Today we present you the Meso Analysis that describes micro-market overview. In order to understand all peculiarities of the ice cream industry Porter’s Five Forces Analysis will be used.

The five forces to analyze are:

·                     The Threats of New Entrants

·                     The Threats of Substitute Products

·                     The Rivalry between Competitors

·                     The Power of Buyers

·                     The Power of Suppliers

The Threats of New Entrants:

As mentioned before, Russia is the 6^th world’s largest market to import dairy products. This means that the ice cream industry is seen as an attractive and profitable sector to Russian’s economy, where Dippin’ Dots could have high opportunity to succeed. There are a lot of competitors in the ice cream industry, but the ice cream industry in Russia is still not saturated. That leads to the possibility of entering the market by newcomers from Russia or any foreign country. Also it is possible way of diversification for milk producers dealing in Russia: Wimm – Bill – Dan, Danone- Unimilk and the others.  Moreover, the tariffs and regulations have changed and become more beneficial for foreign new entrants.

That is why the threat of new entrants is relatively high in this industry. However, since we are considered as a new foreign entrants we can easily penetrate the market.

The Threats of Substitute Products:

To understand what products are considered as substitutes for ice cream, we have identified several factors. First, ice cream is a fun, second, delicious treat where it satisfies customers who are in need of something sweet, cold and tasty. So we can define sorbets, gelato, frozen juice and yogurts as substitutes. Companies of this segment face tough competition because of the number of competitors. But talking about switching cost we can say that they are quite high in terms of satisfaction of the needs because of the purchasing behavior and customer loyalty.

So, the threat of Substitute Products is relatively low in this industry.

Competitors:

In contrast to European countries, where share of some companies in total consumption volume comes up to 80%, Russian ice cream market is considered to be weakly consolidated; we can even conclude that it is highly fragmented, as well as market of St. Petersburg. Ice cream production is currently divided among around 300 producers, including approximately 70 branded producers, but 60% of old producers from the Soviet times, and the rest representing insignificant in size, no-name, low margin product manufacturers. Total share of seven key ice cream producers in the country comes to only 40%. There is only one company having the share more than 10%, while four ones overcome the level of 5%. Up to 70% of the market is under the control of 20 producers. Residual 30% are divided among 250—300 producers. In the future, market will be shared among the companies taking at the moment first 10—15 positions in the rating.

So there are many companies on the ice cream marketing and following companies are considered to be the leaders at Russian ice cream market:

·    Inmarco (Unilever)

·    Talosto (Metelytsya)

·     Iceberry,

·     Russian Cold

·      Nestle

·      Showy Borough (Snizhne Mistechko)

·      AlterWest.

 In the current moment there five companies that controles over 50% of the market:  Inmarco (Unilever) –19,8%, Talosto (Metelytsya),  Iceberry, Russian Cold and Nestle. 80% of the market is under control of TOP -10 competitors, the other 30% belongs to small and medium size local producers.  All companies have the same brand profile that shows that the product differentiation is low

As the result, the number of competitors and product differentiation defines that the rivalry between competitors is also high in that industry.

Bargaining power of customers:

Consumer profile:

The common profile of the consumers are 60,2% of female and 39,8% male. As for the income groups of consumers they are mostly people with moderate income. Older consumers aged above 55 had the highest share among all the age groups at 26%, with the older young adults aged 25-34 years holding the second position with 17%. Tweens & early teens, between 10-15 years, held the least share at 7.4%.

Target audience:

·     Adults /Families

·     Youngsters

·     Children

Adults tend to prefer classic ice cream, domestic manufacturers and organic ingredients. Families are the most frequent buyers of Family Packs, organic ice cream, so they are target group of the take-home segment. More than one third of active ice-cream consumers in Russia are younger than 25 years yet. Children are the group of consumers only few companies are targeted at. Many researches claim that there are opportunities for those who produce ice cream for kids and youngsters and differentiate the brand according to this in marketing campaigns. Youngsters in general buy individually fancy packed ice cream; they are inclined to impulse purchases, they are the category the Doppin’ Dots should be targeted at the most.

Consumer behavior:

The peculiarity of Russian ice cream market lies in its consumer culture.

Although climatic conditions in Russia are rather severe it doesn't much influence the consumers' behavior of purchasing an ice cream. As we already mentioned – ice cream mostly is an impulse-driven purchase in Russia. One of the reasons of ice cream's popularity is of course a Soviet tradition when practically everyone was buying one ice cream every day as the price was very low. Moreover in comparison with American ice cream market the tendencies on the Russian one can be explained by the main products that are consumed. People prefer to have an ice cream while walking rather than at home. So compact and individually packed products that can be bought right in the street are more popular than those in the big packs.

The Russian consumers see the product differently. In western cultures it's more a part of everyday meal and in Russian mentality it's seen like a dessert. People usually buy ice cream on the holidays, when something significant happens or they just want to make their day better.

There is an interest according some researchers that consumers are tend to accept everything interesting, unusual, ice cream in fancy packs or new forms. So called “Premiumization”, health and wellness consciousness, and curiosity regarding novel products have become important for Russians again, probably due to increased consumer confidence, and the economic growth. We will discuss consumer power in more detail later in Porter’s analysis.

How we can see from the analysis of the consumer profile, Russian market is far reaching and there is a wide variety of consumers to focus on. As the market power of consumers is really low and the only aim of the company is to make their product as attractive as they can to increase their profits.

Bargaining power of suppliers:

The main suppliers of the ice cream industry are the manufacturers of dairy products. The companies that produce ice cream cannot survive without their main component. However inspite of such close relations between two industries, the market power of suppliers is low. That is because Russia is one of the largest producers of dairy products in the world and there are large national and regional producers that supply all the dependent industries.

In fact, the sector as a whole is relatively dependent on import of ingredients. Unia and Multifrost are two of Russia’s major distributors of ice cream and frozen foods. They believe that imported chemicals and freezing equipment are of better quality than locally produced components. 

So we can say that there is a large number of the suppliers give us the possibility to say that their market power is low as the Dippin' Dots can easily change their supplier without high switching costs.

To conclude, it is advantageous to penetrate Russian ice cream industry since the benefits from low bargaining power of suppliers, low bargaining power of customers and almost no threat of substitutes can be gained.