VALUABLE PAPERS: Demian Krutchenko from KDI-Trade about how his company helps its clients make money. From paper
The world is one step away from the complete rejection of plastic. Already in 2021, Europe is ready at the legislative level to ban using plastic in household packaging. Such an initiative will help not only to improve the environment, but also the financial situation of producers of environmentally friendly paper utensils and packaging. Ukrainians have a chance to join the struggle fully armed.
Ukrainian conquistadors will be able to purchase the necessary arsenal for the conquest of the world market from the KDI-Trade company, which since 2012 has been supplying equipment for the production of paper utensils and packaging. According to the company’s founder, Demian Krutchenko, his company will not only supply the necessary equipment but also offer a turnkey solution for organizing production. Quickly and not for all the money of the world.
In his interview to Leadership Journey, Demian talked about a new trend in the European market, and explained why Ukrainians should take the lead in the global process of “PAPERisation”.
Demian, what exactly does KDI-Trade specialize in?
We are selling equipment for the production of paper utensils and packaging. However, we are not just intermediaries – the company builds a turnkey business. We perform the selection of equipment for specific production needs for customers, buy it in China and deliver to Ukraine, Europe, and the CIS countries, and then carry out installation and commissioning. Simply put, the client comes to us with a specific request (“I want to produce such a cup”), and we offer him a solution that will allow him to carry out his plans.
We have been engaged in this business since 2012, over this time our company has entered the list of top three domestic suppliers of equipment for the production of paper packaging, having worked with more than 130 clients. I can say that approximately 80% of the paper cups produced in the country for coffee are made on the equipment supplied by KDI-Trade.
Approximately 80% of the paper coffee cups in the country are produced on the equipment supplied by KDI-Trade.
How did you come to this business?
At first, it was a branch of our advertising business. One of the clients requested us to produce branded paper cups. At that time in Ukraine, manufacturers of paper packaging could be counted on the fingers of one hand, and they worked exclusively with large orders. Therefore, at first we brought and assembled our own line, and then, as orders and requests for assistance with delivery and adjustment of such equipment increased, we decided to make trading a separate direction. And we did not lose: in six months, the sale of equipment began to bring more profit than the production of paper cups.
From the very beginning, we provided a full range of services: we not only imported equipment but also mounted and put into operation. Warranty, ongoing maintenance – everything was in place as it should be. Over time, consulting was added. Currently we do a market analysis and selection of the target audience for our clients.
For six months, the sale of equipment began to bring more profit than the production of paper cups
What are the prospects for the development of paper packaging production in Ukraine?
Among domestic manufacturers of paper packaging, many have already changed the focus to Europe. This is especially noticeable in the western regions of the country, from which firms send their products to Poland, Romania, and Hungary, and from these countries, the products are distributed throughout Europe. The demand will continue to grow, not only in the EU but also in Ukraine. However, profitability largely depends on the volume of production and type of products. For example, for a branded coffee cup, this figure is 100%, and for a simple single-layer cup, it is 10–25%, depending on the output volume.
THIS BUSINESS HAS EXCELLENT PROSPECTS
In Ukraine, the eco-trend is not so pronounced, but the domestic consumer is ready to overpay for convenient and beautiful packaging. In this, we are far ahead of Europe. You can say that visual and emotional consumption has come to replace the purchase of goods as such. That is why every cafe and every gas station strives to stand out with its own branded utensil or packaging. In short, this business has excellent prospects.
That is, the supply of equipment for paper packaging is quite profitable.
Actually, it is very individual. A lot depends on a client, his preparedness and involvement in the process. In some cases, we work with a minimal profit when there is an urgent order and we expect further orders from this client. This allows us to build long-term relationships. There are customers with increased requirements. For example, they require our equipment fixer to be present for a month after the installation of the line. Naturally, projects with such support are more expensive. In general, profitability ranges from 15%.
How has the 2014–15 crisis affected your company?
Those events did not hit hard on our segment, since paper packaging is, in fact, a commodity of prime necessity. As you understand, people will always drink coffee. Nevertheless, we are intensively developing our presence in the post-Soviet countries: Kazakhstan, Kyrgyzstan, Moldova, and Russia. Businessmen everywhere speak the same language.
