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

• Middle East

• Russia

• 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

• 2nd largest in Europe and 7th 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 bn

Russia – Key Dairy Trade Statistics

Large Consumer of dairy products

Total Irish production 126,000 mt butter, 158,000 t cheese

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

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

millions

141.8 62.5 22.2 4.5 499.7

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 (%)

5753 52 50 47

2524 23

22

13

810 10

11

21

77 10 11 12

4 6 5 6 8

0

20

40

60

80

100

2004 2005 2006 2007 2010e

% S

hare

of Tra

de

Open Markets, Pavillions & Kiosks Soviet Style Grocery Stores

Discount Supermarket

Hypermarkets / Cash & Carry

Source: Business Analytica, IGD estimates

Top Grocery Retailers 2008

Source: IGD. Note excludes Cash & Carry and members club operations

Retailer Grocery Sales (€m)

Grocery Retail Market Share of Top 11 (%)

IGD Grocery Retail Market Share (%)

No. of Grocery 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

Retail Butter Sector

Estimated at 110,000 tonnes

Large diverse range of brands, quality, price

Retail Butter Sector – Price Segmentation

PREMIUM

CORE

MASS MARKET

More than 55 rubles

From 40 to 55 rubles

Less than 40

rubles

* Price for 200 gr package

• Kerrygold

• 33 korovy

• President

• Vologodskoe

• Domik v derevne

• Anchor

• Valio

• Midnight Sun

• Vesiolyi molochnik,

• Vkusnoteevo,

• Vologda,

• Doyarushka,

• Kubanskaya burenka

• Milaya Mila,

• Novaya Izida,

• Prostokvashino

• Savushkin produkt,

• Sloboda,

• Smolenskoye

• Kremliovskoe

• Krestyanka

• Krestyanskoe

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

0

20

40

60

80

100

Volo

godskoe

Anchor

Valio

33 k

oro

vy

Kre

mlio

vskoe

Dom

ik v

dere

vne

Kre

sty

anskoe

Volo

gda

Sm

ole

nskoye

Pre

sid

ent

Doyaru

shka

Vesio

lyi m

olo

chnik

Slo

boda

Kre

sty

anka

Mila

ya M

ila

Novaya I

zid

a

Vkusnote

evo

Pro

sto

kvashin

o

Mid

nig

ht

Sun

Kubanskaya b

ure

nka

Savushkin

pro

dukt

Kitezh

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

AWARENESS

CONSUMPTION

LOYALTY

CONVERSION

RETENTION

% Affinity

MMI, Moscow 2006-2

The most popular brands in Moscow are

Vologodskoe, Anchor, Valio, 33 Korovy and

Kremliovskoe

BRAND AWARENESS, CONSUMPTION, LOYALTY

ST. PETERSBURG

0

20

40

60

80

100

Valio

Volo

godskoe

Anchor

Kre

sty

anskoe

Volo

gda

Vesio

lyi m

olo

chnik

Dom

ik v

dere

vne

Pro

sto

kvashin

o

Pre

sid

ent

Kre

sty

anka

Kre

mlio

vskoe

33 k

oro

vy

Doyaru

shka

Slo

boda

Mid

nig

ht

Sun

Sm

ole

nskoye

Mila

ya M

ila

Novaya I

zid

a

Savushkin

pro

dukt

Vkusnote

evo

Kubanskaya b

ure

nka

Kitezh

0

0.2

0.4

0.6

0.8

1

1.2

AWARENESS

CONSUMPTION

LOYALTY

CONVERSION

RETENTION

% Affinity

MMI. St. Petersburg 2006-2 Small sample

The most popular brands in St. Petersburg

are Valio, Vologodskoe, Anchor,

Krestyanskoe and Vologda

BRAND AWARENESS, CONSUMPTION, LOYALTY

REGIONAL CITIES

0

20

40

60

80

100

Kre

sty

anskoe

Kre

sty

anka

Kre

mlio

vskoe

Dom

ik v

dere

vne

Vesio

lyi m

olo

chnik

Volo

godskoe

Pro

sto

kvashin

o

Slo

boda

Vkusnote

evo

Pre

sid

ent

Kubanskaya b

ure

nka

Anchor

Volo

gda

Sm

ole

nskoye

Valio

Doyaru

shka

Mila

ya M

ila

33 k

oro

vy

Kitezh

Savushkin

pro

dukt

Novaya I

zid

a

Mid

nig

ht

Sun

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

AWARENESS

CONSUMPTION

LOYALTY

CONVERSION

RETENTION

% Affinity

MMI. Cities 2006-2

The most popular brands in main cities are

Krestyanskoe, Krestyanka, Kremlevskoe,

Domik v derevne, Vesiolyi molochnik

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

Short-medium term strategy for IDB

• Build distribution in Moscow & St. Petersburg

• Expand distribution in Regions

• Add more skus – 400g, tubbed

• Improve supply logistics

• More integrated packing and distribution

• Pack in Ireland or Russia

• Introduce Kerrygold cheese range

• Cheddar and Dubliner cheese

New Kerrygold logo and pack design

34

Current New design

Existing and new pack for Russia

Longer term Strategy

• Strategic Market Evaluation

• Identify broader opportunity areas

• New Products, Partnerships, JVs

• Establish larger in-market presence

• Platform for growth & development

Spasibo