1. How Will We Create the Company that Cheap Hot Dogs Never Kill? 1 >< American Chamber of Commerce MBA Case Competition 2001 Team Members: Anastasia Shorokhova, Anna Chistik, Michael Korotkih, Andrey Saksin, Ekaterina Kolesnikova

2. How Will We Create the Company that Cheap Hot Dogs Never Kill? 2 >< Current Situation Sales are falling Black PR 1996 1997 105,9 132 84 95,5 Sales Mln.$ Boiled Sausages Hot Dogs

3. How Will We Create the Company that Cheap Hot Dogs Never Kill? 3 >< Problem Definition HOW WILL WE CREATE THE COMPANY THAT CHEAP HOT DOGS NEVER KILL?

4. How Will We Create the Company that Cheap Hot Dogs Never Kill? 4 >< Recommended Course of Actions Short Term Actions  Let the government be aware of fraudulent customs schemes  Put more emphasis on high and medium-end products  Public Relations campaign Long Term Actions  Build strong and recognizable brand  Develop core competences: marketing, finance, leadership  Attract foreign investment

5. How Will We Create the Company that Cheap Hot Dogs Never Kill? 5 >< MOST Analysis MISSION Cherkizovsky Group is dedicated to providing the best food to people throughout Russia STRATEGY ? OBJECTIVES Became a billion dollar company listed on Western stock exchange TACTICS ?

6. How Will We Create the Company that Cheap Hot Dogs Never Kill? 6 >< External environment analysis PEST (1) Corruption High Interest Rate Cherkizovsky Group Political legal Unfavorable Taxation Crime Unclear Game Rules Absence of Government Investment in Agriculture Economic factors Tough Competition Poor Financial System Black players Lack of foreign investors

7. How Will We Create the Company that Cheap Hot Dogs Never Kill? 7 >< External environment analysis PEST (2) Underdeveloped Organization of Production Process The Cherkizovsky Group Social – buyers side Crazy for Quality PR Sensitivity Disposable Income Increase Technology Industry-wide Outdated Equipment Discrepancy between Production & Distribution

8. How Will We Create the Company that Cheap Hot Dogs Never Kill? 8 >< Cultural Web As Is Power Based on: Babaev domination Western expertise Organization Functional structure Insufficient communication Rituals & Routines Bureaucracy No clear vision of the future Stories Good salary level Employee benefit package Symbols Openness to new ideas Curiosity Controls No financial control Absence of performance measurement systems Paradigm Legal & Transparent Business Product Quality Best production technology

9. How Will We Create the Company that Cheap Hot Dogs Never Kill? 9 >< Respond to changing environment Internal External Mission & Vision Communication Building Leadership & Management Expertise Tight up Financial Control Delegation of Authority & Responsibility (New Structure)

10. How Will We Create the Company that Cheap Hot Dogs Never Kill? 10 >< Market Segmentation Analysis Middle-end Summer Sausages ($4,04) Boiled Sausages ($2,95) Hot Dogs ($2,42) High-end Smoked Sausages ($7,8 per 1 kg) Deli Meats ($5,8) Low-end Boiled Sausages, Hot Dogs Pelmeni ($1,6) Raw Meats ($1,1) Low and Middle-End segments suffer most from cheap imports 1996 1997 105,9 132 84 95,5 Sales Mln.$

11. How Will We Create the Company that Cheap Hot Dogs Never Kill? 11 >< Cherkizovsky Strategy Clock 2 4 5 3 1 8 7 6 Differentiation Focused differentiation Hybrid Low Price ‘No frills’ High Low High PERCEIVED ADDED VALUE PRICE

12. How Will We Create the Company that Cheap Hot Dogs Never Kill? 12 >< MOST Analysis MISSION Cherkizovsky Group is dedicated to providing the best food to people throughout Russia STRATEGY Build strong brand Build core competencies Attract foreign investment OBJECTIVES Became a billion dollar company listed on Western stock exchange TACTICS Let the government be aware about black imports Shift emphasis within product portfolio

13. How Will We Create the Company that Cheap Hot Dogs Never Kill? 13 >< Hot Dogs Economics CherkizovskyBlack brokers Meat cost$ 1.15$ 0.43 Customs tariffs & VAT$ 0.51$ 0.16 Processing$ 0.50$ 0.10 Cost of Goods Sold$ 2.16$ 0.69 Wholesale Price$ 2.70$ 2.40 Profit$ 0.54$ 1.71 Margin20%71%

14. How Will We Create the Company that Cheap Hot Dogs Never Kill? 14 >< Do you think that hot dogs are not very serious things?

15. How Will We Create the Company that Cheap Hot Dogs Never Kill? 15 >< Hot dogs ARE serious things! $77,720,000SAVINGS ON TAXES AND MEAT FOR CHERKIZOVSKY 67,000,000Production of hot dogs and sausages, kg $ 1.16Savings on taxes and meat per kg $ 171,000,000LOSSES IN TAXES FOR GOVERNMENT $ 246,000,000Taxes at 20% rate and $1.15 declared price $ 75,000,000Taxes at 15% rate and $0.43 declared price 486,200,000Increase in imports for 0210 & 0206 codes, kg

16. How Will We Create the Company that Cheap Hot Dogs Never Kill? 16 >< Price We Pay $ 77 000 000 Values Legal & Transparent Business Product Quality

17. How Will We Create the Company that Cheap Hot Dogs Never Kill? 17 >< Exploring Alternatives Use black imports? What should we import? What to do? Yes No Quality meat Savings $23M on taxes Inferior meat Savings $77M on taxes and meat Kill the Brand Nothing Take huge personal risks Kill the company Actively fight Let government be aware Regain market share No Let government be aware Regain market share

18. How Will We Create the Company that Cheap Hot Dogs Never Kill? 18 >< WE WILL CREATE THE COMPANY THAT CHEAP HOT DOGS NEVER KILL !!!

19. How Will We Create the Company that Cheap Hot Dogs Never Kill? 19 >< Recommended Course of Actions Short Term Actions  Let the government be aware of fraudulent customs schemes  Put more emphasis on high and medium-end products  Public Relations campaign Long Term Actions  Build strong and recognizable brand  Develop core competences: marketing, finance, leadership  Attract foreign investment