H&N CEO Yakub Zakriyev: We have become an entirely Russian, standalone business
Yakub Zakriyev
Photo: Press-office
French company Danone, which left Russia among other foreign producers, closed the deal on sale of its Russian assets to Tatarstan's Vamin R in May this year. Prior to that, its assets in Russia were managed by the Russian Federal Property Agency and were renamed H&N and H&N Trade.
Health & Nutrition (H&N) General Director Yakub Zakriyev, who headed the company in July 2023, told Interfax in an interview about the changes that had taken place at the company since it gained new owners, and about its plans for sourcing raw materials and exports.
Q.: Danone's departure from the Russian market manifested itself for consumers, primarily, in renaming of several popular products. Overall, however, the representation of products and their volume on store shelves remained unchanged. What changes in the company could you call the major ones after the new owner came to the company? Are there any transformations in its structure and management methods?
A.: The most important change over the past year is that we have become an entirely Russian, standalone business. Last year, we localized brands, the company name, and information systems. Today, H&N is an entirely Russian company with a portfolio of strong local brands. At the same time, we have the world's best practices and approaches to product quality and safety, as well as scientific and sectoral expertise.
No radical changes in the company's structure and management methods have been made and are not expected. Why change something that works perfectly well? My objective as general director is, on the one hand, to preserve and multiply the best of the vast experience and knowledge that the company has, and on the other hand, to secure sustainable operations on the market in the long term.
Our federal chain now includes 12 plants. Our extensive distribution chain is well-established and covers the whole country. We have a strong technological base, brands that are known to the majority of consumers, in not only our country, but also where we export our products. The H&N team is confident of its capabilities; they are dedicated professionals who aim to develop not only the company's business, but also the entire Russian dairy industry.
Q.: The company has rebranded some of its products. Are there plans to do this in the future? Which brands may change?
A.: Yes, last year three major brands were localized, namely, two probiotic dairy products, ActiBio and Actimuno, and the Planto brand of plant-based drinks.
Q.: Have there been any complaints from the previous owner about these moves?
A.: No, there was none. This is because all rebranding moves were fully legitimate from the point of view of Russian and international intellectual property law. In Russia, these were examples of the most successful, as we say, "seamless" localizations of brands on the market as a whole.
Today, the renewed brands are showing excellent results in terms of both their sales growth and market share. Our entire brand portfolio is now localized, and the names of existing products on the market will no longer be changed.
Q.: Are there any plans to increase the range of products? Currently, for example, so-called plant-based milk is becoming very popular. Are you planning to expand this range?
A.: We are constantly exploring consumers' needs and seeking to manufacture products that meet their requirements.
Indeed, the category of plant-based beverages is seeing solid growth. As analysts say, this market in Russia grew more than 26% in value terms in the first half of the year. And this figure does not include sales in the HoReCa sector, where these drinks are actively used. There is also a marked increase in this area.
Along with the category growth, our plant-based Planto brand is also on the rise. With HoReCa included, its sales rose nearly 44% in the first half of the year. This shows that consumers are increasingly willing to try "alternative milk".
At the same time, the demand for dairy products in Russia is also soaring. In other words, both categories are successfully developing without competing with each other. We are certainly thinking about expanding the Planto range, and we will have something to please consumers in the near future.
Q.: Have relations with milk suppliers changed after the change of ownership? How is this work organized? Is the system of long-term contracts with suppliers still in place? What is the share of milk supplied under such contracts?
A.: Our company remains one of the largest purchasers of raw milk in Russia and has many years of experience in interaction with suppliers. And due to the fact that we are now a local business, we have become even more active in cooperation, above all, we are trying to support raw milk producers and develop long-term relationships.
On average, milk suppliers have been collaborating with us for more than seven years, and there are "golden" core [suppliers], with whom we have been cooperating for 20 or more years. For us, a farm is not just an external partner. It is part of the ecosystem of our business.
Around 20% of suppliers are operating under long-term contracts with an average three-year term for such contracts. Such a term is the most optimal and covers the full cycle of the market.