PEOPLE WILL ALWAYS DRINK COFFEE
What country does take the first place in the number of orders?
Ukraine. And not because the company is focused on the domestic market. In our country, business activity is higher. In our research, it was revealed that the Ukrainian google segment generated as many requests in our direction as the rest of the CIS countries taken together! And even in Russia, more than 80% of our customers are Ukrainian-born. All this testifies to the high entrepreneurial spirit of Ukrainians in general and the preparedness of the domestic business environment in particular.
Who is your main client: small or medium business?
Our clients classify into three categories. The first category is a small business, including small firms and FOPs (sole proprietors) that were not previously engaged in production. The second category is companies related to printing, which have an experience in the production of paper packaging. For them, this is a new direction, which allows expanding the product portfolio. And finally, the third category includes companies that are the final consumers of paper packaging. This category can include, for example, a large network of gas stations. They need a great number of paper coffee cups. That is why it is easier for them to acquire their own production line instead of buying paper cups.
We mainly focus on start-up entrepreneurs from the first category. Let us say, you make a decision to produce paper packaging, but you have no experience in manufacturing. You have to find a manufacturer in an unknown China, choose a line that would meet your needs, buy and deliver it to Ukraine, launch … We are doing all this and save the client from the fear of an unknown and a headache.
We mainly focus on start-up entrepreneurs from the first category
There are also specific features in working with customers who already have an experience in production. In these cases, we usually go for a price reduction. Such companies have already trodden their own path to China, they have their own contacts among the manufacturers there and they know who is who. Therefore, if our price for the selection, delivery, and adjustment of the equipment is too high, they will do it themselves, even if they will spend knowingly more time on it.
Do you have a warehouse of equipment or you work for a specific client?
We have something like a showroom where an entry-level line is installed to produce the simplest packaging. This is a kind of demonstration of the potential and capabilities of the equipment. But there is no warehouse as such because it is a customized business: for each specific project, you need different machines with certain characteristics. It is impossible to readjust equipment for a different task. Therefore, we work exclusively on order, by ordering equipment in China to the requirements of the client.
Do you like to work with Chinese manufacturers? Is it easy or difficult to do business with them?
China is not just another country – it is another civilization. To do business with them, you need to take into account many nuances. Take, for example, communication. You are a client – and they are smiling and trying to fulfill all your wishes. However, as soon as the money is received, they seem to forget English. This is especially true when it comes to claims. Five years ago, when we first started, this behavior of Chinese manufacturers was the norm, now it has become easier.
However, there are still cases when your letters about problems with equipment have no response. But as soon as you make a request for updates and prices or show an interest in buying another machine, people on the other end immediately wake up. To be fair, first, they will have reacted to your problem and suggested solutions, and only then will talk about a new deal.
In this peculiar market, you can successfully work only with adequate skills and proficiency. But the efforts are worthy of it because the equipment produced in China is ten times cheaper than the American and the European counterparts. Besides, a professional installation guarantees, the Chinese equipment will operate equally good.
Does China have competitors?
Today, China has no competitors. The USA, Europe, South Korea, China – this is a descending price scale for the production equipment in our business area. Even South Korean machines are three times more expensive than the Chinese product. American or European machines are one order of magnitude more expensive. Therefore, our “Silk Road” search for suppliers was directed to China. Five years ago, Chinese manufacturers noticeably were losing in quality, but now they have tightened up. Currently, you can find machines that are almost of the same quality as those produced in the United States or Europe and are five to six times cheaper.
Five years ago, Chinese manufacturers noticeably were losing in quality, but now they have tightened up.
Is there economic expediency of organizing the production of such equipment in Ukraine?
Good question. Both our competitors and some clients were thinking about it. They believed, there was nothing complicated there. We all would like to develop the industry in Ukraine, but until today, there is no production of equipment for paper packaging in the country. As far as I remember, there was only one attempt in Kamyanets-Podolsky, at one of the local enterprises. They launched a production line but the cost of equipment turned out to be the same as that of the factory-made Chinese equipment. On the one hand, domestic, but “raw” equipment, on the other – the Chinese, but produced in series. The choice is obvious, so things did not go further than the experiment.
