TBY talks to Tursengali Alaguzov, Chairman of the Board at Galanz Bottlers, on opportunities in the FMCG sector and prospects for the Customs Union.
TBY Galanz Bottlers JSC was established in 1998, specializing in the production of bottled table water and soft drinks. Why did you decide to enter this sector?
TURSENGALI ALAGUZOV Initially I thought that it was not complicated to produce soft drinks and beverages. Firstly, we started to produce water in five-gallon amounts. There was nothing complicated, it was a very straight decision process. We bought 100 bottles and a cleaning and filtering machine that could process 200 liters per hour. We rented the facilities, and our business was worth around $15,000. At the time bottled water was very expensive, and we were not the first to enter the market. I was interested in the production process itself, not in sales. To increase the bottled water-consuming segment we followed some marketing strategies. Tap water is not really clean and there are chemicals in it. It leaves a residue in teapots, and our water did not leave such residues. Our marketing strategy was to show people that they would have that residue in their stomachs if they consumed tap water, and no such thing would happen with our water. Kazakhstan is a tea drinking society. We offered our potential consumers two cups of tea—one cup was made with tap water and another with our water. Consumers found the tea made with our water tasted better. It smelled more natural. People started to understand which water was better and became increasingly interested in our water. Also, we distributed it for free. We would give this water free of charge to use for two weeks. Around 60-70% of this initial group continued using our water, and by word of mouth our client base increased.
How has your company evolved? Why did you decide to get into the beverage business?
It was back in 2003 that we moved into other beverages. In 1998 I started this company all alone, and by 1999 I already had 100 employees. Now it is 1,200 employees strong. At that time I travelled with my wife to China quite often. She was busy in the education field, and I went along to assist her. In China we very much liked bottled iced tea. There we came up with the idea to produce iced tea here in Kazakhstan. At that time there was no other producer and it was all imported from Turkey, the US, and other countries. We were the first to produce here locally. We found the equipment manufacturer and the product in China, and in mid-2004 we shipped the first bottle of Maxi Chay.
Does your large market share depend on marketing, keen pricing, or on quality?
It depends firstly on the taste. We can right now go to the shop and buy another product and strip off all the branding and perform a taste test, and you would still choose our product. Second is, of course, the price, and that is why we have a 40% market share.
Are there any unique aspects to the tastes of local consumers?
It is difficult to speak for the entire nation. Children like sweet tastes, while adults do not prefer such sweetness. We have two targets: children and adults. We do not want to lose one while focusing on the other. That is why we have decided to put sugar at no more than 8% per liter. We also work in Afghanistan and North Africa, and there people prefer 12%-13% sugar.
You have launched a wide array of products, including energy drinks. Before launching a new product what strategies do you follow?
We conduct market research and think about our competitors. That is why we have original energy drinks as well as drinks that are not very different from our competitors in the market. We like to try tastes. Before the production process we perform focus group evaluations and taste tests.
How has the formation of the Customs Union between Kazakhstan, Belarus, and Russia influenced your business?
We are working in Almaty only with one distributor, and that company is responsible for most of our distribution. In Almaty, we perform 70% of the distribution ourselves. In other cities we outsource it. But in each of the 19 regions outside Almaty our employees oversee distribution. Around 30% of all our sales are in Almaty, with almost all of the rest going to other regions. In 2011 we are planning to produce 52 million liters, and export 5%-6% of that amount to Kyrgyzstan, Turkmenistan, and Russia directly. We also export to Afghanistan and Libya through our partners. The Customs Union is a complicated question. The Russian market is not a part of our strategy for now. Our Russian competitors are stronger, richer, and have a larger production base. Politically speaking, the Customs Union was the right decision made by Kazakhstan’s government. Whether in the Soviet era or even today, Russia was our main trading partner, yet it is clear that some businesses will suffer. Some mergers will take place, and some will go out of business.
What is your vision for Galanz Bottlers over the coming five years?
We would like to put our accounting side in order, and make everything clear and transparent on that side of the business. We also need to think about our means of distribution. We would like to launch new beverages and sell them. The beverage market does not stay the same, and we need to keep up with it. We would also like to produce dairy-based products. Furthermore, we are interested in the production of Chinese-style instant noodles. The main philosophy of the company is not to produce products that are harmful to health, like cigarettes or alcoholic beverages. To implement our expansion agenda we are open to partnerships as well. We are trying to be as open and transparent as possible to attract investors that might be interested in becoming stakeholders in our company. Kazakhstan imports more than 30% of its food needs from Russia, Europe, and China. If we could work a little more in our country, then business could be very profitable in the agriculture sector, food market, and other sectors.
© The Business Year