TBY talks to Haluk Uçucu, Caucasus Country Manager for Danone, on the production, import and distribution of dairy products to Azerbaijan.
TBY Could you tell us about the dairy market in Azerbaijan and Danone’s operations in the country?
HALUK UÇUCU The dairy market in Azerbaijan has shown immense growth, increasing by around 100% in three years. We are the leading company in terms of market share. In terms of market size, we’re at approximately €25 million. Most of our products are fresh and pasteurized. We import our goods into Azerbaijan from Russia and Turkey. Some products like UHT milk and Danette come from Turkey, while fresh products like Actimel and Rastishka come from Russia.
What would you say are your main challenges in Azerbaijan?
We have difficulties in transportation, not because of Azerbaijan per se, but because of our products’ short shelf life, which is just 30 days. To give you some idea: we produce once a week, our products wait about three days in Russia, that leaves 27 days... then there’s another four days on the road, followed by another one or two days for custom clearance, so all in all the average shelf life estimate for any one of our products is about 20 days. This puts pressure on our distribution chain. We serve around 6,000 stores in Azerbaijan, and we cover about 75% of the country. Our maximum coverage could soon reach 8,000 stores.
What sort of distribution model do you use?
We have a single distributor. It both exports and distributes our products. Danone uses distributors because without a plant it doesn’t want to enter the distribution business. Our distributor is Atropatena. In 2008 it presented us with a project aimed at producing fresh dairy products in Azerbaijan. It wanted to invest in Azerbaijan. It’s a big plant with a capacity of around 200 tons a day—more than Azerbaijan’s current needs, and this factory will be open soon. It’ll start real milk production, followed by ayran (a yogurt drink), smetana (Russian sour cream), and other products. We’ll export to Georgia, Iran, Turkmenistan, and also southern Russia. Our industrial team DEW (Danone Energy Worldwide) checked all the procedures and necessary steps to be taken in the factory, and figured out which machines we’d need. After the necessary technology transfer we started work on the plant. Once the plant is approved by the authorities, we’ll start co-packing.
What unique qualities exist in the Azerbaijani FMCG sector?
Azerbaijan’s market in fresh dairy is a bit like Turkey’s. The most marketable products are plain yogurt and smetana. There isn’t a big market for packaged milk.
Who is your main competition in the Azerbaijani market?
There are some Russian products on the market, like Chudo, which is a product made by Wimm-Bill-Dann. It also bought a plant in Georgia. Our biggest competitor is a German company called Ehermann. It produces in Russia and exports to Azerbaijan. Another Dutch company, Campina, also produces in Russia. Our market share is around 65% in revenue terms, but in volume share it’s around 61% since our products are more expensive than our competitors’.
Is there a big difference in quality between your products and your competitors’?
Well, like I said earlier, our products are all fresh and pasteurized. That means they have less of a shelf life than, say, competitors’ smetana, which are cheap and popular here, as they are processed using an ultra-high-temperature (UHT) method. That means that its products’ bacteria are all killed off, whether they be good bacteria or bad bacteria. As a result, its products have shelf lives of between three and six months. That’s its advantage. But most of our products are pasteurized, whereby we kill the bad bacteria and keep the good. That means our products are better for you, since that bacteria is crucial for the immune system and digestion, and provides vitamin D, amongst other things. The competitors’ products only provide protein.
What sort of reforms do you think would be necessary to improve your business operations here in Azerbaijan?
There used to be no support for milk farming. It was only at the beginning of 2011 that support and subsidies were introduced. The government has now increased its aid to undeveloped regions. It gives good credit at low interest rates. Good cow breeds are also being imported into Azerbaijan now, increasing overall milk production. The two main collective farms, left over from the Soviet era, are in Ismaili and Sheki, and have very good production capacities. Every villager knows how to produce milk.
What’s your outlook for the Azerbaijani market in FMCG and dairy products in 2011?
The market is growing rapidly. In the last two years four large milk production companies were established. In the last four years our own growth has been at 25%, which is very good.
How do you promote your products?
We produce TV commercials with big local celebrities such as actors, Azerbaijani Eurovision contestants, and the like. We also have market promotions, discounts, and taste tests. On top of that we assume social responsibilities in Azerbaijan, distributing leaflets to kindergartens and schools.
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