Territory of freedom. Interview with Andrey Matsola, CEO of “PPB” and Oasis CIS alliance

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Territory of freedom. Interview with Andrey Matsola, CEO of “PPB” and Oasis CIS alliance

The most important event Ukrainian brewery saw in 2012 is assets merging of two independent producers, namely “First Private Brewery” (Persha Pryvatna Brovarnia) and Oasis CIS. Due to restyling of existing brands the joined company managed to substantially reinforce its market positions, having gained 5% of the market. This became possible thanks to capacity growth of Lvov enterprise as well as to utilization of brewery in Radomyshl.

In his interview Andrey Matsola told about new conditions and market policy and relationships with the business partners.

Corr.: Your alliance with Oasis emerged soon after purchasing Radomyshl brewery, where you had been bottling beer under the contract. Can you name it the main reason for merging on your part?

A. Matsola: Actually we have known Oasis group for a long time and have been in contact with its owners. Purchase of Radomyshl brewery took place in 2011, but long before that we had been considering possible variants of cooperation. We saw this purchase as a proof of how strong Oasis’s intentions to enter Ukrainian market were. When owners do not hesitate to make big investments, we become more positive about their intentions and we believe that it is possible and pleasant to cooperate with them. From this point of view, yes, the decision on purchasing Radmyshl enterprise was the precondition for the alliance. We can see that our partners understand the character of operation on our market. The principles of Oasis and PPB are very much similar.

Corr.: In other words, Oasis company has kindred spirit, doesn’t it?

A. Matsola: That is more than true. We have the same ideology, stakes, models, goals… The same view of how one should run business. We are not afraid of big international corporations and we see our advantages over them the same way. We are sure that market exists not only for big companies, which try to divide it among themselves. Their production is eurolagers, with brands and sorts having similar tastes. And our general task is suggesting an alternative to the market. And our alliance is the case when 2+2=5. Now the common business has obtained new development opportunities, than say, if we worked separately. To some extent we solved the problems of national distribution capacity lack, of purchase and installation of retail equipment and others.

Corr.: It was said in newspapers that in 2011 you increased capacities of your Lvov enterprise and at the moment the net capacity of the two breweries amounts to 20 mln dal.

A. Matsola: We made a long way to it. When we were starting our family business, we had no strategic plan to create a big company. We did not plan to win, say, 15% of the market, we just wanted to make a fair product, get some money and retain our positions. But the demand for the product turned out to be higher than we expected. Then we entered markets of the Central and Eastern Ukraine and there as well the beer by “PPB” became popular (and there are much more than one trade mark in our portfolio). We were surprised by the sales growth. In 2008 there was production expansion and we did not hesitate to make investments even in the depth of the recession. Due to the contract for beer production in Radomyshl we got enough time to think it over and make the right decisions. We started construction in 2009 and in spring 2011 we put the capacities to operation. Now we have two breweries of the same capacity.

Corr.: In Kiev and the eastern regions of Ukraine the most of your brands belong to the segment “upper mainstream”. Do you feel comfortable in these price limits?

A. Matsola: Today we do not have enough capacity to develop in all price segments. Though we consider expansion of our production sites, this doesn’t happen overnight and demands serious strategic investments.

Corr.: But if you place your beer in your own fridge, it is necessary for the production to have wide price range…

A. Matsola: It is wide enough. For example, in our range we have affordable sort “Bochkovoye”. Yes, it is 30-40 kopecks more expensive than our competitors’ beer, But I am sure consumer will pay this difference in order to drink natural beer and not a “product” containing 50% of barley instead of malt. This strategy yields us good results.

Corr.: So, you do not pay attention to the current market positioning and to the boarders of price categories?

A. Matsola: Well, we do. The price for our beer changes according to common changes of the market. Yet we need to stick to our own strategy of running business. We and major producers have such different production scales, that there is simply no point for us to be guided by them, it would be ineffective. We cannot produce mainstream, as we will not make money there. Beer market of Ukraine has very low margins, and in order to actively work in the mainstream segment one needs either to have big possibilities and to make money due to large volumes or to find ways to make the product cheaper. We chose our strategy, that is, qualitative beer, brewed without any compromises, which thinks no small beer of itself.

Corr.: If we judge by the labels, there is still status quo concerning the locations of different beer sorts production. Stare Misto Premium Draft and “Avtorskoye” are bottled in Lvov. Brands by “MBC” and former contract brands are bottled in Radomyshl. Thus, so far there is no production transmitting, is there?

