No let up in expansion for WBD

Related tags Cent Marketing

The cost of the rapid expansion at Russian dairy producer
Wimm-Bill-Dann was reflected by an 84 per cent rise in sales
expenses in the first nine months of the year, but the benefits
still outweigh the cost.

Russia's biggest dairy processor Wimm-Bill-Dann (WBD) has reported a 20.3 per cent rise in sales for the first nine months of 2002, with operating profits and net profits also ahead of the prior-year figure.

The company, which is also a major fruit juice producer and marketer, said that gross margins grew by 3.2 per cent compared to the first nine months of 2001, due mainly to the lower cost of raw milk and economies of scale. However, this was offset by a rise in sales and distribution expenses, expected by the company after such a rapid expansion, and related to higher transportation and warehousing costs, advertising and marketing expenses and personnel expenses.

In volume terms, sales were up 19.4 per cent for the nine months to just over 1 million tons, while value sales reached $592.4 million (€591.4m). Sales expenses increased by 84 per cent, but were not enough to dent growth in operating profits, which rose 8.7 per cent to $58.4 million. Net profit was ahead 2.6 per cent to $32.5 million.

Sales in Wimm-Bill-Dann's dairy segment grew by 14.0 per cent to $406.6 million in the first nine months of 2002, primarily due to the expansion of the dairy business throughout Russia, as well as good organic growth. Juice sales increased 36.9 per cent $185.7 million during the period, primarily as a result of volume increases.

Sergei Plastinin, CEO of WBD, said: "We have been actively pursuing growth, and plan to keep expanding in the future. At the same time, we intend to contain various cost elements by being more creative on the advertising front, further improving our approach to supply chain management, enhancing our IT infrastructure and closely monitoring our costs on an ongoing basis."

Supply chain management was one of the main reasons for the increase in sales expenses during the period, as the company set about establishing its own distribution network in the wave of its expansion. An increase in transportation costs and the lease of new warehouse facilities to meet growth in volumes also took their toll.

But this was not the only cause of rising costs. "In response to a more competitive advertising environment, we deliberately increased our advertising and marketing budget as a percentage of sales, in an effort to increase our brand awareness and improve our positioning. Soaring TV advertising rates, which, according to market statistics, rose approximately 50 per cent year-on-year, also contributed to the growth of this expense category,"​ Plastinin said.

WBD currently owns 21 manufacturing facilities in 17 locations in Russia and the Commonwealth of Independent States (CIS), as well as affiliates in 26 cities in Russia and the CIS. The company also distributes its products in Canada, Germany, Israel, the Netherlands, the UK and the US through both its own distribution network and independent distributors.

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