RG Brands, Kazakhstan

Following economic reformation in the early 1990s, the Republic of Kazakhstan (Kazakhstan) quickly grew into one of the largest economies in Central Asia (World Bank, 2013). With the privatization of many industries, entrepreneurs, multinational companies, and small & medium-sized enterprises seized the opportunity to grow. One such company is RG Brands, which was formed in 1994 by the Resmi Group Limited, LLP (Resmi), a Kazakhstani wholesale trader of retail goods and provider of transportation and logistics services within the country. RG Brands was first established as a distributor of imported products in the food and beverage (F&B) industry. Through a series of successful partnerships and contracts with international companies – and with a strong set of original brands protected by the intellectual property (IP) system – RG Brands has become one of Kazakhstan’s largest companies and owner of some of the country’s most recognizable F&B brands.

Research and development

Developing, producing, marketing, and distributing popular brands in the F&B industry was not RG Brands’ first goal. Taking advantage of a burgeoning market, the company was initially founded in 1994 to import foreign F&B products. Indeed, with demand for such goods increasing in Kazakhstan, the company was keen to become competitive in this market. To that end, during RG Brands’ first few years of operation it focused on importing, distributing, and marketing various types of natural and artificial fruit juice products in flavors such as apple, orange, or grapefruit.

Following this successful initial, in 1998 RG Brands entered into research and development (R&D) on the viability of creating new brands specifically for the Kazakhstan market. Through industry research the company learned that, at the time, over 60 percent of the F&B market was comprised of importers (Kazakhstan Stock Exchange (KASE), 2001). Furthermore, over 20 percent of the total cost of a product came from transportation costs, which kept the price of these products to the end-consumer very high (KASE, 2001).

Further R&D into market patterns revealed that while demand for fruit juices was growing, it was not substantial compared to other beverages (in the F&B industry in Kazakhstan, these beverages include carbonated drinks or tea, which are different than the water or fruit juice categories). The company’s research found that this was partly due to a lack of seasonal products in the F&B industry. RG Brands’ competitors were importing beverage products that had more seasonal variety, such as special summer or winter flavors and recipes, which helped such companies to attain a higher level of growth. Realizing that it could not remain idle and let stagnation of its product portfolio set in, RG Brands decided to shift its primary focus. While it would still import F&B products, the company’s R&D provided a window into another possibility: the creation of new, high quality brands in Kazakhstan that are delivered to consumers at more affordable prices.

This new vision brought about the development of RG Brands’ first natural juice products. Creating original recipes that catered to the tastes and demands of the Kazakhstani consumer, in 1999 the company introduced twelve varieties of natural fruit juices in two types of sizes – 1 liter and 250 milliliters – under the Da-Da brand name, which included variations such as Da-Da Kids and Da-Da Day. Following their successful reception (these brands accounted for over 20 percent of all F&B products sold in Kazakhstan in 2000; KASE, 2001), RG Brands continues its tradition of R&D to successfully develop new products. The company does this through a strategy that covers a set of R&D principles that have brought about positive results.

First, RG Brands identifies market niches and potential new product areas (for example, introducing a locally developed energy drink) to meet consumer demands. The company then develops new products and product categories for the F&B industry. Second, RG Brands places importance on the development of new products under its own brands instead of relying solely on new products from multinational companies. Being a Kazakhstani company, RG Brands believes that it is in a better position to develop products that meet the needs and demands of consumers in the country and the Central Asian region.

Lastly, the company leverages its position as a market leader in Kazakhstan and the Central Asian region to promote R&D and new innovation. This is not only in regards to new products and their flavors, but also to packaging, design, and streamlined production and logistical methods. For example, RG Brands regularly researches trends among packaging, which includes consumer preference for packaging size, design, and features. The findings allow the company to create stylish, recognizable packaging that have features (such as an easily re-sealable carton top or containers that provide a long shelf life) customers in the region want and are safe and easy to use.

Relying on these R&D principles has allowed RG Brands to develop and introduce new innovations, increase its market reach, and provide the F&B industry with safe and original products originating in Kazakhstan. Indeed, since its shift to a brand creator the company has a history of developing popular products. Following the first original branded juice products launched in 1999 (from 1994 to 1999 the company was an importer/distributor of F&B products), RG Brands developed its own recipes for packaged tea in 2001, vitamin-preserving milk with a unique container that allows for storage at room temperature for up to six months in 2004, and potato chips (also known as potato crisps) in 2007. In 2010, RG Brands developed a uniquely shaped plastic bottle with a transparent label to coincide with the launch of a’su, the company’s original mineral water brand.

