Donskoy’s advertising tremendous success

This, however, is the facade intended specifically for potential buyers. In reality, the situation is not as bright. The manufacturing performance gives evidence of an impressive past. Growth in the past year is due to the acquisition of Nevo Tabak and it is not yet clear  whether Donskoy Tabakwill this year reach the same sales as the combined sales at Donskoy and the acquired competitor last year.

In all probability, the potential for growth has been exhausted. Performance is at its peak today and may start falling tomorrow, but it is the new owner who will have to find out.

The tremendous success of the Kiss brand depends very much on an exceedingly aggressive marketing strategy targeting adolescents. This autumn, Donskoy’s advertising drew unprecedented condemnation in the blogosphere and Russian media and many observers directly accused the owner, the then member of parliament Ivan Savvidi. Moreover, Russian antimonopoly bodies which are in charge of advertising control have fined Donskoy Tabak repeatedly for improper advertising and the use of children’s images. All attempts by the factory to challenge the fines in court (and the fines have lately reached significant amounts) have failed.

Much of the factory’s sales in recent years have been to supply the army, and the awarding of such contracts in Russia, even if they are put out to tender, suggests far-reaching influence at the government level. However, in the just-held parliamentary election Savvidi has lost his seat in the Duma and with it his considerable lobbying capabilities.

Besides, other businesses of the former Duma member develop quite successfully and carry no political or reputational risks, unlike tobacco products. One may therefore conclude that the Savvidi  is ready to compromise with the new buyer and reach agreement on the price as quickly as possible.

Finally, taking a closer look at Donskoy Tabak’s exports, reveals  that most products are supplied to three unrecognised republics: Transnistria, Abkhazia, and South Ossetia. The Russian law exempts exported products from excise. In the stated countries, no excise or other taxes are levied on products imported from Russia so that this line of business generates windfall profits even from the least expensive cigarettes:  hence the overall excellent financial performance of the company. Let us not dwell on where these products go later, for instance from Transnistria,  let’s just say that the new owner, especially if it is a multinational corporation, will probably not use dubious export schemes; and if it wishes to, it is by no means certain that it will gain the necessary informal connections in those countries.