If we raise prices higher, we will lose the sales volume ….
About the company: Atropatena CJSC was established in November 1992. The company is the official distributor of below given leading global producers at the Azerbaijani market:
Hygiene products: Kimberly-Clark, GlaxoSmithKline, Schwarzkopf, 3М;
Household chemical goods: Reckitt Benckiser, Henkel;
Pharmaceutics: GlaxoSmithKline, Reckitt Benckiser Healthcare;
Dairy products: Danone;
Professional safety and hygiene products: Kimberly-Clark Professional.
By opening the largest dairy factory of Azerbaijan in 2011, Atropatena has started new phase in local production along with distribution. Atena Milk Factory which is equipped with the updated technology produces milk, yogurt, buttermilk, smetana, etc.
Caspian Energy (CE): Mr. Rasulov, the situation at the market has changed over the past year. Oil prices declined which caused devaluation of the national currency. How has this situation impacted the production sphere represented by your company?
Elshad Rasulov, Chairman of the Board of Atropatena: We lived in comfortable business conditions in recent decades. No economic bursts or declines took place. Perhaps, this is the reason why we were not fully ready to face things that are happening now. It is indeed a lesson for a business too as a safety factor should be created for such crisis moments. The business in the country has not managed to gain a big experience yet. But we still have to go through this stage which will strengthen the immune system of business and make it more sustainable.
As far as your question is concerned, the situation has certainly changed. As an importer and producer we very strongly feel the impact of the exchange rate difference on business conditions. Prices are rising because import is carried out in foreign currency. Apart from this, many components for local production are also imported.
It is not difficult to raise prices. But even in this issue we have a lot to learn because many factors should be taken into account: the size of the market, purchasing power, influence of price increase on the sales volume. Depending on this, cost production should be optimized. Marginality, dependence on import and such parameters as pricing and the volume of the market should be taken into account. All these parameters are interrelated. An optimal value should be chosen here in order to run business. If we raise prices higher, we will lose the sales volume. It is a challenging issue. Every business will choose its optimal solution. In this case it is important to make a choice between short-term interests or a perspective. Short-term interests mean a price that can yield immediate earnings to an entrepreneur while promising interests imply not monthly earnings but at annual or other basis. As I noted, every business will figure its capacity on its own.
The sooner is the recovery of investments, the more it is interesting to make them …
CE: Nevertheless, reforms are underway in the country. Decisions have been made on a legislative level to improve business doing. Issues concerning tax preferences and others are under consideration. To what extent has it already affected business interests in the production sphere?
Elshad Rasulov: Nowadays, our state headed by President Ilham Aliyev is very interested in development of the real sector of the economy, especially the agrarian and processing sectors. Development of these sectors opens additional working places and lowers dependence on import. Intensive work is carried out in this direction. The work is carried out in accordance with the legislation. Areas for funding are under consideration. It especially concerns export-oriented sectors. It is not a simple task indeed. Such decisions take time for yielding results. The foundation is now laid in order to have these tasks solved in future. It is a big support for business. If these issues find solution now, then it will also raise inflow of investments into the country. Local production will increase. Dependence on import will lower, especially in the field of food products. All-weather conditions in Azerbaijan let us be independent on import in terms of food products. It is a very important issue.
CE: Which tasks are the important for you as a business representative? Which proposals have to be implemented in order to solve issues in the very specialized direction?
Elshad Rasulov: I would not have approached this issue in a high specialized direction, on the contrary. Threshold issues are being addressed in the country now in order to create the best investment climate that would be able to compete with neighbor countries. It is a very important and complicated issue. If we have an investment climate better than that of in Georgia, RF, Turkey or any other country, it will attract both local and western investments. It is a concept. But there are many issues to solve for getting this task done. These concern legislation, economic support and subsidies. Discussions in this direction are held in different structures. An optimal solution has to be found here. I.e. any business, who invests into a country, considers opportunities of their recovery. The sooner is the recovery the more interested he is in making investments. I find it to be the most important issue.
Food reserve is the most important part of the import component…
CE: You have touched an important issue, saying that imported components account for a certain share in products. What measures shall be taken in order to minimize import? As you know, the head of state has set the task to boost export. As a producer of local products, do you plan to establish export of your products in future?
Elshad Rasulov: It is impossible to get fully rid of an import component. We are producing dairy products and cheapen meat. Import components are used in both cases. Food reserve is the most important part of the import component. In terms of this parameter we are fully dependent on import, especially in winter. As far as milk products are concerned, the cost price dependence on import now makes up to 40% while in case of chicken meat it makes over 60%.
Exchange difference has fully affected the cost price. The most important task for now is to have this issue solved. You will ask how? The way out is simple. We simply need to produce these ingredients domestically. It includes soya, grain and wheat. All these components can be produced in our country. We are currently working in this direction. We think that the state will allocate a land for our company. Then we will be able to implement a project on production of these ingredients inside of the country. This is a first issue.
The second issue is packaging equipment and materials which also fall to the share of import. Apart from this, we are importing medications, vitamins and additives for food. We probably will import these components. But they inconsiderably account for a cost price. However, in terms of other parameters we can establish a local production within 3 years and lower dependence on import, lower, accordingly, prices in the market, ensure stable prices not dependent on import and carry out an export.
