Vladimir Avramenko loves to recall the 1990s. It was not easy. The old Soviet economic model collapsed, and the new – that of independent Ukraine – has not yet appeared. The young country had no its own industry and no economy at all. The situation scared many people, but for a graduate of the Donetsk Institute of Soviet Trade it turned out to be the best condition for self-realization. “It was the time to create something new,” he says.
To create something new – this was a kind of a motto for Avramenko. For more than 20 years of business in Ukraine, he probably underwent everything that an entrepreneur in a developing country could: a rapid rise and loss of production capacity and a transformation of traditional manufacturing into an innovative business.
For the first time in his life, the mechanical engineer met the world of business soon after graduating from the institute in 1981. As a young specialist in food industry apparatuses, he was assigned to Odessa, a city where trade was embedded in the urban lifestyle. “For a year, I was making my little career in ‘Gastronome no 1’ store in Deribasovskaya Street. I then understood what Odessa is and what commerce is,” he recalls.
In terms of the contemporary business vocabulary, Avramenko, who had already tried himself in business, built his first network in the army. However, only later did he realize that friendships links would become his business contacts. In the meantime, Odessa was on his mind. That was the city of his first steps in commerce. “People were going away; the emigration of Odessa residents to Israel was underway; ‘the gate’ was open. They employed young people to cleanse (from corruption) Odessa trade.
However, the ‘small’ homeland’s call was stronger. In the young country, the first joint ventures started to emerge; foreigners were attracted by the almost empty market of the former Soviet republic. A joint venture was the first job for 23 years-old Avramenko. The French-Ukrainian company, Donpari (from Donetsk – Paris. – Ed), was engaged in everything that made money. “There were different themes,” he says.
The import of raw materials had become one of the profitable themes (activities) for the JV. The situation in the market had prompted the type of goods to import to Ukraine. Following the collapse of the Soviet supply system in the country, the confectionery industry actually stopped to operate. In the warehouses’ bins of three dozen confectionery factories, there was almost everything needed to start working – flour, sugar, and hardworking Ukrainians. However, the main thing was missing – cocoa beans. Few people knew where to get them.
The entrepreneurial intuition was prompting that you could definitely make money on the supply to the industry, which produced always-popular products
The entrepreneurial intuition was prompting that you could definitely make money on the supply to the industry, which produced always-popular products. The idea was simple and effective: to help confectioners get the cocoa beans and be paid-in-kind. A minor thing was lacking – there was no money to buy these very cocoa beans.
However, the young entrepreneur remembered the lessons of the elegant trade in Odessa. He knew a useful Soviet tradition of taking patronage over sports clubs. Moreover, in Donetsk, there was just such a club, which was managed by the already legendary Sergey Bubka (A pole-vaulter, Olympic Games and World Champion – Ed). Avramenko had met him through mutual acquaintances.
Avramenko invited Bubka to sign a cooperation agreement. The newly established company AVK negotiated with the athletes about the joint production of confectionery products and the division of profits after their sale. The cocoa beans were processed at the Trostyanets confectionery factory, which was then considered the best in the country. “It was an era of change, the time of perestroika. There were many challenges for society and people, it was necessary to learn to accept and manage them,” recalls Bubka.
IT WAS AN ERA OF CHANGE, THE TIME OF PERESTROIKA
With such a contract, Avramenko went to one of the local state-owned enterprises, which was supposed to vouch for sports and entrepreneurial duet to the state bank. The State Bank was impressed with such a set of documents, and it issued a loan of 3 million roubles to an enterprising young man.
A few days later Avramenko was traveling by train to Moscow, where it was necessary to sign an agreement on the purchase of cocoa beans on the London Stock Exchange. “And I looped it all up and was doing it for three months. And to my wild surprise, it all worked out,” says Avramenko.
The first product of the sports club of Sergey Bubka, entrepreneur Vladimir Avramenko and confectioners of the Trostyanets confectionery factory became as festive as their mood – the familiar to many ‘Grandfather Frost’ chocolate figures wrapped in foil.
The sales broke all records. ‘Grandfather Frost’ hit the shelves in the autumn-winter period of 1991 and disappeared from them in a matter of days. Despite the exponential growth of sales, we never managed to saturate the market. “There was not enough for everyone. We were monopolists – we had 100% of the country’s chocolate market. This will never happen again,” Avramenko recalls with pleasure.
