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From: Velizar Velikov

Effective October 2009 Jan Skvaril is the new Managing Director of Avendi, a company for marketing and distribution of fast moving consumer goods, part of  VM Finance Group holding. Before that he was Director Management Consulting at Deloitte Bulgaria. Jan Skvaril holds a Master´s Degree in International Trade and Finance from the University of Economics in Prague. He is Czech nationality, fluent in Bulgarian and English.

- Mr. Skvaril how did the crisis reflect on the sector of FMCG?

There is a common sense that the sector of FMCG is not influenced by the crisis, but this is not like that. It is really not hit so hard in terms of the total sales, but in value point of view. This is a logical consequence from the crisis, because on one hand the prices of the most products got lower, and on the other hand, the consumers decided to choose cheaper alternatives.
The consumers seek lower prices as the crisis makes them spend carefully. The uncertainty repressed even the people with high income to think about savings for the future. They started to compare products in order to undertake more reasonable decisions. This forced the manufacturers to decrease the prices, which is always harmful process to them and that is why before launching similar measures, they seek benefits, by analyzing the price elasticity of the products more carefully.
For example, in the market of imported whiskey during the period of October 2008 – September 2009, compared to the same period before that, there is increase of the quality 7,5 %, but as value the increase is only 6 %.
We noticed that the drop did not influence the famous brands to a great extent. The crisis hit mostly expensive products category (such as deluxe whiskey, champagne, expensive wines, etc.), which are consumed mainly in the on-trade, as well as products without traditions on the Bulgarian market, liqueur category, for example.
We expect this trend to continue during the Christmas period and the total sales to remain the same as the previous ones, but in terms of the prices, certainly the sales value will decrease. The prices got lower almost in all segments of FMCG sector and in my opinion this is happening too fast due to worries that the unemployment will increase quickly and the purchasing power of the people will fall.

- How does Avendi manage with this situation?

Avendi handles the situation better than the market. According to official data from AC Nielsen study for the sales of imported whiskey category during the period of September 2008 – September 2009, its market value has increased with 6 %, compared to ours, which is 10,5 %. These results show that Avendi growth is bigger than the market one and our company win market share. 

-How do you succeed to do that?

We have undertaken many strategic steps, which are planned and decided on in the beginning of the crisis. Avendi has expanded its distribution cover, working more effectively on the target level and investing in proper marketing initiatives. Our decision was to increase our marketing activities during the crisis, because although the common sense that the marketing budgets have to be reduced, we managed to convince our partners that they might achieve more results using less investments. We consider that during crisis it is more suitable to continue investing in advertisements, not only because of the low prices of the marketing services, but because the total decreases in the sales quality will make your advertisement more visible. It will be not only cheaper, but also more effective one in long-term aspect. We are adding new products to our portfolio as well. This year they are six new brands from foods and drinks category.

 -What are the trends that you observe in the sector?

The main drop was in HoReCa sector-bars, restaurants, cafes, hotels, corporate events- people preferred to consume at home in stead of going out. In addition clients’ behavior changed and the customers who consumed more expensive products before, in order to demonstrate higher social status, became not motivated enough to pay premium price during the crisis. That is why they chose the standard price segment. On the whole we can say that during the last year the consumption in HoReCa segment (with 30 % drop in the spirits category) has directed to the off-trade market (stores). The trade chains which realize growth play a basic role in the sales of this segment. In result of this trend Avendi directed all its marketing activities from entertainment places to trade chains.
People consume nearly the same quality of drinks, moving from one canal to another.
The last data for HoReCa canal seems interesting as they show liveliness. During the last months the consumption is higher, which gives us a green light that we should invest in this canal as well.

 -How long do you think this situation will continue?

