OJSC Wimm-Bill-Dann Foods

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OJSC Wimm-Bill-Dann Foods

16 Yauzsky Boulevard
Moscow 10928
Russia
Telephone: (+ 7) 095 733-97-26
Fax: (+ 7)095 733-97-25
Web site: http://www.wbd.ru; http://www.wbd.com

Public Company
Founded: 1992
Employees: 10,900
Sales: $465.4 million (2000)
Stock Exchanges: New York
Ticker Symbol: WBD
NAIC: 311512 Creamery Butter Manufacturing; 311411 Frozen Fruit, Juice and Vegetable Processing; 311421 Fruit and Vegetable Canning; 311511 Fluid Milk Manufacturing; 311513 Cheese Manufacturing; 311520 Ice Cream and Frozen Dessert Manufacturing; 42243 Dairy Products (Except Dried or Canned) Wholesalers; 422490 Other Grocery and Related Product Wholesalers

Founded shortly after the 1991 breakup of the Soviet Union, OJSC Wimm-Bill-Dann Foods has become a market leader in the production of juices and dairy products in Russia. The company’s J-7 line of juices is a nearly universally recognized brand name in Moscow, and the company’s dairy brands, including Domik v Derevne (Little House in the Country) and Milaya Mila (Darling Mila) are also well known. In all, Wimm-Bill-Dann promotes over a dozen brand names for hundreds of dairy products ranging from traditional Russian berry drinks and fermented milk drinks made with kefir grains to flavored yogurt drinks and puddings to exotic fruit cocktails. Dairy products account for about 70 percent of the company’s revenues and juice products for the remaining 30 percent. An emphasis on quality, close attention to market research and effective advertising have won Wimm-Bill-Dann its leading position. The company has expanded from a few plants in Moscow to include 14 food-processing enterprises in ten locations in Russia and neighboring countries, while its distribution network stretches into the Netherlands, Israel, the United Kingdom, Germany, Canada, and the United States. Wimm-Bill-Dann is regarded as one of the more well-run companies in Moscow, a reputation that helped win investor confidence during the company’s 2002 initial public offering on the New York Stock Exchange.

Beginning Production in Moscow: 1992–95

After the fall of the Soviet Union in 1991, Russia represented a vast untapped market for consumer goods that were scarce under communism. Yet the lack of developed business traditions and infrastructures forced any new enterprise to blaze its own trail. In this climate of uncertainty and opportunity, Pavel Dudnikov, Vladimir Tambov, and several other individuals teamed up to lease a production line at the Lianozovo Dairy Plant in Moscow. Their aim was to introduce a new product to Russia: juice in a carton. On November 25, 1992, the first carton of Wimm-Bill-Dann juice, bearing the trademark image of a mouse in a chef’s hat, was produced at Lianozovo. The company’s odd name was deliberately chosen to give the product the image of a western import, as Russians were drawn to the novelty of western products and did not yet trust the quality of domestically manufactured goods. The name’s phonetic similarity to the famous Wimbledon tennis tournament was due to the fact that one of the founders was a fan of the sport.

In 1994, a series of seven fruit juices was launched at Lianozovo under the brand name J-7, a name with exotic western overtones, since there is no “j” in the Cyrillic alphabet. The juices came in basic flavors such as orange, apple, tomato, and grape. Their convenient packaging was supplied by Tetra Pak of Sweden, the company that patented the widely-used small rectangular beverage carton. Wimm-Bill-Dann’s juice could be retained for up to 12 months in Tetra Pak’s aseptically sealed packages. The Swedish company became a long-term partner of Wimm-Bill-Dann, offering the company credit and providing packaging for many of its best-selling brands. Wimm-Bill-Dann sold six million liters of the J-7 brand of juices in its first year of production, 50 million liters in 1995, and 90 million in 1996. The company eventually supplemented the original natural fruit juices with a line of “nectars,” including banana, mango, peach, and cherry. By the late 1990s, there were 22 different juices and nectars in the J-7 series.

Profits from juice sales allowed Wimm-Bill-Dann to lease production lines at other Moscow plants, and soon the company entered into dairy production under the brand name Domik v Derevne (Little House in the Country). By this time, Russia’s infatuation with western goods was fading, and the more Slavic-sounding product was promoted with the slogan “Russian goods are natural.” The foodstuffs business was proving to be a good choice for Russia’s new entrepreneurs. Nearly everyone was a potential consumer of juice and dairy products, and there was little in the way of domestic competition to challenge Wimm-Bill-Dann. The food sector was also fairly low-profile, flying under the radar of opportunists who were more interested in gaining control of Russia’s lucrative oil and metal commodities. So Wimm-Bill Dann’s sales grew, buoyed by the Russian consumer’s newfound preference for domestic goods.

Nevertheless, Russia’s volatile business climate challenged even the most well-managed and deftly promoted enterprises. There were few laws or standard procedures guiding businessmen, and long-term planning was difficult since the government was unpredictable. Wimm-Bill-Dann’s managers had to learn as they went, watching the moves of western companies and building a distribution infrastructure and an advertising campaign from the ground up. Most of the company’s growth was self-financed, although Moscow’s Sberbank and the Moscow city administration provided some loans.