WE WERE MONOPOLISTS – WE HAD 100% OF THE COUNTRY’S CHOCOLATE MARKET
The only thing that prevented Avramenko from enjoying the large-scale sales was inflation, which in Ukraine in the 1990s received a fair prefix ‘hyper’. The entrepreneur illustrates the rapidity of change by an example. Chocolate ‘Bunny’ wrapped in foil, the second hit of sales after ‘Grandfather Frost’ – cost 3 rubles at the start of production and 15 rubles in the stores a month later. “Vladimir Fedorovich is a good organizer who knows how to plan and calculate his actions and the actions of others several moves ahead,” says Bubka. “Without such strategic planning, there is no way doing business.”
Rumors about some guys from the Donbass who managed to launch the dead industry – that is, to do what the government did not manage, reached the Minister of the Food Industry. Confectioners from all over Ukraine were offering their partnership vying with each other. As a result, Avramenko & Co. had chosen the best five factories. “I lived in Donetsk, and, for example, I traveled to this Trostyanets factory every week – 440 km to and back. You leave home at two am, and at eight am you are there,” he says.
A meeting with colleagues from Nigeria, who came to Ukraine to adopt the best practices of confectionery production, was the turning point for Avramenko and his business. They knew where to come: there were about 30 large confectionery productions in the territory of the (former) Soviet Ukraine at that time.
Avramenko and his friends became guides for the guests from the Black Continent showing the manufacturing production of the country, which gained independence. It was hard to imagine a better illustration of the confectionery production than the Trostyanets confectionery factory. The Nigerians were impressed. Avramenko was also impressed, but by a different thing: he suddenly realized that the moment had come for him to become a manufacturer.
The situation in the market was pushing to such a decision. The geography of production of AVK, which worked on a give-and-take basis with five largest factories, made it possible to cover the entire market, but not to control the quality. And it was weakening noticeably. Producers, to put it mildly, were ‘saving’ on cocoa and sugar.
SPORT AND BUSINESS HAVE THE SAME PHILOSOPHY
Additionally, there had appeared competitors from Poland and Turkey in the market. Imported chocolates and chocolate became more. The competition grew, prices fell, and the margin shrank. The last indicator could have been increased only by changing the profile to that of a manufacturer. That was exactly what the well-known by the time leader of the AVK company did. “Sport and business have the same philosophy. Athletes constantly set new goals and are doing their best (and sometimes the impossible) to achieve the goals, to be the best, the first in their activity,” says Bubka. “Agree, this is something that is inherent to business too.”
Thinking about where to start his own manufacturing, the entrepreneur decided to make money on the “golden mean” between raw materials and finished products – on semi-finished products.
The businessman found the necessary equipment in the Netherlands and hired experienced workers from the Karl Marx confectionery factory in the capital to adjust the process. A month later, grinding machines and ball mills for the production of chocolate glaze arrived in Ukraine. Avramenko was looking for raw materials for the first batch of chocolate semi-finished product all over the world. As a result, the company purchased palm oil in Malaysia, and cocoa powder came from the European warehouses, Cargill.
The enterprise was expensive, but it was worth it. The equipment was set up, the recipes checked, and the company received its first glaze. Well, Avramenko again outstripped his already numerous competitors, who by that time had managed to find channels for the supply of raw materials but had not yet evolved into their own manufacturing. “I always do what others do not. What others are doing is not interesting for me,” says Avramenko.
However, something happened that no one could predict. Products intended for processing at confectioneries suddenly became a popular product in retail. In the mid-1990s, Ukrainians who lost money were willingly buying affordable glaze products. AVC had no choice but to meet the market – this is how the ‘Grandfather Frost’ made of glaze instead of chocolate appeared. “The demand was crazy,” recalls the entrepreneur.
This variant allowed for not only commercial benefits but also technological ones: chocolate products were not easy to produce, store and sell due to a low melting point. However, it was convenient to make such produce from glaze – while chocolate melted at 32°C, glaze melted at 35°C. This facilitated the technological process, storage and sale of the finished product. “Avramenko was one of the first in the country to understand that sales are among the basic prerequisites in business,” recalls Andrey Dikunov, CEO of Ergopak. He was among the first employees of AVK and witnessed the development of the company.
