The Ukrainian pet food market has always been a priority for Ukraine-based Kormotech. As the country’s first local pet food manufacturer, the company has taken advantage of the benefits of globalization—and its resulting high international benchmarks for pet food production—to grow significantly within a developing market.
“In Ukraine, it’s called ‘sviy do svoho po svoye’ (a principle to promote domestic production that roughly translates to ‘friend to a friend for homemade things’),” says Kormotech CEO Rostyslav Vovk. “For more than 10 years Kormotech has made investments in the development of the Ukrainian pet business—taught distributors and their staff (45 companies as of print), created joint training programs with veterinarians, taken part in writing grants and developed suppliers of raw materials. In return, partners help us in development and improvement of our products and in their promotion.”
Kormotech wants to be a Ukrainian manufacturer recognized on the global stage, according to Vovk. “At the same time, we plan to become the absolute leader in the Ukrainian market and go down in history as the company that won the competition against Mars and Nestle,” he says. To achieve these goals, the company focuses on what it considers its main competitive advantages: its products, facilities, location and team.
The company’s products are manufactured based on high-tech equipment and implementation of best practices through the engagement of consultants, according to Vovk, which distinguishes Kormotech from other local Ukrainian players (two other companies besides Kormotech) and the majority of Russian and East European producers. “There’s no compromise in the quality indicators of our products,” says Vovk. “We have a strict system of selection and control of raw materials and the finished products—our production facilities are certified according to HACCP (hazard analysis critical control point) standards.
“Our own production facilities, complete with our own laboratory, enable us to ensure quality control over the products that we create and possibilities to offer market players various co-operative options,” he says. “For example, we can produce high-quality private labels for pet shop chains (with a high level of support) and in return they promote our brands.”
According to Kormotech, the company is in a good location in terms of European delivery logistics and is not restricted by customs barriers for sales in the European Union or the CIS (Commonwealth of Independent States). In addition, Kormotech has 500 employees, 30% of whom are engaged in sales. “Who else can boast such a strong sales force in Eastern Europe?” says Vovk.
CEO Rostyslav Vovk, here with wife Yuliana, daughter Sandra and Westhighland White Terrier House, says Kormotech has spent the last 12 years learning how to create world-class products animals will love to eat.
In 2014, Kormotech saw US$18.5 million in sales. In the first half of 2015, the company posted US$14 million, indicating its continuing growth. Kormotech’s ability to expand in the challenging local market (see https://goo.gl/MVDLhG) has given it 29% of the market share by volume, according to the company.
Kormotech’s Optimeal premium pet food line launched in 2013; since then, the company has built the brand to 14 SKUs for cats and 6 SKUs for dogs. “At the moment, this is our flagship brand that enabled us to reach a new level in Ukraine (50% growth in the last quarter) and enter a number of countries where we are striving to build distribution and increase sales,” says Vovk. “Over the next two years we plan to expand the product line with at least 30 SKUs.”
From January through June 2015, Kormotech expanded into more east European markets, including Poland, Lithuania, Latvia and Estonia. The company has several keys to growth, according to Vovk, including high quality and a good range of products, an ongoing investment in technology with the help of their internal R&D department, their extensive sales team, custom marketing solutions and a social focus on business and market development.
“We plan to become the absolute leader in the local market and increase our sales volume in Europe five times,” says Vovk. “To that end, it is necessary to build production capacities in Ukraine and abroad. We simultaneously conduct research and development to expand our main line (veterinary diets, organic products) as well as ‘components’ to pet food (such as snacks).”
Being an upcoming local company looking to expand internationally in a down market has its challenges. “We are a young Ukrainian company; that is why the level of trust on the part of well-known pet product distributors in many countries is low,” says Vovk. “This is where we have also decided to implement the ‘develop yourself — develop others’ principle. We are beginning cooperation with small regional companies with ambitions to become big distributors in their regions. Joining forces, we develop a program to expand sales of our products and help teach their teams how to effectively build and distribute pet goods in the areas of their responsibility.
“This kind of training is usually conducted on routes, together with sales representatives of the importer/distributor,” he says. “In addition, we are trying to find non-conventional marketing solutions (promo packaging, promo events) that help us gain loyal attitudes on the part of pet shop owners and their sales staff. The most important thing at the first stage of cooperation is to gain a motivated sales person to promote Kormotech products in every pet store in every region.”
Given these goals, what does the future hold for Kormotech? “In the next 10 years we want to become the leader of the domestic market and one of the leaders in the European market, and also ‘pull’ the Ukrainian market towards international standards,” says Vovk. “We will definitely continue to nurture the culture of dialogue and pet husbandry, bringing joy both to the animals and their owners.”
Just the facts
Headquarters: Lviv, Ukraine
Officers: CEO Vovk Rostyslav; COO Paranyak Igor; CFO Stefanyshyn Mariya; CTO Kohut Yaroslav; Logistics Director Fitsa Ulyana; Sales Directors: Babenko Edward (Ukraine, Russia), Zhavoronok Genadiy (other markets); Marketing Director Blystiv Ihor
Sales: US$18.5 million (2014), US$14 million (first half of 2015)
Brands: Optimeal, Club 4 Paws, Miau!, Gav!
Distribution: Eastern and Western Europe, Asia Pacific, Middle East and Africa
Industry perspective: Industry trends in Ukraine
“Eastern Europe is a very interesting market,” says Kormotech CEO Rostyslav Vovk. “It is relatively young and big—that is why players want to win a large share—and competition is extremely intense. The investment threshold to enter and to hold positions in the market is very high.” It’s also a market that will continue to grow, according to Vovk. “Because of the aging population, the number of pets will increase,” he says. “Through the computerization, life will become more dynamic, which will result in a lack of time (especially for large animals). Therefore, the numbers of small-breed dogs and cats will grow.”
Vovk has identified four key trends he says will be key to the Eastern European market:
- Convenience: Will result in the growth of the Single Serve category, both for cats and small-breed dogs
- Premiumization: Through efforts to offer consumers more and better products, existing products will use more of what was previously considered innovative or was available in premium products only.
- Natural/organic pet foods
- Humanization of pets