Adapt and survive. This law of nature holds just as well in business, and no more so than in a challenging business climate like that of Ukraine.
The story of Orlan Beverages illustrates the point. Set up originally in 1992 under the name Lviv Van Pur, the company had its sights set on carving a niche in the beer market.
By the mid-1990s, the company was producing the popular Van Pur brands of pasteurized beer, recalls Orlan Beverages Vice-President Ihor Chervonenko.
In 1994, the company moved from its Lviv base to Kyiv, and set up production at Kyiv beer plant No. 1. By 1995, Van Pur was producing two popular brands – Lviv Van Pur, and Rogan Van Pur – at breweries in Kyiv and Kharkiv respectively. However, all was not well with the company.
‘We didn’t have our own plant, and this was disappointing,’ said Zenko Aftanaziv, general director of Orlan Beverages. ‘Besides, the competition on the beer market became so fierce that we couldn’t cope with it.’ So Van Pur had to adapt to survive.
So on June 14, 1997, a new company arose from the ashes of Van Pur.
The first achievement of Orlan Beverages, set as a joint-stock company between several Ukrainian citizens and French investment bank Societe General, was to convert an old Soviet factory into a modern European drinks-making plant. ‘The only way for us was up,’ said Evtanaziv.
The plant was the first in Ukraine to set up modern canning lines – an expensive investment that paid off. With the new facilities on line, Orlan won an exclusive contract to can Pepsi Cola in Ukraine.
Not content just to can the produce of the famous soft-drinks giant, Orlan started to produce its own brands. Drawing on memories of Ukraine’s Soviet past, the company started by making versions of the soft drinks popular in Soviet times, marketing them under the Premiera brand.
‘We wanted people to remember something good from the past,’ smiled Zynovia Zelenyukh, chief technologist of Orlan Beverages, as he showed off the very un-Soviet and modern-looking Orlan production facilities in Kyiv.
As well as old Soviet favorites like Tarkhun – a syrupy sweet, gassy green beverage – Orlan produces alcoholic drinks like Gin and Tonic, the Dar brand of fruit juices, and Calipso mineral water.
Company officials say they take a pride in the quality of their product. Unlike some other Ukrainian producers, Orlan works only with trusted raw material suppliers like the well-known German concentrate producer Doehler.
‘It’s expensive, but we don’t want our customer to be deceived,’ said Chervonenko.
To make sure its products reach as many potential consumers as possible, the company has set up its own distribution networks in Kyiv, Kharkiv, Donbas and some western-Ukrainian oblasts.
‘Our dealers work in the rest of Ukraine,’ said Evtanaziv. ‘But they have to stick to our rules.’
But Orlan’s well-constructed production, distribution and sales structures took a big hit – along with the rest of the economy – in the financial crisis in the fall of 1998.
‘We thought it was the end,’ recalled Chervonenko. ‘At that time we were so close to matching the output of the Rosinka soft drinks plant [a major competitor], but because we had to increase prices we inevitably lost part of out market share.’
As the hryvna rate tumbled, foreign partners that had proved a boon to begin with became a burden.
With much of its production costs tied to the dollar, Orlan still had to pay its foreign partners the same amount of money for raw materials. But the value of its hryvna income from sales in Ukraine had almost halved. The company had no choice but to increase its prices.
But Evtanaziv said other leading drinks producers suffered as well.
‘Unfortunately, after the crisis Ukrainians started buying [low quality soft drinks] more often than they did before,’ said Zenko.
‘In some regions, [inexpensive, low quality brands] still account for 45 percent of all soft drink sales,’ added Evtanaziv.
But business started to pick up again in 1999. The mini crisis in August provoked by fuel shortages dealt another blow to Orlan, but after a recovery in autumn the company ended the year with a profit, and according to Chernovenko, ahead in terms of market share and output of arch-rival Rosinka.
‘If 1998 reported losses, the last year of the millennium brought us profits,’ he said. ‘Besides that, we’ve strengthened our market positions in the regions this year.’
But is Orlan’s success due to its management’s business acumen alone? If the name Chernonenko rings a bell, that may be because Orlan President Yevhen Chernovenko is also an advisor to President Leonid Kuchma and played a prominent part in Kuchma’s recent reelection campaign. So is Orlan benefiting from the president’s patronage, and is that why Kuchma’s portrait is the most common decoration on the walls of Orlan’s headquarters?
‘Absolutely not,’ said Ihor Chernovenko, Yevhen’s brother. ‘Unlike gas or energy, the beverages market is not that political. It’s the aggressive marketing strategy, professional team and the positive image of my brother that have made us successful.’
‘Yevhen Chervonenko is a generator of ideas,’ added Evtanaziv. ‘Sometimes he makes work things that others see as craziness.’
Yevhen Chernovenko’s latest ‘crazy idea’ is to produce a new line of medicinal beverages, packed with the entire alphabet of vitamins. Orlan plans to start producing the drinks this year.
‘[Our other plans] are a commercial secret,’ smiled Ihor Chervonenko. ‘Just wait a little.’
But it’s no secret that Orlan’s workers are happy with management’s performance. The average salary at the plant is Hr 650 to Hr 700, and it is paid on time. White-collar workers are said to receive ‘European level’ salaries, and all workers get benefits like paid vacations and fee trips to spas. Younger workers, who might be setting up homes, can also apply for credits from the company.
‘Hungry and unhealthy workers are bad workers,’ said Evtanaziv.
However, Orlan is hurrying to reestablish old Soviet benefits like free kindergartens and sports centers.
‘It’s better to pay staff a normal salary than just allow them to visit a company swimming pool once a week free of charge,’ said Yevhen Chernovenko. What are Orlan’s broader plans for the future?
‘Our slogan is ‘Quality, born in Ukraine,’ said Ihor Chervonenko. ‘Our goal is to be the biggest Ukrainian soft drinks producer after Coca-Cola. Yes, you’ve heard me right. After all, being able to set up realistic goals is also a skill.’ And are Orlan’s competitors worried by its goals?
‘We need such competitors like Orlan,’ said Oleh Lyfanov, marketing director of Obolon, the biggest Ukrainian drinks producer. ‘The customers wins, and so do we, because by competing we improve.’
