ICEFMath team:
Pavel Taranin
Dmitrii Kazantcev
Alexandr Petrov
Artur Yurovskikh
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
By focusing on value adding processes in both production and marketing, the strategy will generate NPV of 17 bln rub by 2020 What we sell
How we sell
Based on Volume, Natural growth and Brand strength, 3 segments are top priorities:
Sales increase is achieved by selection of key areas in:
Premium carbonates: highest growth
How we produce Effective energy management will reduce carbon footprint by 13%
Sales channels
Increased water conservation will result in 30% water consumption decrease
Juices: highest volume and brand power
Water: high volume and natural growth
Premium carbonates Launch of European and American
market growth-driving product Juices
Addition of mineral water and domestic
fruits juices to suit customer needs
Exotic fruits and healthcare focus for the premium price segment
Water
Acquisition of a water company to
increase market share
Enrichment of flavored water with
vitamins to boost demand
Sources: case materials, ICEFMath analysis
Marketing Sales channels Future consumption: focus on supermarkets and hypermarkets
80% of packaging will be recycled
The project will generate NPV of 15 bln rub by 2020
Project summary, Mln rub
31 631
Immediate consumption: focus on fast-food restaurants, bars and cafes
Marketing
14 567
Trade promotion: exclusive dealing
15 207 1 857
15 207
Consumer promotion: data-basing Viral marketing: mobile content Partnership: self-promotion on coming FIFA championship
NPV without CAPEX
Discounted CAPEX
Base scenario NPV
NPV
1
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Currently, Russian economy is not growing fast and soft drinks market will also experience moderate growth Oil prices will remain lower $90 before 2020 Oil barrel price, $
Together with structural problems it will lead to slow development of Russian economy Russian GDP growth, %
89,54 80,17
77,01
76,22
78,44
3,68%
3,45%
82,88
3,90%
3,00% 2,10%
65,23 0,50%
2014
2015
2016
2017
2018
2019
2020
Market of soft drinks, bln liters
12,74
13,12
13,50
13,86
2015
2017
USA
Russia 2016
2017
2018
2019
2019
2020
14,50 336
West Europe
2015
2018
Consumption of soft drinks, annual liters per capita
12,30
2014
2016
Russian soft drinks market is a long way from saturation
Soft drinks market will show positive volume growth 14,18
2014
0,30%
221
90
2020
Sources: case materials, ICEFMath analysis, McKinsey forecast, BofAML forecast, Euromonitor International
2
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
In order to optimize its current product portfolio, CCH should focus on premium carbonates, juices and water Currently, the biggest markets are the most desirable for CCH…
High
10
Premium carbonates
Ice Tea
Water
Juices
Medium
8
Coca cola brand strength
12
6
4 Energy drinks
Secondary priority
Low
2
Top priority Local carbonates
0
0
Low 1 000
2 000
Medium 3 000
4 000
Natural growth High 5 000 6 000
Sources: case materials, ICEFMath analysis, Nielsen, Euromonitor International
… and in order to sustain leadership in these segments, CCH should realize market trends Market is highly consolidated Marketing is effective in this sector 4% long-term market growth Growing health concerns Market is saturated in the largest cities but not in regions Currently, low-price juices are the main factor of growth Price of inputs will grow The most dynamic market among the largest Main factors of growth are mineral and flavored water Market is far from saturation
3
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
In water market, CCH should correspond to growing trends by acquiring mineral water producer and developing flavored water product line Market of water has great potential to develop Spain
Mineral water is the largest segment, but CCH is not well-presented on it
150
France
6%
4%
Drinking water
27%
Russia
Mineral water
130
US
63%
105
33
Mineral water market is not consolidated, thus the best way to expand is to acquire existing player