There are real opportunities for export indeed. We calculated our export capacities for two years but our proposals were expensive. Now when the rate of our currency has declined, new opportunities for export are opening. We hold negotiations on this issue with different customers. Milk products are coming first. Then we can get ourselves engaged in supply of chicken meat.
We are studying the markets of Arab countries which produce a low amount of milk products. Apart from this, they possess a potential purchasing capacity. We are considering a market of Russia where a shortage of food products is observed.
CE: You have mentioned packaging component. Are measures on import-substitution taken?
Elshad Rasulov: Regarding the packaging products. It is a slightly different business. We have many directions in the country but we cannot cover them all. If there were a company producing packaging materials, we would use its products. We even can provide information on which equipment and a raw material should be acquired. We thought about it last year but now we have no such plans. However, as you know, a project on production of polyethylene has been launched in Azerbaijan. In case of domestic production of granules, it will be possible to produce packaging materials by purchasing certain equipment. Now we live in a century when it is less difficult to produce than sell it. A right marketing strategy is needed.
We must not infringe upon the interests of consumers…
CE: To what degree did you manage to stabilize a price factor in order to lose sale volumes?
Elshad Rasulov: I mentioned a number of factors that should be controlled. The simplest one is to raise a price proportionally towards the growth of cost price of products. The question is whether our customers are ready for it? Considering the experience of big corporations, they will never increase prices by 50% because interests of consumers for them are coming first. We must not infringe upon the interests of consumers. If we increase prices, we will arouse a negative attitude in them towards a certain brand. It is a gradual process. We shall cover half of damage. As time goes by, when customers get psychologically and materially ready for it, as their salary grows, we will also start correcting the situation step by step in order to establish a normal rate of profitability of our business.
CE: To what extent has the real sector felt the decline of sale volumes?
Elshad Rasulov: Both the market and consumers were shocked in January. Consumers are afraid to enter a market and buy anything. The situation will gradually stabilize by the end of March.
CE: How much does it make in numbers?
Elshad Rasulov: We have not raised prices for milk products yet. We are bearing all these costs. The same situation is with the chicken meat. On the other hand, we strongly lower expenditures. But we make calculation on an annual basis in order to bear big losses. If we end 2016 without losses, that will be good. We don’t think of profits now. It main thing is to preserve our market share and avoid strong financial losses. For us, our customers come first. The second is our market share.
Products of Atena are recognized as a high quality product
CE: Atena has always impressed with renewal of product line… What are you going to invest in 2016?
Elshad Rasulov: There will be certain renewals both in milk business and in the field of production of chicken meat. It will not be high investments as there are no plans for it this year. But the renewal of the production line is expected. It concerns 5-6 new milk products. It basically will concern an assortment of cheese. We will start producing fruit yoghurts. A number of other innovations are planned as well.
CE: For many years you have been engaged in distribution business and representing big companies in the market of Azerbaijan. How would you describe the general situation in the distributorship market?
Elshad Rasulov: Products that are not produced domestically have to be imported. It was important 10-15 years ago. Products were imported. A market was created. Then, a possibility of domestic production was considered. We have now reached a stage when a market decides which was to go as import becomes expensive. We tell our producers about prospects of local production. Though, we did not think about it a year ago. Therefore, as I said at the beginning of our conversation, a better investment climate will attract a higher amount of investments. We have a favorable investment climate. The matter now is to have it improved.
CE: Do your partners wish to invest in Azerbaijan via the symbiosis with the established business?
Elshad Rasulov: A wait-and-see approach is currently observed among the market participants. Everybody is watching over changes in the market and expecting a long-term stabilization of the currency corridor. We really feel that business legalization is taking place. It is a very important parameter. It will let attract more western businessmen into our country.
The crisis indeed opens new opportunities. I.e. if everything is computed right, these are real opportunities. One should better manage human, financial and technical resources now. Costs have to be reduced. Apart from this, export opportunities arise. A work with human resources is needed to take advantage of these opportunities. This year we will focus our efforts in this direction.
CE: How would you evaluate the last year activity of the company? To what degree has a new assortment of products assimilated into the new market? To what extent do customers like a new product line?
Elshad Rasulov: 2015 was a very hard year. Devaluation which took place in February also impacted on purchasing power. In spite of this we ended 2015 good enough. The growth was observed especially in the field of local production. In the field of import we really see reduction of profits as prices of imported products increased. Accordingly, consumers moved towards local products. However, it is an advantage for us as for a local producer because now we compete with import better. It was difficult a year or two years ago because things we produced cost expensive. In this sense we have also created new opportunities, especially in the field of production of milk products.
In general, considering milk products globally, 98% of milk products at the market account for local products. Our import still makes over 15%. Freshness of products is the main thing in this business. No one will buy 3-4 month old milk products. The fresher the product the better it is. Now our consumers also give a value to that. There used to be an obstacle a few years ago when there was a saying “if it is a local product, then it lacks quality”. There has always such stereotype. It seems to me that we have broken it down.
We have been in the market for 5 years. Producing good products meeting the highest standards, we managed to gain a positive image in the local market. I.e. when we speak of Atena products, it is perceived as a high quality product.
Interview made by Ceyhun Bayramov, Emil Mammadov