Cold export: can Ukrainian ice-cream become popular in the EU?

Is Ukraine capable of exporting ice-cream to the EU? And who actually makes ice-cream from powdered, not real milk?

The collapse of the hryvnia in 2014 reduced the demand for ice-cream in Ukraine. That’s why, the search of foreign buyers became the number one task for many companies.

Such an opportunity has presented itself after the enactment of the Ukraine-EU Association Agreement. Prior to that, the EU levied a combined duty on the Ukrainian-made ice-cream, making every pack 10-15% more expensive.

The free trade with the EU zeroed these duties out, which meant that the cold treats from Ukraine were becoming more competitive. Moreover, good prospects of the European market are underwritten by logistics, which is extremely important for a product that requires special equipment to transport. Therefore, if a Ukrainian ice-cream is sold in China (which takes a month for a truck to reach), the export to Poland or Germany should not pose any problems whatsoever.

But how to gain a foothold on the highly competitive EU market – a market where almost every country has powerful local producers, plus a host of transnational companies?

Like in many other food segments, ice-cream exports to the EU began with inexpensive products. But it didn’t stop there.

According to Ivan Razenkov, Sales Director at Lviv Ice-Cream Factory (LIMO trademark), the first buyers of Ukrainian ice-cream were … our compatriots living in the EU.

“Local consumers knew nothing about the Ukrainian products, so in the beginning, we could not count on large sales turnovers. But small consignments meant higher price markups. And who was prepared to buy Ukrainian ice-cream and often overpay for it? The ones who ate it since childhood”, Mr. Razenkov explains.

That’s why the LIMO brand started to gain the EU market with small chains (or even single stores) catering to immigrants from the former Soviet Union. But even that first step allowed to reach beyond the immigrant community.

“These stores are often visited by locals looking for a new taste. Later on, many of them become regular customers”, Ivan Razenkov adds.

The next step was obvious: going to regular retail chains. And that’s where many problems occur, beginning from the difference in tastes (the ice-cream in wafer cones so popular in Ukraine is not popular in the EU) and ending with the fact that the Ukrainians have to compete with local producers in the economy segment and with leading international brands in the premium segment.

Both have their advantages, first of all, recognizability and consumer loyalty.

An easy way out is to sell under the private brand name of a European chain. It takes many problems away, but doesn’t let to make a lot of money.

“Of course, we have sales like that. But for many companies, this is unsuitable. It only looks like it’s easy to make good money in trade with the EU, selling one’s products at European prices. Often, these sales are only enough to cover the cost price and logistics”, a LIMO representative says.

At the same time, Ukraine already has a successful experience in selling ice-cream under the original trademark.

For the time being, only Zhytomyr Butter Factory (Rud TM) could do that.

“We had the experience in ice-cream sales in Eastern Europe back in the early 2000s, before these countries joined the EU. After that, these sales have ceased. But in 2016, after procuring all export permits, we turned, first of all, to our former partners. And we did it! As a result, we started to sell in several countries at once: all Baltic States, Poland, Bulgaria, Croatia and even Greece”, Anton Skypalskyi, Head of Exports says.

The company brought the share of EU sales up to 40% of its export turnover. “Even though we have traditional markets used to our products, the potential of the EU is just incomparable, and that’s where we register the fastest growth. Eastern European countries are very close to us in many respects, and presently, our projects are being implemented mostly in Eastern Europe. Still, we move forward, and today, we do a successful business with Germany”, a company representative says.

In doing so – and that’s a crucial point – Rud sells ice-cream under brand names of retail chains and under its own.

“In fact, sales at retail chains are the least problematic, because it’s the most transparent contest. A chain makes an announcement that it needs a certain product in a certain price category. And then, it selects from among the candidates by way of blind tasting to determine whose products they like the most”, Anton Skypalskyi adds.

Still, it’s worth remembering that in order to participate in these tenders, additional certificates are often required. In particular, a British Retail Consortium certificate that Zhytomyr Butter Factory received in April of this year has “opened the door” to such retail chains as Auchan, Lidl, Kaufland, Maxima, Macro, Tesco…

Nevertheless, the key problem a Ukrainian producer faces when entering the EU market is what the raw material should be.

Fact is, Ukrainian companies doing business in the EU usually produce ice-cream from regular, not powdered milk. On the one hand, it’s a big advantage for the Ukrainians, as natural taste is trendy in Europe.

But at the same time, it’s a big problem, for EU standards are quite strict when it comes to milk: buying it from “babushkas”, as it was usually the case, is no longer possible.

Therefore, the companies face a difficult dilemma: turning to the production from powdered milk (as they do in many EU states) or investing in the own milk production.

The latter option, even though it requires investment, has serious advantages.

In particular, it opens the door to a new market, that of organic ice-cream. Even today, this product of Ukrainian origin is already sold at Auchan stores in Poland.

The demand for ice-cream is traditionally seasonal. In fact, it is only the third summer when Ukrainian ice-cream has been sold in the EU.

Therefore, come the next summer season, one should expect other Ukrainian producers to enter the European market. Besides the aforementioned Rud and LIMO, Lasunka is another producer exporting to the EU today. Next in line are Kharkiv’s Khladoprom, Laska from Kropyvnytskyi and other producers.

After all, according to data by the Association of Ukrainian Ice-Cream and Frozen Food Producers, 8% of the total export of Ukrainian ice-cream goes to EU states today. And most importantly, this indicator is rapidly growing: at the beginning of this year, export of Ukrainian ice-cream went up by 23%, largely due to deliveries to Europe.

And therefore, it won’t be a surprise anymore to find Ukrainian ice-cream in European supermarkets soon.

All in all, Ukrainians do like and make tasty ice-cream. And Ukraine deserves to have this image in the EU.

This publication was prepared as part of the information campaign European Integration: the Power of Opportunities conducted by the Office of the Vice Prime Minister for European and Euro-Atlantic Integration with the support from the EU and Association4U project.

Yurii Panchenko

The article was originally published on Evropeiska Pravda