Partnerships

To develop some of Kazakhstan’s most popular F&B products (and eventually expand them to neighboring countries), RG Brands has forged successful, long-standing partnerships. These partnerships include two major types and meet different needs. One type includes distribution partnerships with multinational F&B companies to distribute these companies’ products in Kazakhstan and the Central Asian region. At the onset of these partnerships in the early 1990s, many products (such as popular carbonated beverages or fruit juices) from international F&B companies were unavailable to consumers in Kazakhstan. This proved to be an opportunity for companies in the F&B industry in the country.

Relying on the experience and financial and logistical resources of its parent company (Resmi), RG Brands expanded its effort to meet the increasing consumer demand in Kazakhstan for popular F&B products. Doing so provided the company with a chance to create a competitive edge and secure revenue for the development of new products. This is a key strategy that the company continues to use. The other type of partnerships includes those with packaging companies, equipment manufacturers, and investors, all of which allow the company to continue to develop, produce, market, and distribute original brand name products from Kazakhstan.

RG Brands’ first partnership was of the second type and came in 1998 with Tetra Pak, a multinational food packaging and processing company based in the Kingdom of Sweden and the Swiss Confederation (Switzerland). Under this agreement, Tetra Pak provided the necessary equipment and training (at Tetra Pak locations in Switzerland and the Federal Republic of Germany (Germany)) for the production and packaging of new and original natural juice products (such as peach, orange, and pineapple) created by RG Brands. Through this partnership, RG Brands is able to utilize Tetra Pak’s packaging equipment and technology, which allowed for the creation of containers that could safely store F&B products at room temperature for up to one year. Due to expensive costs of refrigerated transportation and consumer appliances, this met a need that was in high demand in Kazakhstan and Central Asia. The success of this packaging type led to an increase in sales and revenue, which allowed RG Brands to continue to focus its efforts on more R&D, marketing, and distribution.

Distributing popular international brands in Kazakhstan, in 1999 RG Brands secured the exclusive domestic bottling and distribution rights of PepsiCo products, a major international F&B company from the United States of America (USA). This provided a significant influx of revenue to the company, and RG Brands began production of its original F&B products (such as natural fruit juices) that same year. The agreement with PepsiCo was expanded in 2006 when RG Brands became the exclusive partner of Pepsi-Lipton International (PLI), a joint venture between PepsiCo and Lipton, a tea brand from the United Kingdom. Through the partnership with PLI, RG Brands retained the sole right to package and distribute Lipton branded products in Kazakhstan.

Many of RG Brands’ products are contained in bottles made of polyethylene terephthalate (PET), and to ensure these are delivered to consumers safely and environmentally friendly, RG Brands puts great importance on using the latest technology for PET bottle production. To that end, in 2009 the company partnered with Sidel, a multinational manufacturing company headquartered in Switzerland, which provides high tech, environmentally friendly PET bottling equipment.

Through this partnership, RG Brands secured two state of the art Sidel PET bottling production lines with a capacity of 15,200 to 36,000 bottles per hour (bph). Compared to the company’s competitors, whose production lines typically have a speed of approximately 10,000 – 12,000 bph, RG Brands has been able to further increase its competitive advantage. Indeed, through the collaboration with Sidel the company increased its production capacity to approximately 6 million hectoliters (almost 160 million gallons) per year in 2013.

Strategic partnerships such as these have allowed RG Brands to transform itself from a distributor to a producer, through which the company has reshaped the F&B industry in Kazakhstan. With intimate knowledge of the local market and consumer demands, RG Brands leveraged its partnerships to introduce a series of popular products that became among Kazakhstan’s most recognized brands in the F&B industry.

Financing

Capital for the initial formation of RG Brands came from the company’s parent organization, Remi, in 1994. Following the decision to launch originally developed products, RG Brands sought additional financing through a variety of avenues. For example, in 1999 the company was listed on the KASE and in that same year it issued a series of bonds, which raised US$500,000 in capital. In that same year, RG Brands received a US$1.2 million loan from the American Fund for Entrepreneurship Support in Central Asia. These funds were used in combination with the company’s own income to finance RG Brand’s R&D and eventual shift from a distributor to producer of F&B products.

Since then, RG Brands has undertaken additional activities to secure financing for the growth of the company. Since 2000 it has issued three more bond series to raise further capital. In 2008, the company received a US$45 million loan from the European Bank for Reconstruction and Development (EBRD) in order to construct a new, state of the art production plant in Aksengir, an area of the province of Almaty in southeastern Kazakhstan. The loan resulted in the plant becoming RG Brands’ largest production facility.