Avramenko was one of the first in the country to understand that sales are among the basic prerequisites in business
Old friends from France helped the Ukrainian to reach a new level of development. In 1995, the Ministry of Agriculture of this country announced the launch of a preferential loan program for those who would buy confectionery equipment produced by a local plant. Avramenko became interested in the proposal; his colleagues and he started to study the documents. The deal was almost spoiled by the reputation of Ukraine – the French party was afraid to credit a manufacturer from a young country. The entrepreneur did not stop. “Well then, we will buy it with our own money. At that time, that was our decision,” he says.
The equipment from French engineers was worth the money. It was on this equipment that AVK made the first sign product – ‘Major’ bar, which quickly became a sales hit and continue to be until now for over 20 years.
“The ’Major’ bar was completely Avramenko’s idea. At that time he was actively involved in sports, and therefore wanted to produce something popular, low-fat and no butter,” says Dikunov, who rose to the position of general director at AVK.
In addition to the technological innovation, Avramenko improved the relations with the team. According to Dikunov, when AVK took control of the Donetsk factory, stealing there was in the order of things. Avramenko solved the problem in a peculiar way. “An order was issued to give all employees half a kilo of sweets every Friday. And they had changed the security men.”
In the late 1990s, AVK became the most successful enterprise in the confectionery industry of independent Ukraine. The number of employees reached thousands, the turnover – tens of millions. The fast-growing enterprise had attracted the attention of the experts from the Western NIS Enterprise Fund, a private equity fund with capital founded by the US government and funded through the United States Agency for International Development (USAID). The fund had $ 150 million at its disposal, and the Americans decided to invest $ 8.9 million of this money in the Ukrainian confectionery ‘blue chip’.
Investors from the US liked that the Avramenko company voluntarily conducted an international audit. In addition, Mark Ivashko, a co-founder of Horizon Capital, recalls, AVK never enjoyed special privileges, although it was one of the major taxpayers in the region and the industry. “All these qualities and characteristics were unique in a Ukrainian company in the mid-1990s, and this made AVK attractive to foreign investors,” Ivashko says.
According to Dikunov, AVK actively invested its first earnings on a give-and-take basis in technological modernization and personnel training. AVK technologists studied in the best laboratories of Denmark and Switzerland and checked the theory in their own laboratory, which was specially built on the territory of AVK.
Investors were carefully evaluating every decision of the company. Avramenko admits he often had to wait for them to make a decision. But the caution paid off for both parties. Already in 2013, AVK repurchased 25% of its shares from the fund for $ 45 million, which was recognized by the Americans as the best investment.
Inspired by the successful experience of international cooperation, Avramenko went to study at one of the world best business schools – the London Business School. In addition to the intricacies of international business, Avramenko was mastering a good English proficiency. They purposefully selected a group with no Russian-speaking participants. “I have not heard Russian for three weeks,” recalls the businessman.
At that time, he could not even imagine his English proficiency would become one of his main business skills in the future.
Paco Rabanne’s Tips
The crisis of 2008 caught the Ukrainian confectioner at his studies in England. At home, a strong team ran the company; and there seemed to be nothing to worry about. “They call me and say: we are in trouble. I say: «Well, it cannot be true! We have been through it. I thought it was something trivial,” says Avramenko.
However, it was not trivial. When the Lehman Brothers’ collapse opened up, Avramenko decided to return home. As it turned out, it was just in time. Sales of the company fell along with the hryvnia exchange rate. The company was saved only by stable sales to neighboring Russia, about 70% of all AVK products. This focus on one market saved the AVK business at that time but almost ruined it in the future. “It was kind of a greenhouse effect, and I regret that I did not change this in time,” says the head of AVK.
The crisis was a trial for a successful businessman and an excellent lesson that showed the weaknesses of his business. It became clear that to compete in the ‘ocean of blood’ of cheap products is the path to nowhere.
WE TOTALLY EXCLUDED CHEAP PRODUCTS FROM OUR ASSORTMENT
It was Paco Rabanne, the famous couturier (whom Avramenko met), who helped the entrepreneur to make the right move. A wise businessman advised his Ukrainian friends to look for a buyer at the highest price level. “In general, we have excluded from our assortment of products below the middle price segment,” the entrepreneur describes the strategy.
