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The Russian Whiz Kid Who Ran Too Fast (Int'l Edition)


International -- European Business: RUSSIA

THE RUSSIAN WHIZ KID WHO RAN TOO FAST (int'l edition)

Vladimir Dovgan created a megabrand. Can he recreate it?

Vladimir Dovgan still radiates the self-confidence that made him Russia's first marketing superstar. The 33-year-old former factory worker built a $400 million-a-year business selling products of struggling Russian factories--and putting his beaming face on every one of them. But Dovgan's empire has now imploded. With credit cut off and unpaid suppliers suing, Dovgan has jettisoned two-thirds of his 600-person staff, dropped most product lines, and left his offices near Moscow's prestigious Pushkin Square for a distant suburb.

Dovgan now says he underestimated the difficulty of getting manufacturers moving again. "Are there Russian producers who can compete?" he asks. "I don't think so." But there's more to it than that. Russian consumers are maturing--and no longer impressed by Dovgan's "buy Russian" sales pitches. He also came up short in everything from quality control to pricing. Although gifted at promotion, he lacked solid financing and is now heavily in debt. Indeed, Dovgan is a B-school study in what can happen when entrepreneurial drive outruns the thin experience of Russia's first business executives.

Dovgan promises to revive his brand. In contrast to the 250-plus products he used to put his name and smile on, he will now stick to alcoholic beverages and soft drinks. But the challenges are many. Multinationals are making huge inroads. Some domestic producers are becoming tough competitors, too. Building a brand requires long-term financing and planning. And Dovgan doesn't have much of a head start: Millions of Russians know his name, but few became loyal customers.

After arriving in Moscow in 1995 from Togliatti in central Russia, Dovgan decided to jump-start the consumer-goods sector. Distribution systems had collapsed, and while shoppers wanted Russian goods, they worried that they might be tainted or stale. With a $1 million loan from a banker friend, Dovgan cut deals with several distillers to label and market their vodka for commissions of 2% to 3%.

Sales took off, even though Dovgan vodka cost more than most domestic brands. Dovgan soon had his name on everything from shampoo to chocolate and frozen dumplings. To lure customers, he started a TV show with a lottery. And he drew attention for his every move--from his daily swim in ice water to his sponsorship of a business school.

Yet trouble was brewing. Shoppers balked at Dovgan's prices, which sometimes matched those of multinationals manufacturing in Russia, such as Nestle and Mars Inc. As sales fell late last year, Perekriostok, a Moscow supermarket chain, dropped Dovgan products. "The prices were simply unreasonable," explains Igor Balelin, Perekriostok's sales manager. Dovgan beer, Balelin says, cost almost twice as much as imported Czech brew. By then, Dovgan had made a muddle of his market by putting the same label on everything, regardless of quality and price. "He needs to manage his brand portfolio," says Leonid Shutov, who runs Propaganda, a local advertising agency. "It doesn't send a clear message."STILL DREAMING. The market sent one, though. As sales slowed, credit dried up and unpaid suppliers started screaming. Dovgan owes them more than $8 million, and 17 have sued. Dovgan's former partner, German Lillevyali, says that while sales last year were $400 million, the company cleared only $300,000 a month because of huge promotional expenses. It was after a bitter falling out with Lillevyali this year that Dovgan relaunched his enterprise.

Dovgan admits that he lost control and that product quality suffered because he couldn't keep tabs on hundreds of factories, distributors, and retailers. He expects multinationals to dominate the market and Russians to carve niches. Nonetheless, Dovgan still dreams of creating Russia's strongest brand name.

And he could succeed. The new focus on beverages, while it puts him head-to-head with Pepsi, Coke, Kristall vodka, and others, is a step in that direction. Dovgan also is talking to MFK Renaissance, Russia's top investment bank, about restructuring his debt. His face will be absent from his future labels. But if Dovgan gets his brand in order, he still may find reason to smile.By Carol Matlack in MoscowReturn to top


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