Despite costs of raw materials for ice cream production rose over 10% on average, while costs of energy needed for production grew 6 – 8%, the choice of not substituting the cream with cheaper vegetable fats has paid off, Normunds Labrencis, Director of Ingman Saldējums, recognized in an interview to the business news portal BNN.
What are the recent key events in your industry?
The successful beginning of new ice cream season, dramatic changes in raw material prices and amendments to legislation can be mentioned as the most important events in the ice cream industry during the past year.
I believe the ice cream season start is very successful this year. Ingman Saldējums ice cream sales surged 26% in May, while doubling in the first few weeks of June, compared to last year. This is largely due to Ingman’s strategy – launching over 20 new ice creams on the Latvian market with the arrival of season. This is a record-high number, compared to other ice cream producers in Latvia, as well as to the company’s past experience, because usually the product range is expanded with ten new products a year. New product development and introduction in particular is a significant precondition for financially-successful sales performance.
However, in order to talk about successful ice-cream market expansion, cost and consumer behaviour predictability is important in the long term. There are areas the government cannot influence. For example, raw material prices, weather conditions, dollar fluctuations, fuel prices on the world market, which have already hit their critical point, surcharging production costs. Yet the government can help businesses by taking decisions not imposing additional burden. Unfortunately, last year we experienced tax increases and energy resource surcharge, affecting businesses and reducing the residents’ purchasing power.
Do you feel skilled labour shortages?
The company Ingman Saldējums itself does not experience a lack of qualified workers. At the same time, such problem exists in the country and should not be played down. The large number of employable people leaving Latvia is worrying. Not only basic job workers are going away, but also educated professionals. The longer this issue is not solved by the government, the more Latvia will experience skilled labour shortages, further reflecting on the demographic situation.
What changes would you like to see in Latvia’s legislation?
The consumption of ice cream grows along with the arrival of hot season. However, not all products sold are real ice cream, because some are made from cream (milk), while others – from vegetable fat, which has nothing to do with milk. Currently, the Latvian legislation does not impose an obligation on producers to label products with tags «ice cream» or «ice cream product», as in case of sour cream and cream products and butter and butter products. Yet consumers have the right to know what products they eat.
How was your industry affected by the crisis?
Latvia has already overcome the low point, yet it is possible to describe the period since the crisis start in 2008 as challenging, characterized by increasing competition on the market and pressure on product price. Firstly, this was due to the residents’ low purchasing power. Secondly – rapid raw material and energy price gains, hitting record-highs in recent years. We have estimated that on average raw materials for ice cream production surged more than 10% within a year. While the costs of energy necessary for production spiked 6 – 8%.
Nevertheless, Ingman did not change its strategy by replacing cream with less expensive vegetable fats. Instead, it continued to produce ice cream on a cream base. This strategy clearly paid off, because the company did not lose buyers’ confidence in its products, flavours and quality, thus maintaining and even boosting the market share.
When will your company reach the pre-crisis performance?
In May, Ingman Saldējums posted the best sales figures in its history. At the moment, the 2011 sales performance is historically the best, exceeding the 2007 and the 2008 figures. We forecast record sales this year as well.
How do you assess the government’s implemented economic policy to improve the economic situation in Latvia?
The Latvian businessmen have previously expressed views on the government’s introduced measures necessary to stimulate business; however, it looks like the government is not hearing them out. We have always said that, for example, further fuel price gains will negatively affect the business environment. So, it would be necessary to consider solutions for high fuel prices, for instance, by reducing the excise tax. Yet, on the contrary, the excise tax was raised from June 1, this year. Firstly, fuel price hikes surcharge the production process, as well as the end product. Secondly, the current tax policy regarding excise goods segment has already proved its effect on the shadow economy increase.
Ever since the start of the recession, there are talks on reducing the shadow economy proportion in Latvia; however, steps are being taken in direction that only fosters the shadow economy. At present, honest tax payers are paying for entrepreneurs opting to dodge taxes.
Moreover, the number of fraudulent employers, who are deliberately not concluding contracts with employees to avoid paying taxes, is growing. In this case, I positively evaluate Finland’s experience – introducing a public database offering access to any resident’s income and taxes paid. The Latvian government should follow the Finnish example.
Due to the government’s insufficient initiatives, the society has started to support the shadow economy, as it provides jobs, although without any social guarantees. Even today there are companies paying employees in kind, rather than cash. The shadow economy allows struggling companies to survive, yet at the expense of other companies, pushing them in larger misery.
Businessmen, especially producers, expected 2011 to be a stabilization year, with the government providing maximum support to businesses. The recession’s low point has been overcome; however, entrepreneurs play a major role in getting the Latvian economy back on its feet. Therefore, it would be only logical if the government made decisions enabling the business environment expansion, or at least leaving it alone.