The next crisis in Ukraine, which broke out in 2014 proved the strategy was correct. Avramenko himself calls it not a crisis, but a force majeure. This is the way the businessman emphasizes that it was hardly possible to be prepared for such a development of events. When artillery shelled the factory, AVK announced the suspension of its production in Donetsk. The losses were enormous – in addition to the equipment and the sales market, AVK lost its human resource. Now, instead of 10,000 people, the company employs about 3,500.
It took four years for Avramenko to recover. Instead of factories in Donetsk and Lugansk, over which the company had lost control, a factory in Dnipro became the main production site. Some of the AVK employees moved there from the belligerent Donbass. The company paid for their real estate lodging.
A PART OF AVK’S EMPLOYEES HAS MOVED FROM BELLIGERENT DONBASS. COMPANY PAYED FOR THEIR REAL ESTATE LODGING
When it became clear that the Russian market was closed for the Ukrainian company, the confectioner remembered what he was taught in London. He opened the old notebooks and sat down at the phone. 4 years = 60 countries. Avramenko proved the correctness of this equation by his personal example. That is the number of countries candies under the AVK trademark are sent to today.
Among them, there are Asian countries, in particular, Japan, which is famous for its high standards for food exporters. The first batch in the Land of the Rising Sun amounted to 100 tons of sweets; the second was twice as large. “There they sell a narrow range, but our candies are still there and all because very few people in the world do as qualitatively as we do,” explains the entrepreneur.
Avramenko puts a whole set of finely tuned characteristics in the word ‘quality’ depending on the country where the product is sold. For example, before starting sales in Muslim Malaysia, AVK received a certificate confirming the ‘halal’ of the Ukrainian sweets. This summer, the first 50 tons of the Ukrainian products were sent there.
In Vietnam, the series of ‘Royal Masterpiece’ sweets was especially popular. Maybe the advertising played its role; it features a dragon, the Vietnamese symbol of peace, life, existence, and growth.
Similarly, Ukrainian manufacturers pleased the Old World – the British. The residents of the foggy Albion hinted that they would like to try white truffle in the Ukrainian sweets. No sooner said than done. At the end of this summer, AVK launched the production of ‘milk truffles’ with pieces of dry strawberries.
Innovations enhance the process of entering new markets. Remembering how the market had once met the ‘Major’ tubes, AVK has launched the production of innovative ‘Kresko’ snacks. The company has purchased a high-tech German extruder for 6 million hryvnia to manufacture the new product. This equipment allows not to use butter, and the snacks have no stabilizers, preservatives or trans-isomers. AVK claims that there is nothing comparable to ‘Kresko’ in the Ukrainian and major export markets of the company. “What happened in 2014 was not a crisis; it was a (death) sentence. And I withstood this challenge,” concludes Avramenko.
Avramenko, soft in appearance, actively regulates not only the company’s external affairs but also internal ones. People in the companies under his leadership know that their always friendly boss does not tolerate a passive attitude to work. Interest and sparkling in the eyes of the employee is the main indicator of professional suitability for the founder of AVK, who himself started the business in the turbulent 1990s. Those who did not meet these standards were doomed to fire. “I don’t like ‘to take a scalpel’ in my hands, but I’m already a good ‘surgeon’, says the businessman. “I had to learn to do it.”
The entrepreneur is looking for new personnel in the best universities in the country. For example, during his speech at the Kiev-Mohyla Academy, Avramenko was more than eloquent: “We are not perfect, but we are changing rapidly. Crises do end. And we will always be a blue chip.”
During the whole conversation about his company, Vladimir Avramenko is not stuttering for a second. “As for these sweets, we have sent already five million of them to Malaysia; and this chocolate bar has a liquid raspberry filling” Such comments make an impression the owner of the company is deeply immersed in operational management. However, the head of AVK himself denies this: “It is not true. I never even looked at my watch.”
Similar flexibility of the creator of the AVK company is seen in his non-core businesses. In 2016, the company established a line for the production of coffee and introduced its own brand BARISTI to the market. An online store to sell company’s products is actively developing along with a network of brand stores. At the same time, it would be wrong to call Avramenko a neophyte in internet technologies: back in 2007, he founded EasyPay, the first non-bank payment system in Ukraine. “I did use to be as of cast iron before. And today I am more elastic, anti-fragile,” says the entrepreneur.
The material is published in the Leadership Journey magazine (AUTUMN 2018)