Acquiring Assets and Developing Products: 1995–98

By 1995, the privatization of state-owned assets was widespread, and Wimm-Bill-Dann acquired a majority stake in the Lianozovo plant. Over the next two years, the company also gained control of the Tsaritsino and Ramenskii dairy plants in Moscow, along with the Moscow Baby Food Plant. The Lianozovo plant, however, remained the dominant enterprise. The plant consumed most of the milk produced by dairy farms in the Moscow area and accounted for about 70 percent of Wimm-Bill-Dann’s 1996 production. At that time, the company was making yogurt on a small scale, about 20 tons per day, and the French firm Danone offered Wimm-Bill-Dann a licensing agreement to abandon Russian brands and produce Danone yogurt. The Russian company refused, however, and by the beginning of 1999 Wimm-Bill-Dann yogurt was being produced at a rate of 150 tons per day. The company’s canned vegetables were produced in a partnership with Hungary’s Globus and were sold under the brand name Iz Babushkinogo Pogrebka (From Grandma’s Cellar).

With production taking place at numerous sites, Wimm-Bill-Dann developed into a holding company, leaving day-to-day management in the hands of individual plants. Most of firm’s equity was held by the group of entrepreneurs that cooperated to found the company. However, a conflict broke out among company leadership in March 1997 and stopped production for ten days at the Lianozovo plant. Plant manager Vladimir Tambov wanted to remove the Wimm-Bill-Dann logo from the plant’s products, even though Wimm-Bill-Dann owned 52 percent of Lianozovo and had invested billions of rubles in promoting the plant’s products. The Moscow government, which owned 20 percent of the plant, set up a special commission to investigate the dispute. In the end, Tambov was dismissed and the plant’s management structure and board of directors were restructured.

Toward the end of 1997, Wimm-Bill-Dann introduced a new juice product that was to be of the highest quality. Unlike the J-7 juice, which was made from concentrate, Rio Grande juices were pressed from fresh-picked fruits, with fruit pulp remaining in the final product. The juice was packaged in a distinctive elongated box produced by SIG Combibloc of Austria and included such varieties as orange, apple, pomegranate, and pear. Total juice production for 1997 was 141 million liters, in addition to 368,000 tons of dairy products.

Another product launch followed early in 1998, when Wimm-Bill-Dann introduced its version of a traditional Russian refreshment known as “mors.” The company’s Chudo-Yagoda (Wonderberry) Mors was meant to duplicate a drink that had been prepared for centuries from berries gathered in Russia’s forests and fields. Mors, once a homemade staple on the table of the Russian peasant, could now be purchased by the liter in varieties such as cranberry, raspberry, and red currant. Later in 1998, Wimm-Bill-Dann introduced the Chudo (Wonder) brand name for its line of yogurts. The product became the most popular yogurt in Russia and was followed by puddings, flavored milk cocktails, and dessert products under the Chudo brand name.

Expanding Production Beyond Moscow: 1998–2002

Wimm-Bill-Dann made its first acquisitions outside Moscow in 1998. Although Russia’s capital city was the company’s most lucrative market, competition from western suppliers was more intense there. Also, the acquisition of production sites across the country would make it easier to develop a strong nationwide distribution network. Accordingly, Wimm-Bill-Dann purchased a controlling stake in a Vladivostok plant, located in the easternmost region of the country. By the end of 1999, the company also owned dairy plants in Novosibirsk and Nizhny Novgorod.

Company Perspectives:

Our goal is to offer our consumers quality food products through the use of carefully selected raw materials, modern production technology, and strict quality control. All of our products are made according with our own recipes and designed to address the desires and needs of our customers.

The Russian financial crisis of August 1998 had only a relatively mild effect on Wimm-Bill-Dann. In fact, the sharp devaluation of the ruble that provoked the crisis served to reduce competition from Wimm-Bill-Dann’s western-based competitors. The French firm Danone postponed plans to open a plant in Moscow, and other foreign companies abandoned similar plans that would increase competition for milk products in Russia. Wimm-Bill-Dann’s three Moscow plants continued to gobble up the lion’s share of the region’s milk production, as the company’s market share grew due to the increased cost of western imports. The company claimed that sales had returned to pre-crisis levels by the beginning of 1999.

The Bio Max line of sour milk products was launched in May 1999. The series included traditional Russian dairy products such as kefir (a liquid yogurt drink) and tvorog (curdled cheese), which were enriched with bacteria and vitamins. Wimm-Bill-Dann claimed that its Bio Max kefir could reduce stress, improve the digestive tract, and strengthen the immune system. The company’s products got a boost later that year when Russian pop star Alla Pugacheva endorsed Wimm-Bill-Dann. Pugacheva was a longtime cultural icon with immense influence on the country’s tastes, and Wimm-Bill-Dann planned to have her star in commercials for the company.