Following the successful conclusion of this loan, in 2013 RG Brands received another EBRD loan of US$25 million to support the company’s expansion in Kazakhstan and neighboring Central Asian countries, including the Kyrgyz Republic (Kyrgyzstan), a strategically important country for RG Brands and one in which it already maintains a healthy distribution network.

Describing the importance of the loan, Ms. Janet Heckman, EBRD Director for Kazakhstan explained, “The EBRD believes Kazakhstan has a great potential as a food producer and exporter. RG Brands is one of the companies with the know-how […] the company developed a range of its own strong local brands which have since become local favorites, and we are proud to work together on further expansion of the company’s presence in Kazakhstan and the neighboring Kyrgyz Republic.”

Under the second EBRD loan, RG Brands earmarks a portion of the financing proceeds to help support local farmers through financial and technical assistance. This secures a steadier supply of raw ingredients (such as fresh fruit used for juice production) necessary for RG Brands’ products. Chairman of the Board of RG Brands, Mr. Kairat Mazhibayev, further emphasizing the importance of this financing said, “The working capital facility of US$25 million will further enhance the company’s mid-term plans to develop the food and beverage markets within Kazakhstan and neighboring regions, providing long-term benefits to local business and consumers.”

Through internal capital from sales revenue, the issuing of bonds, and securing investment from abroad, RG Brands’ approach to financing has allowed the company to expand both within Kazakhstan and the Central Asian region. Providing an entry point for international brands and developing local brands, the company’s approach to financing has been integral to its transformation to a producer and brand creator.

As of 2013, RG Brands managed 18 brand name products in the F&B industry. The company’s products fall into two overall categories: brands from multinational companies that RG Brands distributes and the company’s original brands. Through the partnership with PepsiCo and PLI, RG Brands overseas all distribution in Kazakhstan for Pepsi carbonated products (such as Pepsi and 7-Up) and Lipton tea products. In addition, the company commercializes the Aquafina brand of bottled water products, which is owned by PepsiCo.

In stark contrast to when the company launched, as of 2013 the bulk of RG Brands’ IP portfolio includes the company’s locally developed juice, water, beverages (such as carbonated beverages or energy drinks), and food products. Spread out over 14 brands, these include Da Da, RG Brands’ first line of juice products; Gracio, a line of 100 percent juice products with stylish yet distinguished packaging; Da Da Day, one of the company’s most popular juice products that comes in easy to handle bottles; Yeti, an energy drink that is quickly becoming one of Kazakhstan’s most well-known; and Grizzly, a line of potato chips that marked RG Brands’ first foray into the snack market.

Production and distribution of the company’s diverse IP portfolio is handled by RG Brands’ modern facilities and extensive distribution platform, which is spread out at the company’s four main facilities in Kazakhstan. Three are near the country’s largest city of Almaty, and each produces a specific type of product. For example, the Tealand facility focuses on RG Brands’ tea products and had a monthly production of 650 metric tons of tea in 2010.  In 2007, RG Brands purchased a production facility near Almaty and created a subsidiary company – Almaty Snack Food (ASF) – in preparation of the launch of the company’s Grizzly brand of snack food products (which, as of 2013, mainly consisted of a line of potato chips). In 2001, the International Organization for Standardization (ISO) awarded the ASF subsidiary ISO 9001:2000 certification, which guarantees a high degree of quality management systems.

In early 2009, RG Brands opened a new facility and subsidiary company – Aksengir – in the Karasai district of the Almaty oblast (also known as a province). The Aksengir facility is modern, multi-functional, and includes production lines from Sidel and Tetra Pak. With an area encompassing over 60,000 square meters of production and warehouse space, Aksengir is one of the largest and most advanced facilities of its kind in Kazakhstan.

RG Brands’ primary goal in opening the Aksengir facility was to put all aspects of development, production, and logistics under one roof. R&D laboratories, quality control offices, and a dedicated rail line for bringing in raw materials and sending out finished products are all included in the facility. Furthermore, the complex houses training seminars, innovation workshops, and safety inspections. The comprehensive nature of the facility allows RG Brands to rely on Aksengir to produce the company’s juice, tea, carbonated drinks, and bottled water brands, as well as certain brands associated with the partnerships with PepsiCo and PLI.

