CHEBAKSARY XHLEBOZAVOD #4

I promised to tell the story as to what brought me to Russia in the first place. It started in May, when I realized I needed to go somewhere. It had been 19 months since my last trip outside of the US. I did a tremendous amount of traveling in 2003, but have gone almost no where since. The last time I had been to Russia was November 2000. It was time for a visit. At this point, I couldn’t justify buying a ticket and going through the whole process of visas just for a short visit, so I started to look at opportunities. I found one in a short term project to consult with a huge wholesale bakery in the Republic of Chuvashia. I had never heard of the Republic of Chuvashia and a short search on the internet found it 400 miles southeast of Moscow, near Nizhny Novgorod. The capital, Chebaksary, lies on the banks of the Volga. It boasts a progressive autonomous government and was rated the number one city for cleanliness in Russia last year.

The factory is the oldest Soviet bread factory in Chuvashia and during the Soviet era was the main supplier for the region. Bread, of course, was and still is the main staple food in Russia. A politically charged commondity, today it is the center of a market-driven competition for domination. In the early 90’s and late 80’s the growth in the economy forced the Soviet Union to build a few additional bakeries in addition to the main one. As the market collapsed, all of these former government owned factories were privatized. Unlucky for #4, their equipment remained the oldest and most outdated, creating a disadvantage in this new competitive environment.

There are only a few kinds of traditional Russian bread: batonis (oval shaped white bread), pshenichni (heavy white brick shaped bread), and then 3 variables of heavy dark brick bread - orlevsky, darnitsky and borodinsky. When 100% of the population lived on a diet of 80% bread, it is a commodity that will never ever disappear. The market, however, like any other market in Russia, has been growing and diversifying, offering choices to the consumer that were never here before. With that variety, is a need to educate the consumer about their choices. This educational approach to creating markets gives companies the ability to distinguish themselves favorably from the competition. Those that can bring good, quality products to the market will succeed.

These basic bread types remain one of the only remaining unbranded product in the market today. You can walk into any supermarket or visit any small shop or kiosk and have 3 types of bread. With 5 major bakeries and dozens of smaller new bakeries vying for the bread market, consumers rarely know which factory’s bread they are purchasing. More or less, the product is the same.

Enter western marketing and packaging. It was about 2-3 years ago that the Xhlebozavod introduced new items that were packaged with brand name and logo. They developed a logo and new hip name “xhlebushko”. It was progressive enough to take a bite out of the competitors’ brick and to force the competition to copy the idea. Now, the main fight is between Factory #2 and Factory #4, both of which have had consultants visit to assist them with marketing.

Larissa, the 40 something General Manager of the factory, had been the main Sales and Operations Director for the 20 shops before taking on general management of the factory. The former GM, her husband, stepped down and remains in the wings as a consultant. Larissa is a fabulous energetic and sharp woman, who also happens to be charming and sociable. Her natural instinct for sales and marketing give her an advantage, but her managerial skills, her weakest area, have prevented the key operational factors that will ultimately need to be developed to drive the business into the future.

The basic strategy of the factory is to diversify and have a base of products in addition to bread, as the future of basic Russian bread is grim and if they remain pidgeonholed, they will die a slow and painful death.

As consumer tastes expand and demand for better quality, better packaging and brand names grows, the possiblity to implement a merchandising and consumer education program will become crucial to build and strengthen their business. The company employees nearly 800 people from bakers to drivers to a huge base of shop sales staff. I enjoyed my visit and felt as though I had some impact on their business. If they can implement just a few key suggestions and focus on a common mission, I believe they could succeed in rebuilding their share of the market and becoming a symbol of creative innovation, rather than an outdated and dying Soviet dinosaur.


Pictures will be up next week.