A. Matsola: Certainly, where possible we try to cut our logistics expenses. But there are some essential matters connected to technology and formula of certain brands production. For many reasons, but mostly due to processes which are under strict technological control Stare Misto Premium Draft or “Avtorskoye” having the present formula cannot be produced at Radomyshl. The production site in Lvov was specially designed with account of these sorts technology. In order to brew them in Radomyshl, we would have to make a host of changes or even reconstruct the enterprise. For the same reasons in Lvov we cannon bottle sort “Pshenichnoye” which is produced in Radomyshl using special tanks and technological process. The second reason is the geography of sales. For example, “Zhiguli Barnoye” has its bulk of sales in the central and eastern regions of Ukraine.

Corr.: It is known that after rebranding of Stare Misto and advertizing campaign, the market share of the brand has started growing rapidly. The package catches eye now, there appeared original embossing and words premium draft. The advertisement underlines the concepts “freedom”, “creativity” and “culture”. All this accentuates Lvov origin of the brand or is there something else?

A. Matsola: The link to Lvov is obvious and it already exists. Brand “Stare Misto” – is by essence the territory of rest and certain impressions. We want to make a product expressing the atmosphere of Lvov, its spirit, cultural kinship of people and their communication. Everything that overwhelms you when you come to this city. In the context of tourism Lvov is Ukrainian Europe. Especially for those who cannot or simply do not want to travel abroad. People from Kharkov, Donetsk or Dnepropetrovsk come here for New Year and enjoy it greatly. We want to say that our product is a part of this pleasure; it can remind you of the relaxed atmosphere of your stay in Lvov. In the sense the campaign of 2012 was a continuation of all our previous communications. Perhaps you can remember our first commercial in 2010 featuring a tram?

Festival «Stare Misto» has the same purpose. It gathers a lot of different people because we can invite the singers who separately do not attract big audience, so it would be ineffective to make individual concerts. As regards show business inviting one band and their fans can turn out to be unprofitable, no one would organize special concerts for them. In this case our philosophy is creating a location for free impression of Ukrainian and European cultures of different concepts. And, what is important, it means not only sponsoring a show of a famous singer, but creating a unique event and a unique experience as such. Maxym Vasyliev, our Chief Marketing Officer made a good job out of this conception, the event has adequate atmosphere, it gathers 12-15 thousands of people. They are absolutely different – from punks to businessmen over 30. By the way, it turned out to be a good marketing communication for busy and wealthy people as they spend very little time resting and watching TV.

Corr.: Your portfolio is now much wider thanks to the brands by MBC. Is the process of SKU optimization taking place at the national level?

A. Matsola: At the moment, we belong to the category of national players, having left the category of multiregional ones. Certainly we are not able to keep the same range of brands, as the sales differ depending on the city. For example, company AB InBev also has different sales structure in different regions. Of course selling 2-3 brands would be very easy. But we are not that type of company, we give freedom and the right of choice. It may be not standard for major companies, but our consumers like it. All our sorts and brands are not similar. They do not compete with each other as they are different in taste and price. For example, our wheat beer is a niche beer, which does not bring big sales volume. But we, like German independent experts, consider it to be the best among brands represented in this category. That is why even if some SKU or a brand is not grabbed from the shelf we do not hurry to get rid of it immediately, but try to explain why it is special.

Corr.: In TV commercials we can see CCTs, and a large enterprise. While promoting your beer however such attributes as family-owned, private, “author beer” and so on are used. Am I right when I consider that using your name in promoting brand “PPB” helps to balance this discrepancy?

A. Matsola: I can see no discrepancy here. Our enterprise is not large as compared to those of our competitors who have five times bigger breweries. It was long ago suggested to use my name. Until recently I had inner prejudice – it seemed to me that such advertisement would somewhat remind a deputy’s election campaign. But unlike them I am actually the image and manager of our company, this is reality; I am directly involved in all processes and I live for it. I am not ashamed to personally tell about what we have done and what we produce. The product quality is guaranteed by a particular man, by the man who really knows how the product is made. And I want to communicate my ideas personally.

Corr.: Do you directly work with retail?

A. Matsola: No, we do not work directly anywhere. All beverage producers work on agent basis and refrain from direct sales. As I know, Coca-Cola was the last to give it up. Everyone should do his own business and we sell via distributors too.