Lastly, the Kosmis facility, located in the northern city of Kostanay, is important for commercializing RG Brands’ products. Kosmis produces the company’s milk and many PepsiCo products, specifically the Pepsi, Mirinda, 7-Up, and Aqua Minerale brands. The complex was purchased from Nestlé, an international F&B company from Switzerland, in 2004. Inclusion of the new facility allowed RG Brands to increase the company’s commercialization of core brands, such as Da Da juices, and produce newly developed brands, including Solnechniy Nectar (or Sunny Nectar), which is made from nectar, a sugar-rich liquid from the flowers of plants and trees such as apple or pear trees, and Моё milk. Commercialization of Моё milk was advantageous for RG Brands, as milk is a popular beverage in Kazakhstan with annual sales exceeding US$64 million (Euro Monitor, 2013).

In addition to the company’s main production sites, RG Brands operates trade and distribution branches in all of Kazakhstan’s largest cities, such as Astana, Pavlodar, and Uralsk. In line with RG Brands’ international expansion strategy, the company also has similar facilities in Bishkek, Kyrgyzstan, and Tashkent, in the Republic of Uzbekistan (Uzbekistan). These help RG Brands achieve its short-term goal of expanding the company’s product portfolio in markets in which it already has a presence (such as Kyrgyzstan and Uzbekistan), and the company’s long-term strategy of leveraging its expertise and strengths to become the leading company in the Central Asian F&B industry. By 2013, RG Brands was making significant progress towards these goals.

Branding

For RG Brands to transform from a distributor to a producer, it had to not only create high quality products, but also needed recognizable brands. Before RG Brands shifted the company’s focus, there were not many local brands that were popular. Indeed, the popularity of multinational brands – such as those from PepsiCo – led to RG Brands’ partnership with PepsiCo and PLI. Recognizing a lack of well-known Kazakhstani brands, RG Brands went about to change that. Following the company’s shift to brand creator, it realized that branding – which along with the physical products and packaging represents a vital part of the company’s IP – would be essential to their success.

Developing the company’s first brand (Da-Da) in 1999 marked the beginning of the implementation of RG Brands’ strategy. The combined factors of strong R&D, acquisitions of production facilities, and leveraging its assets for financing, lead to the company’s successful shift to the producer and owner of some of Kazakhstan’s leading brands. In 2004, distribution of imported brands only represented one-fourth of RG Brands’ operations. By 2013 the company’s original brands were among the most popular in Kazakhstan and represented the bulk of RG Brands’ operations.

With the introduction of the Grizzly brand in 2007, the company develops, produces, and distributes brands in four major categories: juices; water; beverages (such as tea and carbonated drinks that are not juice or water); and food. Critical to the success of the company’s brand image is the quality, variety, and safety of RG Brands’ products, all of which strive to emphasize their Kazakh origin. In the juices category, the company’s brand portfolio includes Da-Da, Da-Da Day, Da-Da Kids, Gracio, and Sunny Nectar. The three versions of the Da-Da brand are all made with 100 percent juice, no preservatives or coloring agents, and are marketed in a wide assortment of high-quality packaging, sizes, and flavors (such as orange, apple, and peach) that appeal to the Kazakhstan and Central Asian markets. The Gracio brand is marketed as a more expensive line of juices with a rich taste, while the Sunny Nectar brand is marketed as affordable, natural juices.

In the water category, the company developed its popular a’su brand in 2010. RG Brands markets a’su as a brand of purified natural mineral water from mountain glaciers that targets active people. In the beverages category (which RG Brands separates into a different category and includes carbonated beverages but does not include water or juice), the company has two original brands: Aport Schorle and Yeti. In developing Aport Schorle, RG Brands used schorle – a beverage originating from Germany that is made from diluting juice or wine with carbonated water – and customized it to local taste preferences. Sold in 400 milliliter and 1.25 liter bottles, the Aport Schorle brand comes in a variety of flavors (such as apple, strawberry, or lemonade) and is marketed as a schrole drink unique to Kazakhstan and Central Asia.

In 2012 the company launched the Yeti brand, which is quickly becoming Central Asia’s most popular energy drink. The Yeti brand is marketed in three varieties: Yeti original, flavored with barberry (berries from the berberis genus of shrubs native to Kazakhstan); Yeti Tropic Energy, which contains 48 percent natural tropical juice; and Yeti Coffee Energy, which contains coffee.

In the food category, the company has three major brands: Piala Tea, Моё milk, and Grizzly potato chips (or potato crisps). Piala Tea is further divided into Assorted and Gold brands, while Моё milk is sold in different concentrations of butterfat between 1.5 percent and 6 percent. Important to the Моё brand recognition is the innovative packaging (developed in partnership with Tetra Pak) that keeps the milk fresh at room temperature for up to six months. The last major brand – Grizzly – is sold in various flavors (such as cheese or salt) and is marketed as a quick and easy snack.