In choice of company, CCH should minimize cannibalization effects Turnover, mln rub
Price segment
Karachinskiy istochnik
1763
Low
Kavminvodi
766
Medium
Merkury
1910
Low
Visma
1021
High
Narzan
1798
High
37%
Top-5 players Other
Other
Consumption of water, liters per capita annually
Name
Healing water
63%
Region-based competition
Sources: case materials, ICEFMath analysis, Euroresearch Consulting, Spark Interfax
In flavored water segment, we recommend to enrich current products with vitamins Main reason, why people buy flavored water is that it is a healthy and natural alternative to carbonates Currently, there is no developed flavored water, which has focus on enrichment of vitamins, so by adding this product to Russian market, CCH will gain competitive
advantage
4
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Regions with high consumption potential are geographical priorities for juice product line, with shortterm and long-term focuses being Low and Premium price segments Moscow juice market is saturated, while regions have large potential for expansion 2X 40 35
Regions with high consumption potential are current priorities
Annual juice consumption, liters per capita
30
USA
25
Western Europe
20
Russian Federation
15
Moscow
10 5 0
2000 2000
2003 2003
2009 2009
2011 2011
Highest priority
2014 2014
High priority
Priority
Due to worsening economic conditions, Low price segment is a priority in the short-run, whereas Premium segment will face growth in a longer perspective Recovery
Recession
9,8% 5,6%
55,3%
18,1%
8,4% 4,3%
51,2%
7,1%
3,3%
46,3%
7,0%
46,3%
3,2%
7,3%
46,2%
3,5%
7,6%
46,1%
3,8%
7,9% 4,1%
8,2% 4,4%
8,5% 4,7%
46,0%
45,9%
45,8%
Premium price segment Middle price segment Mass price segment
21,5%
24,9%
24,9%
24,8%
24,7%
24,6%
24,5%
24,4%
11,2%
14,6%
18,4%
18,6%
18,2%
17,8%
17,4%
17,0%
16,6%
2012A
2013A
2014F
2015F
2016F
2017F
2018F
2019F
2020F
Sources: case materials, ICEFMath analysis, RBC Russian juice market research
Low price segment Lowest price segment
5
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Current products in the selected price segments could be improved to suit customer needs: focus on naturalness and healthcare Clients value products’ naturalness and Russian origin
Clients prefer healthy products of high quality
Families with children of age 4 to 11
Persons of age from 20 to 45
Low to average income
High income
Prefer Russian and natural products
Prefer high quality products
Family wellness is of great importance
Personal health is of great importance
Use mountain water Currently, Dobry juices are produced using tap water. By creating a product line with mountain water, brand can increase its naturalness in the eyes of customers
Use Russian ingredients Russian fruit production is growing at 11% CAGR, hence Dobry can use domestic fruits in concentrates production
Effect: Differentiation of the product Increased attraction of new customers from the target segment Sources: case materials, ICEFMath analysis, gks.ru
Launch juice line with exotic fruits and vitamins, focus of which is healthcare Focus on Brain power
Energy
Antioxidants
Taste
Active elements
Pomegranate, blueberry
Omega 3/DHA
Strawberry, kiwi
Yerba Mate
Pomegranate, lemon
Vitamins C and E 6
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Carbonates product line should be reorganized to account for the latest innovations and growing health concerns Russians start to care about their health, but traditional carbonates are not considered healthy 4
3 28
29
3 15
Taste: according to consumer polls, taste of CCL is significantly different from CC
Yes, special diet from doctor
25
27
22
23
3 19
Current carbonate alternative is Coca Cola Light, which has problems with taste and naturalness
Yes, create diet by myself Yes, try to eat helthy food
33
34
7 4
8 4
10 5
13
2008
2009
2012
2014
artificial sweetener is considered as damaging health
No possibility to think about diet Cannot answer
6
However, there already exist products that solve these problems!
