Living on Crispy Baked Bread

Sofia Inkizhinova, journalist of “Expert”, published her interview with Sergey Beloborodov, Head of Effectivization and Company's Strategy Division in “Sibirsky Bereg”, on the magazine's website. The article is called “Living on Crispy Baked Bread”.

— When did you start to feel the crisis?
— May or June last year. Sales of our main crispy baked bread group stopped their rise as consumers began to choose more expensive snacks. Just then we decided that we needed reforms in our company in order to develop, and started optimizing all the processes. It was decided to replace the three-year budget-planning with a one-year one. We have been taking anti-recessionary measures since last September which are mainly aimed at business effectivization. The crisis only accelerated these processes.

— Has your production capacity changed?
— Our production capacity has not changed drastically but this year we are planning to increase crispy baked bread production. Usually sales peak is in spring and summer. Whereas the last three or four months we can see the consumption of crispy baked bread is rising regardless of seasons.

— Are the sales of your other snacks rising as well?
— Crisps are showing a good trend as they are quite inexpensive. See what is happening nowadays. If consumers consider some goods to belong to a higher price band, they buy them less. In my opinion it is not a negative trend, neither will I say that premium-class goods are stagnating. They have just fixed at some points and are not rising. For example, it is happening to our more expensive snacks made of seafood.

We are making great efforts to keep prices for various kinds of snacks quite low in comparison with our competitors. This shift to the cheap sector helps us a lot.

— How do you manage to keep low prices?
— We have changed the very approach to expenses. Cost-saving is not a one-day project to us when we cut on something once but it is a methodical effort which lets us keep prices at last year's level. We are controlling our business better, and having analysed our cost calculations we begin to count more, to think more. We have abandoned ineffective actions. But we do not cut on personnel or ingredients, they stay the same, but we mainly concern about the operations effectivization.

There are three categories we actively work on — production, logistics and sales. For example, in production we started using strict guidelines on optimal content and equipment loading.

— And how did you reduced the expenses in logistics?
— We optimized our warehouse network on the territory of Russia, lessened the number of intermediate subsidiaries that certainly have already brought a tangible financial result. We introduced the direct sales system. Before that we had a mixed scheme — we delivered some part of our produce to distributers ourselves, they took the other part from our warehouses. Now most of our distributers collect the goods on their own from our two major distributing centres in Moscow and Novosibirsk.

— Now many companies shift from big retailers to corner-shops and markets. Do you follow this example?
— Retailer chains have never been our distribution channels, they had a small volume of sales. We still work with some chains. We only stop working with continuous non-payers or set unacceptable terms. Now sales in small cornershops are really booming.

The expenses in sales are reduced mainly by changes in organization and optimizing the conditions for selling. For example, we have been operating with the wrong level of profitability due to long delays in debt receivables and admission bonus return. We do not abandon our sales territory and actively work wherever we are present. We develop sales in kiosks, medium shops and wholesale outlets.

— How do you manage your money matter when banks introduce new severe lending policies?
— Surely, we are in want of cash assets. It's becoming more and more difficult to get a loan from a bank, and we are in the middle of the comodity-money relationship chain, don't work with end-users in shops, so we don't get money directly, only through our intermediaries. So the problem of current assets stands for us.

We are a company in the real sector of economy and use a great amount of borrowed funds so the issue regarding high lending rates concerns us. Last autumn we had to reduce our loan portfolio as we had been borrowing from six banks, now only from two. It would be wonderful if lending rates decreased as it is happening in the whole world during crisis. For example, 30% from the present level, not to the pre-crisis level, of course, but close to it.

By implementing optimization policy in our company, reducing our expenses, we gained extra means for credit repayment. Besides that, starting our 2009 contract campaign, we tried to be more strict while signing contracts with our clients. We had to withdraw from cooperation with some retail chains as they demand long delay of payment while we can not make such advinces during crisis. Regarding our cooperation with raw material suppliers otherwise we negotiate on prolonging our delay of payment.

— Did the company have to abandon any of the projects?
— No. We continue working on the projects we started in the pre-crisis period. It's another matter that we are not planning any global investment programmes. This year we are going to concern about effectivization, e.g. renovating our production capacities. However, we will change the equipment only if it lets us get lower costs. The production capacities we have allow us to satisfy the demand in the market. Our production facilities are operating at full power — we are filling our warehouses and are getting ready for the season.

What about your facilities in other countries?
— The crisis is everywhere — in Kazakhstan, Uzbekistan, Ukraine, but there are no drastic differences with Russia. The same tendencies are noticed and the same problems arise. Regarding our production capacities in Australia, we sold them in December. We still operate in China.

On the whole there are no serious changes in production assets or company territories. It's necessary to understand if the main part of crispy baked bread is produced in Novosibirsk, seafood in China and crisps in Ukraine, we are not going to close anything. The sales territory of priority for us is Russia, ex-Soviet Republics, including Baltic States.

— Will the competition in the market change?
— Market scenery is already changing. Small manufacturers do not feel well, it's harder for them to get loans, harder to promote their goods, advertise them. We think a certain consolidation will happen in the market, only the strong players will be left. Moreover they will be not necessarily big companies but those who are involved in their effectivization. Certainly, our company has on optimistic view on future, we became stronger due to the recent reorganizations. There is a feeling the crisis hardened us.

March 27, 2009