Wimm-Bill-Dann also established its first overseas presence in 1999 with the opening of an office in Amsterdam. The company believed that its Wonderberry juices would do well in the European market. The juices began selling in the Netherlands in the fall of 2000 and soon were also sold in Germany through a distribution office in Berlin. In early 2000, an office opened in Tel Aviv to sell the Wonderberry juices. Wimm-Bill-Dann also cultivated a network of independent dealers in the Baltic countries, Canada, Mongolia, China, and the United States. Export sales were $724,000 in 2000 and reached $1.3 million in the first nine months of 2001. Explaining the company’s outlook in the January 2001 issue of Euromoney, chairman David Iakobachvili stated, “First we want to look at developing the domestic market, as it has huge potential. However, moving into western Europe is a challenge for us. It is all about quality: the quality of our goods is good or else we would never have gotten all the certificates and licenses to be able to sell in western Europe.”

Net profits were up 37 percent in 2000 to $48 million, according to chief executive Sergei Plastinin. The company continued to move ahead with domestic expansion, acquiring majority stakes in plants in Krasnodar and Bishkek, Kyrgyzstan, in 2000. The following year, Wimm-Bill-Dann moved into the Ukraine with the acquisition of a plant in Kiev and also opened plants in Ufa (Bashkortostan region), Rubtsovsk (Altaisky region), and Anna (Voronezh region). With expansion occurring at such a fast pace, Wimm-Bill-Dann felt the need for an outside source of capital. The company therefore began making preparations for an initial public offering (IPO) on the New York Stock Exchange. Wimm-Bill-Dann was organized in a fairly loose fashion, with a small group of individuals holding stock in the Lianozovo Dairy and in a holding company, RAG Rodnik, that was the parent for most other Wimm-Bill-Dann enterprises. In April 2001, the company’s shareholders merged their holdings into Wimm-Bill-Dann Foods LLC. The following month the company was restructured into an open joint stock company.

Finally, in February 2002, Wimm-Bill-Dann became the fourth Russian company to make its IPO in the United States. The company raised $200 million in a successful offering of one quarter of its stock. Issued at $19.50, the shares traded up to $22.60 by the end of the first day. Investors were not scared away by certain disclosures made in Wimm-Bill-Dann’s IPO prospectus, including the fact that the company’s largest shareholder, Gavriil Yushvayev, had served nine years in a Soviet labor camp after being convicted of a violent crime, or the fact that some of the company’s shareholders were owners of the Trinity Group, a conglomerate suspected to have ties to organized crime. In making such information public, Wimm-Bill-Dann wanted to demonstrate that it was a serious company that valued transparency and trusted that investors would forgive certain “skeletons in the closet” in the light of the unorthodox nature of Russia’s business tradition.

Wimm-Bill-Dann planned to use the proceeds from its stock offering to finance further geographic expansion, as well as the renovation of existing plants to improve their efficiency. While concentrating on the its core juice and dairy business, the company also hoped to begin producing mineral water in 2002, building on a small bottling site it had in Novgorod. Despite its debut on an American exchange, Wimm-Bill-Dann did not want to slight domestic investors. In the spring of 2002, the company announced that it would soon be listed on the Russian Trading System. The listing would be largely symbolic at first, but the company felt that it made sense for a Russian company to be represented on a Russian exchange. Wimm-Bill-Dann had exploited a pseudo-Western image to win the attention of consumers in its first years of operation, but the company no longer felt any need to hide its Russian identity. The quality of its products, as well as its consumer-oriented approach, gave it a good chance of keeping a strong market share alongside both foreign and domestic competitors.

Principal Divisions

Production; Advertising; Research; Protocol; Service; Scientific Centre; Supply.

Key Dates:

1992:: Several Russian entrepreneurs lease a production line at a Moscow dairy plant.
1994:: The J-7 line of natural fruit juices is launched.
1996:: Wimm-Bill-Dann gains control of two more Moscow dairy plants.
1998:: The company acquires dairy plants outside Moscow.
2000:: Wimm-Bill-Dann begins exporting its products to the Netherlands and Israel.
2002:: The company makes an initial public offering on the New York Stock Exchange.

Principal Subsidiaries

Lianozovo Dairy (96%); Tsaritsino Dairy (86%); Baby Dairy Products (52%); Siberian Moloko (75%); Nizhny Novgorod Dairy (90%); Vladivostok Dairy (88%); Ramenski Dairy (91%); Karasuk Moloko (85%); Molochny Kombinat (92%); Bishkeksut (84%); Moloko (42%); Lianozovo-Samara (95%); Trade Company Wimm-Bill-Dann; Wimm-Bill-Dann Priobretatel; Wimm-Bill-Dann Netherlands B.V.; Podmoskovnoe Moloko (99%); Ramenskie Soki; Ramenskoye Moloko (75%); Wimm Bill Dann (Israel) Limited; Wimm-Bill-Dann Agro (80%); Nevsky Dairy Trade House (95%); Fruit Rivers; Nectarin; Kiev Dairy KMMZ No. 3 (58%); Ufamolagroprom (46%); Rubtsovsky Dairy (95%); WBD Milk; WBD Asia; WBD Central Asia; WBD Ukraine; WBD Europe; WBD Netherlands, WBD Israel; WBD Germany; WBD Juice; WBD Mineral Water.