 CONVERSION RETENTION 0.5 60 0.4 40 0.3 0.2 20 0.1 0 0 Domik v derevne Kremliovskoe Novaya Izida Vkusnoteevo Prostokvashino 33 korovy Savushkin produkt Vologodskoe Anchor Valio Krestyanskoe Vologda Smolenskoye President Doyarushka Vesiolyi molochnik Sloboda Krestyanka Milaya Mila Midnight Sun Kubanskaya burenka Kitezh MMI, Moscow 2006-2

BRAND AWARENESS, CONSUMPTION, LOYALTY ST. PETERSBURG The most popular brands in St. Petersburg % are Valio, Vologodskoe, Anchor, 100 1.2 Affinity Krestyanskoe and Vologda AWARENESS CONSUMPTION 1 80 LOYALTY CONVERSION RETENTION 0.8 60 0.6 40 0.4 20 0.2 0 0 Domik v derevne Prostokvashino Kremliovskoe Novaya Izida Vkusnoteevo 33 korovy Savushkin produkt Valio Vologodskoe Anchor Krestyanskoe Vologda Vesiolyi molochnik President Krestyanka Doyarushka Sloboda Midnight Sun Smolenskoye Milaya Mila Kubanskaya burenka Kitezh MMI. St. Petersburg 2006-2 Small sample

BRAND AWARENESS, CONSUMPTION, LOYALTY REGIONAL CITIES The most popular brands in main cities are % 100 1 Affinity Krestyanskoe, Krestyanka, Kremlevskoe, AWARENESS 0.9 Domik v derevne, Vesiolyi molochnik CONSUMPTION LOYALTY 80 0.8 CONVERSION RETENTION 0.7 60 0.6 0.5 40 0.4 0.3 20 0.2 0.1 0 0 Domik v derevne Kremliovskoe Prostokvashino Vkusnoteevo Novaya Izida 33 korovy Savushkin produkt Krestyanskoe Krestyanka Vesiolyi molochnik Vologodskoe Sloboda President Kubanskaya burenka Anchor Vologda Smolenskoye Valio Doyarushka Milaya Mila Kitezh Midnight Sun MMI. Cities 2006-2

Kerrygold in Russia • Initial market research in 2006/2007 • Quantitative & qualitative analysis • What place does Kerrygold have in this market ? • Positioning • A premium imported butter from a country with strong dairy tradition • made from milk produced from pasture-fed cows • Presented in signature gold foil pack – 200g • Launched in Nov 2007

Kerrygold Sales & Distribution • Moscow-based specialty food distributor appointed • Listings achieved in key supermarket accounts • Hired Sales/Marketing Exec • Appointed local advertising agency • Marketing campaign implemented

KERRYGOLD MARKETING IN RUSSIA Below-the-line approach, focussed on in-store activity and direct consumer communication

In-store Sampling and Promotion • Intensive sampling and demos in key retail accounts • Auchan, Metro, Karusel, Perekriostok • 3-day slots in key store location • Effective in creating brand awareness

Themed events St. Patricks Day parade • Moscow Event Sponsorship • • Moscow Jazz festival • Irish Film festival

Advertising Magazine ads • Gift items / Giveaways • Trade Incentives •

Seasonal / Point-of-Sale / Price promotions

Kerrygold – Current business in Russia • Established in Moscow region as premium imported butter brand • Retail distribution in key accounts - Auchan, Perekriostok, Metro • Smaller presence in St. Petersburg - Karusel • Strong competition from Valio, Lurpak, President • Sales growing but limited to premium segment

Key Challenges Highly competitive market – multiple brands • • Kerrygold in upper premium segment • Government regulation / Bureaucracy • Demanding certification and packaging requirements • Compliance with Russian milk testing and production regulations • Restrictive import system – 15% duty on dairy products • 10% VAT • Currency exchange rate volatility – exposure to ruble weakness

Key Challenges • Trading terms & conditions • Raw material price increase / negotiation with trade • Demanding conditions for imported brands • Distribution Costs / Logistics • Bulk butter produced in Ireland • Packed by IDB subsidiary in Germany • Transported overland to Moscow • Extensive area - need for multiple distributors