The Great Chocolate WAR

Four years ago Latvia's chocolate kingpin Laima sent its marketing and R & D departments on a mission to conquer at least one fourth of Estonia's candy market by the year 2008. Soon after the disturbing news reached Kalev's headquarters in Tallinn, a war broke out between the chocolate rivals.

In 2004 the head of the Board of Laima Juris Jonaitis looked at Estonia just like Napoleon once looked at Russia. Planning an aggressive campaign in the Baltic States he was absolutely sure that overtaking 25 percent of Estonia's market in three years was a task for his team. The export of marshmallow and handmade candy-mixes was supposed to become one the best and most feared weapons in the battle for the wallets of Latvia's northern neighbors. At that time Jonaitis was not afraid to claim that these products had no match in the Baltic's. Great hopes were also associated with the company's soon-to-be-built candy-factory for the construction of which HQ had already obtained land in Salaspils.

Today Laima's CEO Normunds Ozolinš keeps his company's Estonian and even Latvian market shares a secret. He speaks very unwillingly about his colleague's old plans and considers the discussions of business rivals to be a taboo. The reason for his tight-lipped behavior is clear: according to our information Laima did not only fail to conquer one fourth of Estonia's candy market, but turned out to be completely helpless against the constantly growing export of Kalev's products.

Estonia's trust doesn't come cheap

If we look at Laima's financial reports, then we might get a feeling that the company's expansion was actually more than successful. For instance, during the first half of 2007 the total number of sales in Estonia increased by more that 55 percent, which means that Estonian residents spent on Laima products more that 2 million and 800 thousand euros. According to the company's press-representative Ingars Rudzītis, the most popular products in Estonia always were and have remained chocolate covered marshmallows and Selga cookies, for which customers paid a total of more that 650 thousand euros. By the way the sales of Selga cookies increased by 72,5 percent in comparison with the same time period of the previous year.

But one question remained: was Laima's rapidly growing export connected with the company's long awaited recognition by Estonian customers or was it just a normal reaction to the increase in country's resident's financial capabilities? Nevertheless one thing was certain: Estonian trust didn't come cheap

"Laima is a holding company which owns a number of branch establishments. In 2006 their total turnover reached almost 50 million euros, - explains Ozoliņš. - If we count the investments made to strengthen our positions in Lithuania and Estonia, then we finished year 2006 (Figures for 2007 were not available at the time of the publication) with a total loss of almost 52 thousand euros". Ozoliņš refused to specify what kind of sums were spent on advertising the candy factory's products in Estonia, but it's clear that the count goes for millions…

Maybe Laima's new chocolate factory in Salaspils could have given the holding company much needed momentum to finally start making a profit, but its construction was never started. We asked Rudzītis to comment on this matter, but his answers turned out to be more than distorted. "The land which was obtained in 2004 just didn't suit us, - explains Rudzītis. – Unfortunately I can't tell where the new factory will be built or when". According to Laima's business rivals, the new chocolate factory's construction was scrapped because of the holding companies negative income.

Kalev: Laima's plans were a joke

Oliver Kruuda who is still considered to be the official owner of the Kalev chocolate factory (the Estonian Competition Authority has not yet approved his sale of Kalev and Tere companies to an investment holding company Alta Capital Partners) says that Laima's plans we doomed to failure. "Ok, I'll give you a look at what the Estonian chocolate market looks like, – said Kruuda and specified that he will give the sizes of market shares which are calculated by turnover results and not by sold products total weight. – Kalev is number one in Estonia – we have 40-45 percent of the market, then comes Fazer – they have about 11-12 percent, then comes Laima – only 8-9 percent".

If we count the weight and not the money, then we get a slight different picture. Fazer sells a bit less chocolate, but its high price guaranties the company a good and steady profit. Laima's total weight sales are bigger, but their products in Estonia have the same price as in Latvia, so there is little profit in this sort of business. "I remember that four years ago Latvians planed to conquer 100 percent of the Estonian market. I understand that today they keep quiet, because there is absolutely nothing to talk about", - adds Kruuda with a share of sarcasm.

According to year 2007, Kalev had about three percent of the Latvian candy market and was very proud it. "We started exporting our products and I mean competently exporting some one and a half years ago, - explains Kruuda. – We don't have plans to acquire 30 percent of the market – it's simply impossible. It's considered to be a good result if a foreign producer gets at least 8-10 percent of the market. It's extremely hard to achieve better results in a country where people have eaten candy from one factory for the last hundred years"

Why not just buy a factory?

It's considered that if you can't conquer the needed share of a foreign market, then you should just buy a local producer. It seems that Laima's owner a Swedish investment holding Nordic Partners Confectionary AB is very well aware of this strategy. They already own such well known companies as Gutta and Staburadze and in 2006 bought a Polish cookie company Lider Artur. After the deal was closed Nordic Partners announced that they plan to acquire a dozen more producers of sweets and drinks in the Baltic's, Skandinavia, Russia, Poland and The Czech Republic.

Kruuda confessed that at the beginning of 2007 Laima's representatives offered to buy Kalev, but he refused. "I asked, if they would sell me their factory instead, but they weren't interested", - he adds. In six months after that conversation Kruuda sold his companies AS Kalev and AS Rubla (on sale also went the companies branch establishments AS Kalev Paide Tootmine, AS Kalev Johvi Tootmine, AS Kalev Chocolate Factory, AS Vilma, OÜ Maiasmokk, AS Tere, AS Meieri Transport) to an investment holding company Alta Capital Partners. Laima's CEO Normunds Ozolins said that he was the last one to learn of this deal.

After the deal will be approved by the Estonian Competition Authority, Kruuda will remain a Member of the Board of his sold companies for a minimum period of three years. But the future of Kalev lies now in the hands of Alta Capital's managing director and main share holder Indrek Rohumaa. According to his statements, he is determined to invest in Kalev's growth, as well as in the Latvian and Lithuanian export. Rohumaa also said that if Laima was for sale, he will no doubt would be interested in its acquisition.

Different unconfirmed sources say that the possibility of this sort of deal is quite high because in May 2007 Nordic Partners Confectionary AB bought out the last five percent of Laima's shares, which were depressed among small term private owners. Becoming a 100% percent owner of the well know Latvian brand, Nordic Partners made it the next hot thing on the market.

Top three companies in the Estonian candy market:

Kalev (Estonia) – 40-45 percent of the market

Fazer (Finland) – 11-12 percent of the market

Laima (Latvia) – 8-9 percent of the market

Source: Oliver Kruuda

Top rated Laima products in Estonia:

marshmallow, candy-mixes, Selga cookies

Top rated Kalev products in Latvia:

milk chocolate, marmalade, Draakon sweets.

Source: Kalev, Laima

By Konstantin Morenko