CC Zero has taste which is almost the same as usual CC and is the main growth driver in European countries… Sales volume increase,%
16,50%
Naturalness: aspartame,
Eat whatever I want
38
35
… and through the use of only natural sweeteners CC Life’s launch has been a commercial success
70%
33%
80%
Rate product’s taste 4 or more stars out of 5
Of people who saw the product have bought it
Of buyers say they will buy it again
15%
CC Zero
6,50%
CC Light
-1,50% 2011
2012
-5,50%%
-5,50%% 2013
Sources: case materials, ICEFMath analysis, US market survey data, Coca Cola annual reports
7
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
In Immediate consumption, fast-food, bars and cafes are the most attractive segments for Coca-Cola Hellenic There are two best segments, which should be priorities for CCH Volume, $ Share of Cola Growth mln in order Vending
190
6%
Café & bars
2731
7%
Fast food
5606
11%
Restaurants
1869
3%
Market share, %
32,8
… thus, we should increase consumption in current FF We suggest to reward high Coke consumption by:
Trips to factories 5,3
4,5
4,3
3,3
Discounts Coca cola souvenirs
Youth accounts for the half of cafe & bars customer base Distribution of respondents by Moscow age
In fast-food, the biggest market players already have exclusive contracts…
SPB
Young people appear to be more positive … thus, we should focus on café & bars aimed at young people via trade and less sensitive in terms of leisure off exclusive dealing and promotions expenditures during recessions …
Other cities
18-24
15%
14%
22%
25-34
27%
28%
30%
35-45
20%
14%
26%
46-54
29%
33%
10%
54 and older
9%
11%
12%
Sources: case materials, ICEFMath analysis, Euromonitor Internation
43%
Share of people positive about the end of recession, % 31%
High consumption in café & bars for youth can be achieved by the following:
Price promotions & bundling
Advertisements
Coca cola souvenirs Youth 18-24
Other
8
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
In Future consumption, CCH should focus on the Advanced sales channels: the middle-sized supermarkets as well as hypermarkets, taking the advantage of customers’ behavior analysis Mln rub 200 000
Advanced Sales Channels showed 12,3% growth in monetary terms in Russia…
…as well as 8% growth in natural terms…
Mln units 4 500
Juice
150 000
100 000
Juice
Carbonated 3 000 Soft Drinks
Carbonated Soft Drinks
Water
Water
1 500
50 000
Other
0 2012
Research of customers’ preferences Positions of highly demanded complementaries
Type
40,00%
30,00% 2012
Effective zoning and planogram
Sales Data
50,00%
Other 0
2013
...and share of Advanced Sales Channels in Future consumption steadily increases
Visualization
Supermarket Sales Area Sales
CSD
28%
19%
Juice
33%
57%
Water
33%
20%
Other
6%
4%
Sources: case materials, ICEFMath analysis, Nielsen Report, Magnit Report
2012
2013
Marketing BTL marketing
2013
Growth in revenue of 3 shops shows the positive impact of zoning and visualization
25,00%
Trade promotion Consumer promotion
20,1% 14,1%
5,5%
Viral marketing Partnerships
2014
0,00%
No
Z
Z+V
9
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Despite of the recession, Coca-Cola Hellenic should strengthen the use of its marketing tools ATL Marketing
Consumer base increase
Marketing
Loyalty increase
BTL Marketing
Trade marketing and promotions
Consumer promotions
Sources: case materials, ICEFMath analysis
with‌
Viral marketing
Partnership
10
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Consumers are more price sensitive in recessions, therefore offering careful price promotions could make a lot of sense for CCH, while exclusive dealing is the priority in trade promotion Trade promotion
Consumer promotion
Exclusive dealing Extra shelves for increased range of products
Less competition and increased turnover Additional Income
Additional Costs
=
1.18
40% 1.3%
of promotions appear to be unprofitable higher the annual growth in equity for firms advertising without dependence on cycle
Careful and diversified promotions based on data analysis should be frequently conducted
Price promotion estimation matrix Evaluation of additional sales of promoted product
Cross-selling effect. Cannibalization
Analysis of promotion costs
Impact of promotion on the image of CCH
Talent management of sales representatives
Assessment of workers Hero of the present
ďƒź
Star of the future
Results Competence Potential
Sources: case materials, ICEFMath analysis
ďƒź
Distribute clients between sales representatives based on assessment Offer different training programmes
Special placement
Effective pricing
Bundling Promotions alternation 11
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
CCH should develop and maintain its industry leadership in sustainable water use, packaging, energy savings and climate protection
Targets to be achieved by 2020 Energy management and climate change
Water conservation
-10% -15% -11% Carbon emissions from manufacturing
Carbon emission from transportation
Energy spent for cooling
Reduction water use ratio in plants
Plants with European water stewardship standard implemented
-30%
Water footprint meaning more efficient water saving
Carbon footprint of the drink on the environment Efficient water and energy usage
100% -15% -10%
23%
-13%