Common to all of the company’s nine original brands is their Kazakh and Central Asian roots. Compared to the international brands that RG Brands imports, the company prioritizes its original brands’ tastes and value-added features (such as the Моё milk container) that cater to Central Asian consumers and their needs. In turn, this has fostered brand loyalty and confidence among RG Brands’ customers, helping the company build a positive image through its brand portfolio and maintain its competitive advantage in the F&B industry in Kazakhstan and Central Asia.

Trademarks & domain names

Building a strong presence, RG Brands relies on the IP system to protect the company’s brands. RG Brands has a number of trademark registrations, both in Kazakhstan through the Committee of Intellectual Property Rights authority, and abroad through the Madrid system of international registration of marks (the Madrid system), which is managed by the World Intellectual Property Organization, a specialized agency of the United Nations.

With RG Brands’ broad goal of international expansion, particularly in the Commonwealth of Independent States (a regional organization of countries in Eastern Europe and Central Asia), the company has made strategic use of the Madrid system for all of its major brand names. In 2004, RG Brands was granted international trademark registration for its Piala tea. With approval in Uzbekistan and Kyrgyzstan, this registration proved vital to the company’s international expansion of its most popular product. RG Brands continued to make international trademark applications, including for the company’s Moë milk products in 2005 (registered in Kazakhstan, Kyrgyzstan, and Uzbekistan). In 2013, RG Brands registered its Da-Da Day, Gracio, Grizzly, and Sunny Nectar trademarks internationally through the Madrid system, further protecting the company’s brand portfolio and enhancing its competitive advantage.

Recognizing the importance of the digital age, RG Brands owns a number of Internet domain names. These include the company’s main website – brands.kz – and mygrizzly.kz and piala.kz. Furthermore, RG Brands’ parent company – Resmi – owns the resmi.kz domain name, through which it promotes RG Brands’ products. Maintaining a presence on the Internet allows the company to connect with a wider customer base (both at home and abroad), build brand awareness, and provide potential investors with information on RG Brands’ products, services, and financial health.

Business results

After only one year of production, RG Brands’ original products accounted for 24 percent of the Kazakhstani F&B market (KASE, 2001). Including imported brands, by 2000 the company sold 42 percent of all F&B products in Kazakhstan (KASE, 2001). Thanks to RG Brands’ well-known brands that are protected by the IP system, a decade later in 2010 the company enjoyed over US$175 million in net revenue. By 2009 RG Brands had over 1,200 employees, and at the end of 2011 the company reported net revenue of approximately US$220 million (Remi, 2013).

In September 2012, Moody’s Corporation, a credit rating agency based in the USA that is one of the world’s largest, noted that RG Brands would continue to earn a positive financial outlook thanks to the company’s diversified product portfolio and strong brand names. Indeed, RG Brands’ revenue grew by over 21 percent from 2012 to 2013, and the company expects a pattern of continual growth, reaching net annual revenue of over US$400 million by the end of 2015. Moreover, by 2013 RG Brand’s products were exported to four countries in Central Asia (Kyrgyzstan, the Republic of Turkmenistan, the Republic of Tajikistan, and Mongolia) and the Russian Federation.

Beyond financial success, RG Brands, the company’s products, and leaders have been multiple-award winners. Leading the company as it launched new brands, in 2007 Mr. Kairat Mazhibayev, President of RG Brands at the time, was the 2007 winner of the Ernst and Young Entrepreneur of the Year Award in Kazakhstan. Recognition of RG Brand’s products include the Quality Award from the Quality Association of Kazakhstan (2003), a special recognition award from Expert RA Kazakhstan (2009), a Kazakhstani credit rating agency, and the “Altyn Sapa” award (2011) from the President of the Republic of Kazakhstan for the best large-scale manufactured F&B product.

A brand name shift

When RG Brands made the decision to shift from importer to producer, the company faced a newly rapidly expanding economy and an increasingly competitive market. Undeterred, through R&D, strategic partnerships, acquisition of high-tech facilities, and innovative marketing and financing strategies, RG Brands created original products that quickly became some of the most popular brands in Kazakhstan. Backed by the IP system, these brands are poised to spread further into neighboring countries and beyond, making complete RG Brands’ shift from brand importer to one of Central Asia’s most recognizable brand name companies in the F&B industry.

Source: WIPO