Andriy Zdesenko is one of Ukraine’s most successful businessmen, with a variety of interests in the country including Biosphere Corporation, Ukraine’s leading manufacturer and distributor of household and hygienic products. Biosphere Corp has several award-winning product lines, scooping up accolades annually. In November 2018, the brand of Biosphere together with its two flagship trademarks, Freken BOK and Smile, made it to a list of the top-100 most valuable brands in Ukraine compiled by Novoye Vremya magazine, together with MPP Consulting. The total market value of the three surpassed $110 million. Biosphere Corp is also a private label manufacturer in Ukraine and abroad, with a presence throughout the CIS region and in Europe. Here, Zdesenko talks about how he has steered his corporation to local and regional success and talks about its strategy to expand its presence in European markets.
When you set up this venture over twenty years ago, you had a clear vision. Fast forward to 2018 – how satisfied are you with what you have created so far?
Twenty years ago, the market was completely different. It was open, with neither chains nor infrastructure for Ukrainian production – 90 percent of products were made in Europe or Asia. It was a time of opportunity, which it is easier to realize in hindsight. I decided after university to act upon my entrepreneurial instinct. With a fellow student, I opened several small pharmacies and distributors, and developed this as a business. When the Ukrainian government created new pharmacy store regulations, we realized that our concept didn’t correspond to these rules and our distribution was uncompetitive on such a small scale. At that time, Procter & Gamble (P&G) had advertised some hygiene products and galvanized the Ukrainian market. Inspired by this, I decided to strive to become Ukraine’s market leader in the sale of hygiene products and fast-moving consumer goods (FMCGs).
I chose the name Biosphere as it conjures an image of helping and protecting mother and baby, which was also reflected in our first logo. We asked many distributors to keep the portfolios of leading hygiene product brands, and within two years we became the market leader in the Dnipropetrovsk area. A young partner in another corporation, Olvia Holding, invited us to join their business and scale up to a national level. By 1999, we had reached 30 percent market share in Ukraine for diapers and sanitary napkins among the importers and distributors of the similar brands. I considered it successful that we became a leading importer and distributor of hygiene products, but I realized the next step was to produce them, inspired by the example of a successful Polish producer that held 45 percent of the Polish market in diapers and sanitary napkins after opening sophisticated production facilities. I sought to replicate their success and become the first producer of these FMCGs in Ukraine.
My goal was to buy the most sophisticated lines in the world, and within one year I created a specialist group within the company, consisting of experts on the equipment, technology and raw materials that we were to procure. My partners suggested to make a joint venture with a Turkish company, Bašer Kimya, who in turn recommended that I buy two manufacturing lines. However, I found myself unmatched to this project and on mutual agreement left this joint venture in 2001, taking with me 15 colleagues and the capacity to manufacture some new household products, such as wet wipes and toilet paper.
Why did you make this decision?
For me, it was difficult to stay within the frame of a big corporation. I like to follow my tempo and get results more quickly, so I took the risk despite the joint venture’s success. But from leaving in 2001 with 15 people, by 2011 I had 2,000 employees, three production facilities and turnover higher than I had experienced in previous ventures. My risk paid off. I built my corporation to cater for household and hygienic goods. My first monthly turnover was $50,000 in a very challenging, almost non-existent market; now it is more than $10 million. I believe we created the market for our products, by promoting and explaining the value of our products in Ukraine, as well as convincing the thought leaders of the country through activities such as a culinary programme. Together with competitors, we built this market. We led on initiatives like producing biodegradable and recyclable garbage bags with draw tape. We did this by teaching the customer about the use of such innovations. We are still engaged in educating the market of the value of such products.
A lot of the personal investment has been in finding the right people with the right skills to develop Biosphere. A lot of consultants and professional managers in my company had great success in other companies beforehand. They gave Biosphere crucial experience when they came on board. It’s not easy for us to develop together, and change is sometimes necessary to accumulate, to grow our business to match the ambitions of our vision. Our target, in six years, is to double our global turnover to half a billion dollars per year.
Your brands have a strong emotional bond with people, as they are present in consumer households and used daily. How do you work to build these bonds with your customers?
My former business partner and I both have marketing mindsets and have been very proactive in coming up with branding ideas. We involved many creative agencies in our brand and product creation. We researched what made the largest hygiene brands benchmarks in the sector. These are all brands I knew very well from my time as a distributor. I realized that the brand, more than manufacturing facilities, is the main value of a company because it is the customer interface. So our strategy has been to be the category leader in each brand and use the brands that we create as our primary method of value creation. Our brands are now dominant in the market because we have made such an effort to cooperate with the likes of Disney and Universal to involve both young and old generations emotionally into our products and bring added value. But this would not have been effective without us also making sure we put a sense of the personality of the company, of my team and I, into the brands that we have created.
What would you say is your main competitive edge?