Sustainable supply chain
Sources: case materials, ICEFMath analysis, Coca Cola Integrated Report
Sustainable packaging
Amount of material used for packaging
Natural resources used for packaging
80%
of packaging will be recycled Low CO2 emission
12
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
CCH should manage people, time and money for greatest effectiveness Production
People
Strategic goals:
Strategic goals:
Increase people’s company knowledge Inspire people’s passion for our brands Recruit and develop diverse people
Standardize and simplify business/IT processes Create cost advantage across supply chain Minimize energy/water use
Indicators to measure success:
Indicators to measure success:
Employer of choice in Employer Rankings Workplace rights Diversity
Supply chain costs Overhead per unit Total energy/water use
Sources: case materials, ICEFMath analysis
13
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Majority of core strategic measures will be implemented within three years Key initiatives
2015 I
II
III
2016 IV
I
II
III
2017 IV
I
II
III
2018 IV
I
II
III
2019 IV
I
II
III
2019+ IV
Production
Marketing
Channels
Products
1.1 Acquisition of Merkuriy 1.2 New product development 1.3 Production facilities adjustments 1.4 New trade treaties establishment 2.1 Implementation of zoning, planograming and visualization 2.2 Exclusive contracts establishment 2.3 Special offers in cafes, bars and fast food 3.1 Viral marketing 3.2 World football cup support 4.1 Refrigerators substitution 4.2 Ecological cars purchase 4.3 Implementation of European Water Stewardship Program 4.4 Supply chain program
Phase timeframe Sources: case materials, ICEFMath analysis
Event timeframe
14
Summary
Overview
Products
Channels
Marketing
Production
Conclusions
Proposed strategy will significantly affect key financial indicators and generate 15.2 bln rub NPV Profit margin will return on growing trend Return on sales, % 4,00%
NPV of cash flows until 2020 will be more than 15 bln rub Mln rub
3,50% 3,00% 2,50% 2,00%
14 567
1,50% 1,00% 0,50%
0,00%
1 857
31 631
-0,50% -1,00% 2013
2014
2015
2016
2017
2018
2019
2020
15 207
Market share* will increase by 4%
15 207
54,0% 52,0%
NPV without CAPEX
50,0%
Discounted CAPEX Base scenario NPV
NPV
Assumptions:
48,0%
ďƒź WACC=13.67% ďƒź Initial investments consist of 3.6 bln acquisition costs and environmental investments of 0.4 bln
46,0% 44,0% 42,0%
40,0% 2014
2015
2016
2017
MS withous strategy
Sources: case materials, ICEFMath analysis
2018
2019
2020
MS with strategy
* Considering sales in super- and hypermarkets 15
ICEFMath Team
Pavel Taranin
Artur Yurovskikh arthur_940608@live.ru
petrovalexandrig@yandex.ru
kasantsevdima@yandex.ru
NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year Cup Russia, Finalist, 2014 Global Management Challenge, Finalist, 2014 Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014 McKinsey Academy, 2014 Risk Analyst in commercial bank
NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year Russian National Olympiads in Economics, Social Science and History, prizewinner, 2010-2012 Alfa-bank scholarship Global Management Challenge, Finalist, 2014 Cup Russia, Finalist, 2014 Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014
NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year Global Management Challenge, Finalist, 2014 Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014 Cup Russia, Finalist, 2014 Risk Analyst in commercial bank McKinsey Academy, 2014 Winner of various table tennis competitions
NRU HSE, International College of Economics and Finance, “Mathematics and Economics”, 3rd year Russian National Olympiad in Economics, winner, 2011,2012 Winner of HSE Mathematical methods in Economics Olympiad for Bachelor students, 2014 Alfa-bank scholarship Cup Russia, Finalist, 2014 Risk Analyst in commercial bank McKinsey Academy, 2014
paveltaranin@yandex.ru
Alexandr Petrov
Dmitrii Kazantcev
7
3
1
6
4 5
Low
Medium
Sources: case materials, ICEFMath analysis
High
1
Declining consumer demand
2
Input costs
3
Legal restrictions Organizational integration of Merkuriy failure
4
2
Low
Medium
High
Severeness of risk
The most severe strategic risks are external
5
Climate change
6
Supply chain fault
7
Disruption of IT service
Probability of risk 1
Coca Cola Hellenic’s current risks can be mitigated Risks
Actions to manage risks Optimization of product portfolio, development of current and new
Declining consumer demand production channels and marketing Input costs Legal restrictions
Hedge risks using commodities swaps and futures Closely work with Russian government to ensure that our products are not singled out unfairly
Organizational integration of Create integration plan which will account for cultural and organizational differences between companies Merkuriy failure Climate change
Supply chain fault Disruption of IT service Sources: case materials, ICEFMath analysis
Increasing efficiency and reducing ecological impact of our production facilities to protect licenses Minimum standards for suppliers to ensure their quality and get early warnings of potential issues Run existing IT system on dual architecture landscape, use remote data centers to ensure that information will not be lost in case of IT disruption 2