Q.: Does the company have plans to expand its own dairy production based on the principle of vertical integration? Has the need for funds to this end been evaluated?
A.: The company has experience in establishing and developing its own dairy production. The Verbilovskoye farm has been operating in the Lipetsk region for many years. It is not only an example of an economically efficient dairy farm, but also an enterprise where we are testing various innovations and approaches in plant growing, livestock breeding and milk production. We are gaining experience from it, positive or not, which we are then sharing with our suppliers.
We could scale up this expertise, but there are no economic grounds to consider this particular area of investment as the best for the company.
Q.: What are the results of the company's performance in the first half of this year? What explains such dynamics?
A.: The results, I would say, are excellent. If we talk about figures, the revenue for the first half of the year grew 17.8% compared to the same period last year, while production volumes were up over 21%.
Various factors have an impact on the indicators. The entire dairy consumption market is booming, but as a leader, we are increasing our share on this growing market and becoming one of the main contributors to the growth of a number of categories.
Our Prostokvashino Greek yoghurt can be given as an example. It is an essentially innovative product that attracts new consumers to the category of modern dairy products, primarily, yoghurts. What does this mean? It means that those who used to buy, for example, only Prostokvashino milk and did not look at modern dairy products now put Greek yoghurt in their shopping cart, too.
Q.: What is the company's export program, its structure and geography? What areas do you consider priorities?
A.: The development of the export segment is one of our priorities. This is a new area of development, so it is too early to talk about the volume of deliveries.
The immediate objective is to develop a pattern of work with the Commonwealth of Independent States member states. They have the population with similar consumption patterns and taste habits, and they are more accessible in terms of logistics. So far, we are focused on the current assortment portfolio, and we will evaluate the possibility of developing individual product categories for these countries in the future.
Q.: Are you considering China for export expansion?
A.: Yes, we are considering it. The destination is complex, with many nuances that are essential to take into account in our work, but it is interesting for us.
When developing projects for exporting products, we are always taking the domestic requirements of the countries into account. For example, we have already started the process of certifying products in line with Halal standards. In the long term, we are eyeing the countries of North Africa, the Middle East and Saudi Arabia from the point of view of supplying exchange products there.
Q.: What is the investment program of the company? What projects will investments be channeled to?
A.: Speaking about the near future, we are now focusing on optimal utilization of our production capacities and making production processes more efficient to meet the growing market demands, as well as on localization of components, systems and materials.
The results are good. Raw materials, including non-dairy ones and packaging are 98% domestic.
We are also working on a five-year investment plan. I cannot reveal its details yet, but one of the first projects is to build a milk powder production facility at the Kazan plant. In particular, its launch should contribute to the increase in the export potential to the countries of North Africa, the Middle East, and Saudi Arabia.
Q.: Does the company have plans to buy new production facilities? In what regions are M&A deals possible?
A.: The company has the opportunity to decide where and how much to invest. But any investments have to be in line with the strategy of profitable growth. As of today, the priority objective is to optimally utilize the existing capacities of our 12 plants.
Currently, we are really working at high volumes and at high rates, looking for every opportunity to ramp up production capacity, primarily, by improving the condition of production equipment, the quantities and types of products.
Q.: Do you deem the state support measures for the Russian dairy industry to be sufficient? What tools are the most effective, what tools are lacking?
A.: Currently, the dairy industry enjoys a quite broad range of state support measures, which help maintain its profitability and develop. I can mention compensation of capital expenditures for labeling equipment, subsidies for milk processing, preferential lending, and compensation of part of logistics costs for exporters. These measures are effective and in demand.
At the same time, it is essential to emphasize that in the context of ongoing import substitution, the industry requires the implementation of new innovative projects, for example, localization of starter production. In essence, it is a matter of establishing a completely new industry of large-scale production of ingredients, enzymes and starter cultures on a nationwide scale. Such projects will also require sectoral support.
In the dairy industry, we are initially in a good position in terms of independent provision of raw and other materials. But we still have a lot of work to do together with the authorities to secure the full technological sovereignty.
