Young Director Sweetens Scent of the Urals

YEKATERINBURG, Ural Mountains -- Timur Goryayev is 30 years old, which makes him something of an old-timer among Russia's new generation of Young Turk managers.


But with age has come experience for Goryayev, the director of Yekaterinburg's Uralskiye Samotsvety cosmetics factory, the largest Russian perfumery beyond Moscow and St. Petersburg.


In the late 1980s, the young law school graduate peddled photocopies of Baltic and Western magazines, and then moved on to trade in food and Israeli vodka, the latter earning him an award from officials in Jerusalem for developing trade relations between Russia and Israel.


Then, at the beginning of Russia's voucher privatization, he moved into Yekaterinburg's securities market, buying up shares in local businesses and becoming "one of the five biggest traders" on the local market.


"I was in charge of a large holding company that, in addition to Uralskiye Samotsvety, included such businesses as Uralasbest, the Ufimkinsky glass plant, Gidrometpribor and others," he said.


"I personally owned stock in Ural Airlines and the Sverdlovsk tire factory," he continued. "Most of those stocks were sold off later -- it was too hard to manage them."


Goryayev is diminutive but runs his factory with the assurance of a feudal lord. He is not shy about demonstrating his wealth: He flies to London to attend the theater, drives a maroon Range Rover through the streets of this Ural Mountain city and wears a fat sapphire ring. On the desk of his shabby Soviet director's office rests what looks like an oversized silver fountain pen -- it was custom made for him by the pen-maker Parker -- but is actually a dispenser for "Secret Advisor," one of his company's own scents.


In 1996, Goryayev traded his supervision of a small Yekaterinburg-based financial empire for the management of one factory. And in the year since he became general director of Uralskiye Samotsvety, he maintains, he has turned the factory around.


By adding product lines, increasing marketing efforts, easing out old managers and cutting out barter deals, he said, the factory's production volumes have tripled and revenues have increased.


"Before, I was chairman of the board of directors," said Goryayev. "I was watching the factory fall apart. I decided to take the reins of management into my own hands."


Goryayev owns 51 percent of the company, which produces cologne, perfume, eau de toilette, hand and body creams, toothpaste, lipstick and shampoo.


When Goryayev took over as director of Uralskiye Samotsvety, he said, the plant produced "90 products that no one needed." Many of the plant's transactions were barter deals, and bills to the company's suppliers were backing up.


His first major action, he said, was to fire the plant's old management.


"Red directors' fantasy that they can't work with what's going on in the country is only a justification for their own incompetence," he said. "They don't do anything but complain about life."


With a new team of managers in place, the next step was to develop and promote new product lines at the 800-employee factory.


The result was a number of cosmetic products, including Demon and Chistaya Liniya shampoos, which sell for a relatively reasonable 12,000 rubles ($2) each. The company followed this up with an entire line of cosmetic products carrying its new Demon scent: cologne, aftershave lotion and hand and foot creams.


Uralskiye Samotsvety has also started producing liquid hand soap and a line of low-priced eaux de toilette based on popular Western scents such as Givenchy's Amarige, Calvin Klein's CK One and Lanc?me's Tresor.


Now, the factory boasts a 300-item range of products, triple the previous year's line.


Among the new line of goods is a perfume named after Russian pop star Anzhelika Varum, which has become Samotsvety's flagship product.


A marketing study commissioned by the factory showed that a new perfume would sell best if it were to bear the name of a popular female singer. Goryayev followed up that study with a poll to determine the relative popularity of Russia's pop divas.


Although Varum failed to place first, she was the only one who didn't elicit the odd negative response from among the survey's respondents. Goryayev admits that his own partiality for Varum also influenced the plant's choice.


Varum agreed to a deal with the Yekaterinburg factory, and a contract was signed to produce perfume in her name. Now, the factory has plans for an entire line of Varum products.


The factory's second, albeit smaller, focus is on product marketing. Over the past year, Goryayev said, the plant has spent $2 million to $3 million on advertising its new brands. That sum included producing a commercial featuring Varum herself, which aired in May on Russia's major television channels.


Samotsvety's managers have also worked through problems more typical of Russian producers. For example, they have moved away from barter payments, and, today, the enterprise works exclusively on a prepayment basis.


The factory's new directions have apparently had an effect on production volumes and sales figures. According to Goryayev, production has tripled over the past year, and the plant's monthly turnover has climbed to nearly $3 million a month.


According to figures from the ANR/AMER Nielsen Research marketing agency, from January through April of this year, the plant's Yekaterinburg market share increased from 6.7 percent to 11.2 percent.





Yekaterina Zhdanova, head of advertising at Uralskiye Samotsvety, said the plant's products are sold primarily in Siberia and the Far East, with some sales in "near abroad" markets including Kazakhstan, Belarus and Ukraine. The company plans to expand into Central Russia and Moscow, she added.


But the factory's products have yet to hit the shelves en masse, providing little competition for companies operating in Western Russia.


"Our managers haven't ever seen their products sold in the capital's stores," said Procter & Gamble public relations director Yury Molozhatov. "For starters, it would be good for them to show up in the capital, then we might be able to talk about competition."


Marketing specialists say the company's ad spending is relatively low, especially when compared with the $5 million to $6 million a month that Western producers of cosmetics and hygiene products spend to promote their brands in Russia. Uralskiye Samotsvety's modest reported spending of $2 million to $3 million a year has gained their products access to only 10 percent of the stores surveyed in a recent study by the GFK-Rus market research company.


"It's clear that consumers don't know them well," said Vladimir Vlasov, research manager at GFK-Rus.


However, Ian King, the distribution development manager of Unilever, says his company feels competition from the local company when it comes to Yekaterinburg sales of products from Unilever's St. Petersburg factory, Severnoye Siyaniye.


Svetlana Kondareva, head of marketing for St. Petersburg's Nevskaya Kosmetika factory, confirmed that Uralskiye Samotsvety was a contender on the Russian market. "Judging by production volumes, they are third [among domestic producers], after [Moscow perfumery] Svoboda and us," said Kondareva. "They're a worthy competitor."





With increased revenues, the factory has undergone modernization.


The last serious reconstruction at the plant, which was built in 1942, came in 1973, when a Communist Party Central Committee decree allowed the plant to purchase imported equipment and buy a number of new production lines.


This year, the plant spent about $3 million on new equipment, including 2 million Deutsche marks ($1.2 million) that went toward the purchase of German shampoo bottling technology. The plant will purchase a large production line in the near future, Goryayev said.


The plant also has a research center where its own cosmetics and perfume lines are developed and competitors' products are analyzed. Some of the plant's perfumes use components provided by the same foreign suppliers that sell to Western perfume giants.


Goryayev said one secret of the company's apparent success is its pricing strategy: Uralskiye Samotsvety's cosmetics sell for 30 to 60 percent below the rates for similar foreign products, with its perfumes going for half as much or even less.


The company makes about a 12 to 15 percent margin from its cosmetics sales and significantly more on its perfumes, he said.


Goryayev attributes the difference between his prices and those on foreign products to foreign companies' advertising and marketing policies.


"Western corporations overwhelm customers with advertising," he said. "Their products are of average quality, their prices are extreme."