The Nizhny Novgorod Fats & Oils Group plant has been in operation for more than 100 years producing soap, sunflower oil, sauces, and the most important ingredient in Russian cuisine – mayonnaise. In these categories, the company controls 36 percent of the market share, and revenue in 2014 totaled $2 billion.
And lo and behold the leader in the fats and oil industry announced a new project – the business incubator Mabius Food Startup Centre. By the end of the 2015, the plant promises to invest 1 billion rubles into 50 ideas, as well as bring at least four new products to market. Why did the major food producer reach out to startups?
NMGK Group’s managing partner Ivan Sidorok is the son of the last Soviet Director of the plant in Nizhny Novgorod Galina Ivanova Sidorok. A few years ago when Galina stepped down from her position, Ivan started to represent the family on the board of Directors and dealt with competitors, which together occupied 69% of the mayonnaise market.
“We are about equal in terms of mass. We have enough power that we can buy one another, or engage in price dumping. We researched global trends, looked at own analysis and arrived at the conclusion that ‘long tail’ niche products can generate half the revenue,” said Sidorok.
“40% of the mayonnaise market falls on small local brands, and there is a trend to increase this share. This is why NGMK decided to enter niche market segments. The business logic was as such: you can either spend millions and grow by 1%, in the mayonnaise sector, or you can spend a fraction and grow by 5% in several new sectors. The second option has shown itself to be more attractive.
Sidorok is convinced that the company needs to adopt practices from the best Western companies and not only at his mayonnaise packaging plant “Ryaba” and soap for children, but also to invent new products to keep up with the trends. He points to LEGO as an example: the company experienced big losses in 2000 – people had nearly stopped buying the colorful construction sets. After struggling a few years to launch new products, LEGO decided to ask its customers what the company was lacking. Several studies and focus groups showed that the company needed to pay attention to girls, as well as big movie premieres. Thanks to the advice of potential buyers, the company had once again become the most profitable children’s toys manufacturer. Sidorok has decided that the time has come to talk with the customers.
“I have been in the industry for many years and didn’t know that hipsters made their own soap in their kitchens,” Sidorok said, and recalled how his company carried out competitions on social media sites for the best new soap for NMGK. If the R&D department comes up with 10 ideas per year, it’s considered average. The competition brought in 400 recipes from users.
Margins in niche market segments are higher: a person is willing to pay for a product that has identity. “Last year we a had marketing and advertising budget of $20 million. We wasted it on advertisements on federal TV channels,” lamented Sidorok. He took some of that money and tried to attract an audience in a less traditional way, which was much more effective and cost-effective.
“We’ve noticed that customer preferences no longer fit in the mainstream model,” explained Sidorok. “Our grandparents had just enough food to put on the table. For our parents it was imported food that was diverse. The next generation valued brand-name goods like Coca-Cola, and the current generation desires products that define them as people that belong to a certain community. What is to be done? We need to involve the source of the consumer base, then lure and conform them to our infrastructure and work. Among 1,000 cyclists, there will be one who wants to create the perfect cycle torch. And suppose a company offers him their resources.”
From these experiments, a business incubator emerged – the Mabius Food Startup Centre, where Sidorok worked for two years. He calls the project an IT platform with an offline component, and he hopes that it will help find fresh ideas and new development niches. The business model generator Strategyzer (Mabius signed an agreement with Strategyzer and its representatives in Russia) gave Sidorok the opportunity to evaluate hundreds of potential projects: whether or not the idea was good, the consumer base was properly selected, or how much money is required to launch and when the struggle
Screenings were held and checked with the help of SMM technology to meet customer expectations. “How do we do this?” It’s easy. The following was posted on the forum mama.ru: ‘Girls. My son is lactose intolerant. I heard there is a new product – what do you think about?’” The technique isn’t overly sophisticated, but it’s already helped Sidorok find four or five food startups, which are ready to launch production.
These include a line of sauces and mayonnaise by United Kitchen led by Andrey Ryvkin, the coffeehouse chain LES, and Marc&Fisa Frustiki – a healthy children’s snack that was created by Alexandra Shaforost, the founder of “Natural Taste Society #1” along with the partnership of NMGK.
“I met Ivan Sidorok by accident,” said Shaforost. “During the negotiation process, I mentioned that I wanted to flesh out a line of premium products (the industry where I worked before) on a larger scale. Ivan immediately offered to test out the recipes in their labs, at the ‘Kristall’ factory. Our attention was captivated when we saw the Mabius team work with extrusion machines and we had the idea to create a new product – a healthy snack that is produced from natural ingredients, yet affordable to the mass consumer. During the recipe development process, we spoke with two technologists who had PhDs, bought the ingredients for the new product that Mabius had taken under their wing. From there, as soon as possible we worked on a few recipes, and a few months later the new product Marc&Fisa Frustiki were on the shelves of 150 stores.”
It was important, according to Alexandra, that the center always double tests a new product through social media. First, users are invited to discuss the concept of the product – this allows you to estimate the potential consumer base interested in the startup and whether it’s necessary to begin a detailed elaboration of the idea. The second time, testing is conducted at the final stage through a discussion on social networks – this clarifies details concerning, for example, packaging design and product type. “Such a system, along with total investment that the Mabius Centre is ready bring into play, is very helpful for beginner entrepreneurs, because it not only because it evaluates the idea’s viability and likely profit, but also it helps avoid unnecessary financial risks,” said Shaforost.
Marc&Fisa Frustiki have been on sale since April of this year, and according to Sidorok the snack sold out because the customers liked it so much. Now they are considering the economic feasibility of scaling the project. “Before, magnates took all the value-added, and after the industrials and bankers. Now the time has come for intellect and brains. I own a large company, my R&D team has the money, time, and access to the best marketing agencies, but without Alexandra Shaforost, I couldn’t have thought up the Marc&Fisa Frustiki idea. And look, she came up with the idea. But in order to reach 70,000 sales outlets (the type of coverage our products have), it would take her 5-10 years. But with us, it will be must faster,” said Sidorok.
The NMGK head is willing to invest 12-15 million rubles in each new product that has future potential to be produced at the plant. Above all, the focus will be on sauces, oil and fats, pastries, sweets, and snacks. “Capacity isn’t a problem. In Russia, 10 million tons of sunflower seeds are produced, but it is able to process 16 million tons,” the owner of the plant explained.
NGMK considers Mabius in Russia a pilot project, and there are plans to create similar incubators in China, South Korea, and other countries. “China has 1.5 billion people. We have good connections – a partner who has been selling us palm oil for more than 15 years, and in return, we sell 700,000 tons of sunflower oil from Ukraine every year,” Sidorok dreams.
Anastasia Kolesnikova, founder of the accelerator ‘Local food’
“I learned about Mabius a year ago, we discussed options to work together, but we haven’t figured out how we can be useful to one another. They began discussing projects that involve the children, which I write about in our community, and the started blogging on Facebook. This was all confusing to me. And then Alexandra Shaforost came along and the logic emerged, pretty interesting. After sanctions were introduced, grocery chains began to look for products – and there were none. So that meant we had to invent and develop production for the Mabius platform. The problem is that at the moment we have very few projects that are ready on such a large-scale that they require – producing a big amount of products, embarking into large retail. NGMK invests money and infrastructure and wants to recuperate the costs because its goal is profit. And if it doesn’t work? Who is willing to return that money? While working on ‘Local food’ I realized that people do not need so much money and space for startups and there is the opportunity to start working hard. In this respect, it seems to me that our project is a more effective incubator.”
Photos by Mark Boyarsky / NMGK