A combination of the magic of our brands, our quality, and aggressive distribution is what gives us a real competitive edge. The quality of our employees is every bit the equal of competitors like Unilever and P&G, and we have fantastic merchandising and optimal positioning on the shelves. But our key is the magic of the brand. For example, our Freken BOK household goods are branded with a popular cartoon known to many generations of Ukrainians. Two product lines, Smile and Freken BOK, are much-loved trademarks in households across the country.
What is your appraisal of the retail FMCGs market in Ukraine, and your prospects for further growth within the country?
We have a five-pronged marketing strategy around product categories. I will take cooking and cleaning products as an example to illustrate this. Our leading brand, Freken BOK, is in category B. We also have Vortex, a leading brand that helps us compete in international markets. This is in category A. In category C, economy, we have a product named Bonus. We are also one of Ukraine’s biggest private label producers, and we have another bespoke brand to supply hotels, restaurants and specialized medical clinics – PRO service. Due to this strong and diversified portfolio, we can cater for all of the opportunities the market presents us with. The same applies with other kinds of goods, including wet wipes and cotton products. This is the essence of market leadership. We are so strong because we try and retain all the opportunities that the market provides us.
Biosphere now sells some 30 million packs of goods per month. Where do your products go outside Ukraine?
Last year we sold 360 million products, which equates to 1 million per day. They go to 15 counties in Europe and outside of Ukraine. Our main sales are to countries of the Commonwealth of Independent States (CIS).
How important is Europe to your future growth strategy?
Our long-term vision is to become successful and competitive in Europe. We know our competitors there and their technology well. Key to our European strategy are investment in new technology, labor and vertical integration. For example, we have a recycling plant in Ukraine for our garbage bags. We plan to also integrate raw materials and final goods into our own supply chain, following the example of garbage bags.
Here in Ukraine, we have quite attractive labor conditions and huge manufacturing capacities that make our production very efficient. For this reason, we are now discussing with Disney and Universal the possibility of putting our brands, with our partners’ images in some European countries. This is part of our strategy to make Biosphere competitive in Europe.
Where do you have a presence in Europe at the moment?
We are already present in three Baltic states through private-label partnerships with several supermarket chains. We have successfully cooperated with the biggest supermarket chain in Poland, Biedronka, we also sell Vortex in Romania through Auchan, Cora and Real. Additionally, we have a pre-agreement with a German discount supermarket chain and are discussing with many companies. Two of our employees are responsible for Baltic states and the Polish and German markets, respectively. So as well as discussing private label manufacturing with big chains, we have a company in Estonia with a structure formed for European business. This will be responsible for Germany, the UK, Poland, the Czech Republic, Romania, the Baltic states and Scandinavia. In Estonia, we have a joint venture and a factory producing cotton cosmetic products. So we are able to deliver our goods to Europe immediately from Estonia. These factors combined give us the confidence that we will succeed in the region.
How do you assess the potential of the German market in terms of your sales, volume and turnover targets?
Germany is a huge, yet conservative, market. Our turnover target for the market is sales of €10 million per year in three years’ time.
Are you contemplating acquisitions or partnerships with local players in Germany?
We are open to all opportunities. We have had a fantastically successful experience with our joint venture with a multinational French group in Estonia, where our factory is completely full of stock. So we know that the partnership is a very effective form of local collaboration. We would like to sign contracts with agencies and distributors as well as directly, with huge groups like Aldi and Lidl. These contracts pose the potential to immediately bring us several hundred thousand euros per month. For this reason we are very optimistic about the German market. But our entry needs time. It is a big job and the market has many competitors. Many of these are Polish companies that we know, which are active in Germany. But we trust our strengths. And I hope that in a few years’ time, the image of ‘Made in Ukraine’ will have improved.
How will an improved ‘Made in Ukraine’ image help you enter those markets?
I think a combination of factors – European experience of Ukraine’s products, an improved image of Ukraine and improved ease of travel so that Europeans can see the realities of work in the country – will help the market trust and open up to businesses like mine. The current image of Ukraine is quite negative as people don’t consider Ukrainian businesses to have modern infrastructure, facilities or mentality. Contrast this with the modern image of China; when we go and see the quality level of Chinese companies and the resourcefulness of the people, we understand that ‘Made in China’ means reliable and modern. So Europe needs time to learn more about Ukraine. It will also need references; if European companies start working with good Ukrainian producers, all of our reputations will be enhanced. From Ukraine’s side, we will need to deliver on quality and on time in terms of production and logistics. We will need to communicate the image of the country effectively, using the right people and organizations. All of these aspects are pieces of the puzzle. I think it will take three to five years to bring them together.
What is really my dream is helping German companies realize the unique opportunity they have by opening production here. The delivery time here is much faster than from China. In my opinion, the level of human resources is higher, the level of manufacturing and distribution restrictions is softer, and the mentality a lot closer to that of the German market. So I see a lot of opportunity for German cooperation.
Additionally, the market here, with Ukraine’s population of more than 40 million, is quite attractive to foreign investment. If salaries increase, more and more people here will desire cosmetic and hygienic products and the market will become more consumer-oriented. This is true of many industries in Ukraine.