How the food market is adapting to new conditions

Currency fluctuations forced tea and coffee suppliers to raise prices by 20%. Dmitry Loginov, director of Teaco, talks about the search for new logistics routes, digitalization under sanctions and the quality of food

Abandoned container and Chinese route

— Have the events of the past two months affected your business?

— Yes, definitely. Exchange rates, logistics conditions, the cost of banking services have changed, restrictions on spare parts for production equipment have appeared, problems have arisen with components and packaging.

The jump in exchange rates and the currency restrictions imposed by the state forced us to sharply, where possible, revise the terms of deliveries to our customers. In fact, overnight, even for goods written out the next day, we redid the waybills and raised prices.

It was impossible to delay. Otherwise, we would have fallen into a cash gap. Accounts receivable would come at the old prices, and payments to suppliers would come at the new ones. So we had to immediately raise prices. First by 10%, after a while by another 20%. Then they lowered the interest by 15–20% when the exchange rate stabilized.

— Was the problem with the exchange rate the main thing for you?

– One of the main ones. Over the past two months, logistics has also become much more complicated. Some container shipping companies were surprising. For example, during the introduction of the first sanctions, a European company transporting cargo for us in India removed our containers in Istanbul without delivering them to the port in Novorossiysk. They just unloaded the containers at the port, wished us good luck and stopped communicating.

We got a little nervous. As a result, the cargo was taken from Istanbul in 10 days, by the same lines. I had to pay a downtime and swear with them all these days. There was an option to take the car through Georgia, but in the end we agreed with the shipping lines.

— Are you looking for new supply routes?

— Previously, we mainly transported by sea. From Europe through St. Petersburg, from Italy through Riga, from India and Africa through Novorossiysk. We are looking for new ways: the railway from China, for example, delivers slowly but surely. We want to try road transport from some countries.

From China, in particular, the car goes quickly, 20 days, but the volume of cargo is comparable to only two ship containers. Therefore, at the moment we need more funds for customs clearance and payment. This means that more capital needs to be invested. Hence the need for additional funding. And rail transportation can lengthen the journey by a month. It all depends on the queues and free cars. The process is improving, but not quickly.

— Is your company losing its former suppliers from Europe?

“Fortunately, we managed to reach a consensus with most of our partners. Everyone understands the situation and most of them react adequately.

In general, I would like to note that our European partners do not share the common hysteria and want to trade, no matter what. They operate in accordance with the current sanctions regulations. They want to trade, but they don’t want problems.

Therefore, coffee is shipped, it can be sold to Russia, but coffee machines and spare parts are no longer available. They apologize, nod at the sanctions laws and act in accordance with them. Everyone hopes for sanctions relief, no one wants to quarrel.

The fast state and “selected like-minded people”

Are you counting on government assistance?

– The state responds to new conditions quite quickly for its scale. Thus, the authorities promptly introduced a protective key rate, which slowed down inflation. Despite problems with foreign exchange reserves, they kept the exchange rate, obliged exporters to sell foreign currency: an unpleasant but effective measure for strengthening the ruble.

Now the ruble has strengthened, I think they will lower the rate, push the economy, stimulate it. So far, crisis management is relatively effective.

In the long term, business expects the state to create and maintain a comfortable business climate, as well as resources for development. This will help diversify the economy and make it less dependent on the success of state corporations in raw materials.

I believe that the state now does not want to depend only on such companies, but wants to actively develop business and production in other industries. This will make the economy stronger and more resilient. Our desire to work and develop fully meets the state demand for sustainability and import substitution. Win-win situation.

— Did the Skolkovo School of Management help you?

— The Skolkovo School of Management is, one might say, the second family you met in your forties. We are always in touch with the guys, fellow students, the community. This is our common board of directors, selected like-minded people, so to speak.

In general, it seems to me that in such a difficult period for the economy, the state should pay attention to entrepreneurs. Medium and small businesses now need support, concessional financing in order to make their products no worse, and even better than European ones.

It is clear that clear rules of the game are needed, in particular, in the field of customs regulation. Trite, but a strong economy is a strong business. And Skolkovo produces, trains and upgrades strong entrepreneurs. And there should be a lot of business, it should be in different areas.

Quality of life and digitization without SAP

Is your business in a stable position now?

— We produce food. People will always want to eat and drink, this is a fundamental need. The only question is price and quality. If the welfare of the country is higher, then there will be more assortment and higher quality, for example, packaging. And below – we will become more inventive, we will figure out how to produce from what we have. Ingenuity is our everything.

In general, we live for today, carefully monitoring the situation, the course, the mood of suppliers, and the orders of the authorities. In our volatile, uncertain, unstable world, you have to be ready for any development of events.

Has your business model changed in the last couple of months?

– Probably, not the model itself, but the route of its implementation has changed. In addition, we are working on operational and financial efficiency. We plan to implement lean manufacturing and automation. Now the work has accelerated a lot. Digitalization of business processes will make working with us more comfortable and reduce costs. Now, given the situation, this is more relevant than ever.

– Sanctions will not interfere with digitalization? Can your business constantly operate under severe sanctions pressure?

– Time will tell. The company is 16 years old, we have gone through many crises. There will be no coffee, we will pack chicory. Not the end of the world. So far, nothing prevents the implementation of plans for automation and digitalization. SAP, for example, is gone. But he didn’t fit in with us anyway. But there is ERP from 1C, and hardware can be bought in China. We will adapt.

What are your visions for the next few months? Are you making any predictions?

— I think that the consequences of the known events will make themselves felt in the longer term. The quality of life will decrease for a year or two, given all the restrictions imposed. It is obvious that they will not be canceled quickly, but in the end, common sense will prevail and everyone will agree. In the end, the ability to negotiate and made us the dominant biological species on our planet.

Either way, we’ll come to an agreement. In addition, we had a good preparatory training in the form of covid, so we are ready for a new long marathon.