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Glowing cosmetics group Kalina gets $20 million EBRD loan

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Related links Russia homepage Kalina [Project Summary Document] EBRD lends $20 million to Russia's biggest cosmetics group [Press Release]

Kalina's factory based in the Urals region.

Kalina supplies 25% of Russia's demand for skincare products.

Kalina's Silver Line

Product presentation and marketing is one of the priorities for Kalina's management.

Cosmetics giant controls a quarter of Russia's skin-care market

Timur Goryayev was just 28 when he snapped up the majority of shares in Kalina, an old Soviet-style cosmetics producer based in the Urals. Back in 1996, few shared his vision of turning the creaking state beauty products factory into a capitalist entity to rival global giants such as Procter and Gamble.

Now Kalina controls one-quarter of the Russian skin care and toothpaste markets dominated in many countries by multinational brands such as Procter and Gamble, Lancôme and Estée Lauder.

With a market capitalisation of $137 million, up from $27 million in 1997, Kalina will use its $20 million EBRD loan to buy smaller Russian competitors and make new capital investments. In 2000 the Bank initially invested $10 million in Kalina's equity through two EBRD regional venture funds.

"Kalina's management has achieved remarkable results," says Larissa Loznova, EBRD's operations leader for this deal. "They have proved they're able not only to sustain but to increase their share in Russia's personal care market."

How it all started

Mr Goryayev is Kalina's main shareholder and took over as company director in 1997. He now heads an eclectic and youthful management group, made up of a psychiatrist, a Harvard-educated marketing director and a chief financial officer who took on this post at age 24.

Revamped product design and packaging were priorities for the new management, as was advertising. Unlike other Urals-based companies, they pursued an aggressive marketing strategy: the company's TV ad for its '32' toothpaste has proven particularly catchy. '32' is preferred by 20 per cent of Russian toothpaste buyers.

"I believe that before women enter a store they already know whether they are going to buy Russian-made or imported products," Mr Goryayev told the Moscow Times recently. "And we are here for those who choose to buy Russian cosmetics."

Ms Loznova, who is based in the Bank's Moscow regional office, said she buys some Kalina products herself. "'32' toothpaste is quite good and compares very well with imports." Other EBRD Moscow staff are also Kalina fans. "I like their hand cream 'Clean Line'," says Vera Mourygina, a secretary in the Moscow office. Associate banker Dmitry Piskulov prefers 'Black Pearl' over other creams. "My children love the 'Little Fairy' line, especially the bath gel, shampoo and lipstick," says secretary Ivona Yelisseva.

Customers' preference and loyalty

Many Russian women also prefer Kalina's face wash to European brands. "The face wash is very popular. People try it and love it. They stick to it and prefer it over other brands," adds Ms Loznova. Kalina's market is primarily made up of women in the Russian provinces although the company is now exporting to almost every former Soviet republic.

Getting to this stage was not easy. Kalina competes with multinational cosmetic companies which benefit from mass production, premier facilities, established retail clout and, perhaps most challenging, a solid reputation among buyers.

Mr Goryayev led the company's reorganisation in which 4,000 employees were replaced over five years. Kalina's marketing team is now on its fourth generation of workers. "They wanted dynamic and creative people," says Ms Loznova. "And they didn't stop until they found them." The company also enforces a strict culture of work discipline among its employees. "If a worker is late for work, he or she is fined," adds EBRD's operations leader. Despite his severity with punctuality, Mr Goryayev never works past 6pm. "He believes that if you have to stay past six, you are not an efficient worker. He has a strong personality and he is good for Kalina," concludes Ms Loznova.

3 March 2003