AVK is one of Ukraine’s leading producers of chocolates, candies and other confectionaries. The company traces its roots to 1926, when its Donetsk-based confectionary factory was established. Privatized after independence, businessmen Volodymyr Avramenko and Valeriy Kravets took over management and expanded the group acquiring confectionary factories in Dnipropetrovsk, Luhansk and Mukachevo oblasts. The group’s business has grown steadily along with the rising taste and purchasing power for sweets by Ukrainians, and key export markets in the CIS.

In this Kyiv Post interview, AVK’s general director Andriy Dikunov talks about the prospects of the confectionary industry in Ukraine.

KP: How has the global financial crisis affected Ukraine’s confectionary business?

AD: I don’t agree with the commonly heard notion that the ‘mission’ of the financial crisis is to cleanse business of ineffective investment projects and staff. Doing business in difficult economic times poses risks by its very essence. But careful and thought out entrepreneurs always prepare ahead of time for such downturns, and by doing so should avoid falling into trouble, for example, when it comes to servicing loans.

Most of Ukraine’s confectionary companies, including AVK, invested heavily a few years back into purchasing new equipment that has improved our efficiency and expanded our business. So now we are not pressed to borrow heavily during these credit crunch days. It is true, however, that a nationwide panic could lead to difficulties, such as a non-payment crisis. Such a scenario would affect all industries without exception.

Yet despite the decrease of all economic indicators in the country, people won’t stop buying basic necessities such as food, or things like clothing and jewelry, especially now with the holiday season approaching. Now is a peak time for many consumer sectors including the confectionary industry.

Of course, we can’t deny that the priorities of consumers will not change. Some products become more popular when others lose their appeal. But this trend has always been at play, even without the financial crisis.

In times of change, companies get a good opportunity to offer new things to the market. I am sure our company will use this situation as an advantage.

KP: Who are the main players on Ukraine’s confectionary market?

AD: There are five main players which control up to 80 percent of the Ukrainian confectionary market. In addition to AVK, these companies include [Ukrainian-owned group] Roshen and Konti; [and multinationals] Kraft Foods Ukraine and Nestle Ukraine.

KP: What kind of sales do you expect for this year and next year compared to your results in 2007?

AD: In 2007, we posted a turnover of $260 million. In the first nine months of this year, we increased our performance by 43 percent. Despite the difficult economic times, we look into the future with confidence.

We all know chocolate can improve the mood of people. If you really think about it, a box of chocolates was a luxury for a regular Ukrainian during much of the 1990s, whereas now, the level of chocolate consumption has grown tremendously.

KP: If demand has been increasing, by how much have you increased production?

AD: What I can say, is that in the first nine months of this year, AVK produced 90,000 tons of confectionary products. Because of the fierce competition on the Ukrainian confectionary market, companies need to focus on the key niches of the business. For AVK this is chocolate, jelly and chewing candies. That’s why for the past few years we have been investing into new equipment, so our products become compatible with the best world’s brands in terms of quality, design and price.

KP: Do you have any special offers for the holiday season?

AD: First of all, we hope to strengthen our positions in key market segments during the holiday season. We have already offered retailers our new collection of New Year package gifts, 70 percent of which consists of chocolate candies. I can say that they are 15 percent more in weight – ranging from 470 grams to 1,160 grams – compared to our usual offers.

The other New Year’s surprise for our customers is that we cut prices up to 14 percent on the most popular products.

KP: How has Ukraine’s becoming a member of the World Trade Organization this year affected the domestic confectionary market? Has it brought new competition to the market?

AD: Ukraine’s integration into the WTO has not affected the confectionary business in any negative way. We had enough time to prepare for this.

For the past few years we have been strengthening our competitiveness by focusing on the most promising products, while cutting down on the unprofitable ones.

We have invested a whole lot of money into modernization in order to comply with Western standards. In addition, the share of competition on the market has not changed significantly after Ukraine joined the WTO.

KP: Which countries are the biggest importers of AVK’s production?

AD: We export our products to 20 different countries. In general, we export about half of what we produce and 60 percent of our exports go to Russia.

KP: Figures show that your company controls about 5 percent of the Russian market, which accounts for a large share of your exports. What is your key to success on the Ukrainian and Russian markets?

AD: Russian consumers are not that different from Ukrainian consumers. In Russia, as well as in Ukraine, the confectionary market is growing and developing. Consumers are becoming more sophisticated. A lot of people are willing to pay more in order to get a good brand which will keep them in a good mood.

When promoting our brand on a foreign market, we initially make an effort to accentuate on the middle and top price segments. In doing so, we break the stereotypes of Russian consumers about “cheap Ukrainian sweets.”