Corr.: I have an impression that your sales are mostly dependent on the distribution level. How will your system of sales develop?

A. Matsola: We are represented in all regions of Ukraine, though the level of coverage varies. The distribution quality certainly needs some perfection. But this is not the main bottle neck for our sales. During the high season we face sever production deficit. At this stage it would be irresponsible to strive for increasing the number of our partners. There is a risk that they create an infrastructure for deliveries and we are not able to give them the product. Thus, we expand the distribution in direct correspondence to prognosis and guarantee of deliveries to our trade partners. We want to give our distributors the chance to make money as we fully understand that they are our partners and must develop together with us.

Corr.: .: Long time ago you began operating as a beer distributor, and this is the type of business where you have to come in contact with competitors. The advertisement told us that you like contact sports and your advertisement attacks major producers. Would you agree that you have attacking or even provoking operation style on the beer market?

A. Matsola: No, I would not say so. We are aggressive in our results but not by our mood. At the beginning of operation we did not intent to win the share of large companies. And now we just do business. We do not have a target for attack and we do not try to “elbow” a certain company out of the market. We do not have the slogan “we must be the market leader”. And all our energy goes to business development, but not to attempts to attack partners. What looks as aggressiveness to you is just keeping the values we have as producers. And box is just a sport I chose long ago, it just happened so. Everyone wants to be fit.

Corr.: You are the owner and managing partner of your business. What benefits does it give to your company?

A. Matsola: It is clear that no employed specialist, no matter how good manager he is, feels about his job like the owner. The employed manager knows that he can leave or change the profession. But when you run your own business, you do not have plan B, you can not leave. You fully dedicate yourself to the business.

Corr.: But there is plan B, you can sell the business.

A. Matsola: Yes, you can. Certainly, any business is for sale if the owner is willing to sell it. But what is next? What is the point? After you sell your business you have to find another job. If you do not love your business you certainly can sell it. But you will not sell your company if you created it from the scratch, you run it and you are not bad at it. We are developing all the time, and having begun cooperation with Oasis group we see a good perspective at least for next 10 years. Besides, I feel responsible to people we employ and that is thousands of people. They rely on me, and I know that I must pay their salary in time for them to provide for their families. It is a big responsibility.

Corr.: “PPB” has nonstandard and flexible approach to marketing. Your marketing manager perhaps has much more opportunities for realization and experiments than his/her counterparts at transnational companies, doesn’t he?

A. Matsola: Maxym Vasyliev is a creative person. May be marketing specialists of other companies are too afraid to look like losers. They only think about doing something wrong and losing a job or a bonus. Honestly speaking, I do not know their motivation, it does not interest me. Transparent decision making is one of the advantages of our company. Our company is democratic. The decisions are made collectively, so we do not say that one person has done something wrong and he/she will be punished. I bear responsibility too, no matter if it is technology or marketing.

Corr.: How do you divide functions and how is the business with your new partners organized?

A. Matsola: Quite simply. All operational questions are quickly settled with Oleg Skripko and other shareholders by phone, e-mail or personally. These are certainly formal procedures but it all goes smoothly as we have the same view on our business running. Thanks God, we do not have arguments. It is so mostly because nobody took our business or Oasis under wing. We created our companies and run it on our own, that is why we fully understand all details and nuances of our business.

Corr.: Do you have plans to increase production for 2013?

A. Matsola: Ideally, we plan to increase capacity by 17% at each of production sites. Being realistic, we understand that no bigger growth of production and delivery is possible next year. Of course, one could get additional growth due to technology changes or big production stock in low season, but we are not willing to do it.

Corr.: Do you have plans for selling your products in Russia, or, on the contrary, including the brands by Oasis which are imported in Russia into your portfolio?

A. Matsola: We are the first Ukrainian company to launch a licensed production abroad. “Moscow Brewing Company” has already started production of beer “Persha Pryvatna Brovarnya Bochkovoye” and retail sales will soon be started. As for import, we are really considering different options. Quite possibly, next year we will surprise our consumers with new import brands.

Corr.: Will there be new advertizing campaigns?

A. Matsola: Certainly. Advertizing campaign will take place as we have a very dynamic company. We are changing something all the time, refine on existing beer sorts or launch something new to the market. We always take the risk if we think that our consumers will like it. Advertisement is a part of this process, a way to show these changes to people.