According to my opinion people psychologically started coming out from the crisis. The question is how fast the income will increase, in order to spend more. My concern is how to avoid this situation in a fast and dynamic way. The countries neighbors, with which the Bulgarian manufacturers compete themselves on the western markets, have devaluated their currency because of the crisis, which means that they are more competitive in terms of export prices. The Bulgarian government strives to balanced budget, so that there is significant decrease of state investments and expenses, which means that the companies providing services and delivering goods to the country will be in a difficult situation as well. There is a significant drop in the foreign investments , not only due to the fact that there is limited free financial resources, but also because the business climate in the other countries in Central Europe is more clear and predictable, which is leading to higher reinstate of the investments towards the risk.
Unfortunately, when I observe and analyze these trends, I am not able to see a way how the consumption will significantly and quickly change and that is why avoiding the crisis will be a long and slow process. Of course, the assimilation of European funds is absolutely of key importance in this situation.

 - Do you expect structural changes in the sector?

In fact, trade chains and mostly small retailers have some difficulties with the vendors’ payments. In result we restricted the supplies of some local chains which are not so big for us, but we do not want to work with unreliable partners.
The big international trade chains are in a better position, because they know how to manage with similar situations. This is one of the factors, which will play role in future retail market consolidation, which is inevitable, observing the trends in the more developed countries in the region.
Increase in the so called private label products is expected. They are made directly for a particular trade chain with 20% lower price than the brand products. This is a process that Bulgaria will pass, as this segment is still not so developed. It is interesting to what extent the Bulgarian will accept these offers or will prefer to be more conservative and choose the quality in stead of price.
The thing that worries us is the parallel import. Manufacturers have different politics for the different price markets. That is why due to the devaluation of the local currency there are markets with significantly lower prices compared to Bulgarian’s.
Companies, which are not exclusive importers of particular products take advantage of this and import from lower price’s markets. That is definitely normal according to the measures in European Union, but unfortunately that often happens in the sector of the black economy. This is a risk for the whole trade and according to my opinion the country should continue trying to stop the smuggling and control the payments of Added Value Tax. We appeal to all producers to equal their price politics, because in this way they are harmful to themselves. They already realize that, since distribution’s companies in Romania and Czech Republic are almost in bankruptcy.

- Do you have any valuation about the share of the parallel import?

According to our observations in the spirits category this share is between 10-15 %, but for example, we consider that in the sweets over 50 % of the sales is a result from parallel import which is not done by the official importer for the country. This is related to the whole sector and all import’s brands bear losses.

- Avendi has a growth’s strategy, which includes acquisition’s growth as well. How did the crisis change these plans?

The strategy of Avendi for acquisition’s growth has not changed, but crisis made us more careful. We are still observing the close markets and looking for proper companies in order to apply the know-how and achieve the success that we have in Bulgaria. At the same time we keep an eye on the Bulgarian market as well. Our interests are in a horizontal aspect – I mean the other distributions companies, which complement with our business, as well in a vertical -we think for acquisition in the area of FMCG. We will take into account only companies in our sphere- top products with marketing support and of perfect quality.
At the moment we are working on some projects, but still we have not taken any decision, because we believe, that now is the most suitable period for acquisitions and the owners will be ready to sell at advantageous prices.

- How will the crises reflect on the financial results of Avendi?

For us the crisis means changing attitudes. During the past years of increase, we mainly focused our efforts upon gaining market share part and increasing the turnover. Now we are concentrated not only on the quality of the turnover but also on their profitableness. As everywhere, our focus is to have positive cash flow and profitable business. That is why in the beginning of the year Avendi took a strategy decision to terminate gradually its tobacco business, which gave big turnover, almost 45 % of the one for the last year, but was not so interesting in terms of profitableness. Before that we were working like this because of the synergy with the other goods, but this kind of business seems to be ineffective and we do not want to put investments in such a sector.
This year our purpose is 80 million lv. turnover and increase the profitableness of our business towards last year.
In the spirits our revenue will decrease with 25 %, in the sweets products we have growth of 8%, and about the foods he increase is 25%.  In line with this Avendi made a rationalization as reducing some necessary expenses. We are already thinking in a long-term plan, focusing on the preparation for after crises period.

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