At the same time, compared with China, we have cheaper labor, more affordable rental price for production space; there are competent specialists. Based on these prerequisites we could have organized our own production in the country. However, the trouble is that machine tool manufacturers often cannot come up with an adequate price. As a result, it is easier to contact the Chinese producers.
I totally agree that to find a good contractor in Ukraine is still a problem. In this regard, I have a question. Did you yourself work for hire?
I have realized very early that working for others, I would not be able to provide a decent living for myself and my family.
Yes and quite a lot in various fields. When I was still a student, I went to the USA for half a year under the “Work and Travel” program. In the daytime, I used to work as a lifeguard in the pool, and at nights, I was working as a construction worker. After graduation (I am a lawyer by education), I was an assistant lawyer for two months. Then I worked as a promoter and supervisor in advertising agencies. Very early, I have realized that working for others, I would not be able to provide a decent living for myself and my family. That is why in 2005, I had started my own advertising agency. Since then I have been working exclusively for myself.
How do you feel about partnership in business?
In a business partnership, I am committed to the formula “1 + 1 = 11”. In other words, when you have a partner appearing, the result must be one order of magnitude higher, and not be a banal addition of efforts. Of course, you can find such a partner only through trial and error method, if it is at all possible. Another rule of mine is that if a partnership is not perfect, you should end it as soon as possible, rather than waiting for the moment when the break can turn into financial or reputational losses.
WHEN YOU HAVE A PARTNER APPEARING, THE RESULT MUST BE ONE ORDER OF MAGNITUDE HIGHER
For you, what are the markers of the end of a partnership?
It can be anything: from a trivial failure to fulfill obligations to the destruction of mental bond. If yesterday you and your partner understood each other perfectly, and today a chill appeared in the relationship and the work went awry, it is time for each to take their own path.
Are you considering a partnership for investment? If yes, in what areas?
I have a couple of such projects, and this is a non-stop process: some end, others begin. The sphere of interests is quite wide: from real estate to retail. I invest only in companies that have a positive background and successful experience. At the same time, I choose those areas where I myself am competent, and where, in addition to investing money, I can apply my experience.
Among your current customers, are those who are looking for investors?
In the paper packaging production, an opportunity to raise funds timely is very important. Therefore, there are cases of external investment. Now it is a very good time to invest in this area: the upcoming ban on plastic packaging in Europe means that the EU’s need for environmentally friendly paper packaging will soon increase many times. If you want to be part of this trend, you need to start right now.
What is the number of personnel in “KDI-Trade” company?
Now I have 10 people on my staff, and that is quite enough. First, I am a supporter of process automation, so we try to minimize the notorious human factor. Secondly, in my company people do not get salaries. The employees earn their money. The level of income depends on the position and competencies, and a transparent motivational model increases work efficiency.
We are a service business, and a lot depends on how work is organized. Therefore, I select employees very scrupulously. I think I managed to form the right team, where every employee is in place. They are my like-minds and in their area of responsibility build work in the same way, as I would have done.
What is your role in the company as a manager?
My key role as the owner and head of the company is strategic planning. This includes a search for new markets and customers, the initial development of new projects. Each of our new projects is a reputational and financial investment, so I always try to put myself in the client’s place in order to realize the task with the maximum benefit for him.
My key role as the owner and head of the company is strategic planning
Do you manage to focus on the main issues and not to spray efforts?
Life is multifaceted and difficult, so I do not have an unequivocal answer to this question. I try to focus only on key things. This is a painstaking process, which requires a daily effort. Especially if you are a perfectionist who wants to control all areas of life.
What will be your company in five years?
Purposefulness and diligence are not something that I lack. That is why I would like the company to grow five times in five years. To increase sales and customer pool by five times, to win new markets. This plan is quite feasible: now our business is growing globally at 100% per year.