Boris Shestopalov: The crisis is a chance for Ukraine to become a global supplier of bread
Co-owner and CEO of HD-group told how the company is adapting to the new realities of work and whether bread producers can turn the crisis into their chance.
Since the advent of the coronacrisis, many companies have to rewrite their history by changing plans and strategies, optimizing processes. The first ones to be ready for such transformations should be enterprises that shoulder a huge responsibility for providing people with essential goods. In this case, the phrase “bread is the staff of life” is not just a proverb, but an appeal to manufacturers of the most necessary product to organize their work so that the consumer does not feel the difficulties that any company is experiencing today.
In an interview, co-owner of HD-group Boris Shestopalov talks about how his company works under quarantine and crisis conditions, and what challenges entrepreneurs face today.
Note. HD-group is a group of companies, founded in 1998 as the GOC “Hlibodar” in Zaporizhzhia. It comprises grain processing enterprises, bread and pastry factories, a jam and preserves plant, as well as companies providing procurement and logistics services.
In 2017, the Group launched a large-scale transformation. The changes occurred in six main areas: clustering of business areas with the development of key performance indicators; transition from a hierarchical to a matrix management system with the creation of a support hub that supports all business areas; creation of an operational hub (back office), creation of an office for the evaluation of projects; development of an early response system and the use of operational internal communication.
In 2019 the GOC “Hlibodar” was transformed into “HD-group”. Nowadays HD-group functions as an agrifood platform, acting as a service center with a set of outsourcing functions in the B2B market — from the production of goods (within the existing production areas) to the provision of procurement and logistics services.
– Coronavirus has put business in many countries on the brink of survival. How is your company going through this period?
– I can say that all enterprises are operating today as usual. Over the past five weeks of quarantine, we have become accustomed to the feeling of anxiety. For us now, it is almost the norm. Yet, since we are a food company, and all of our production facilities are certified according to the HACCP principles, it was not difficult for us to adapt to safety requirements. Masks, disinfection – we have adhered to this regimen in non-quarantine times as well. Apart from that, I communicate closely with each enterprise. Every day we talk on the phone and discuss all current issues and strategic tasks.
For the quarantine period, we decided to develop and implement our own quarantine regulations, tightened the entrance to the enterprise, offered all partners and regulatory authorities to temporarily suspend any visits and audits, changed the algorithm for working with suppliers.
And if earlier every morning on my table I had the sales summary report, today I look primarily at the statistics of coronavirus and the health status of our employees. We carefully monitor employee testing so as not to endanger healthy members of our working team as well as isolate people who may be in contact with the sick in time.
We are trying to explain to our employees that working in the epidemiological danger mode is our new reality, which is likely to stay with us now forever. It is very important to learn how to live responsibly. And I think that now we are ready for such threats.
– Are there any cases of coronavirus at the enterprises of HD-group today? Many companies incur treatment costs from COVID-19 to their staff. What about your Holding?
– Of course, we are ready to help those who, God forbid, get sick. For these purposes, we created a socio-medical fund of 500 thousand UAH. Its purpose is to help sick employees. Unused funds will be used to fund the rehabilitation of our employees’ children.
Apart from that, all our employees have insurance. We made sure that the insurance company we are partnering with will cover all the costs if such payments are not provided by the government. Although, as we all know, the treatment of people infected with coronavirus is state-funded. We are ready to provide maximum support to our employees if the need arises.
– You are a producer of essential goods, namely, bakery products. Has the demand for your products changed with the announcement of quarantine?
– Indeed, bread is among the products for which demand is stable and usually increases in times of crisis. Since the beginning of quarantine, we have seen an increase in product sales, but today it has returned to the pre-quarantine level.
– Are there any state orders at your enterprises?
– We have not received any state order. But all enterprises work full-time, 24 hours a day.
– With the introduction of quarantine, many enterprises faced logistical difficulties and disruption of the supply chain. Have you also experienced those?
– There were no problems with logistics. Our procurement center works as efficiently as it did before. We have identified 20 key raw materials and packaging items. We are now increasing their regulatory inventory, signing contracts with suppliers to increase volumes of shipment and to create insurance stocks for us in their warehouses.
– Has the assortment changed? After all, as people have lost their jobs, purchasing capacity is declining.
Our assortment has remained practically unchanged. However, we started packing all the bread. Now almost all the produce is cut and packed. Surely, this has led to a significant increase in the cost of packaging material, but we try not to raise prices for products.
– At the same time, prices on wheat (the main ingredient for your products) have risen.
– Indeed, unlike in previous years, this year the price on wheat did not decrease in early April. We were extremely concerned about rising commodity prices amid growing demand for bread. At the moment the price of flour corresponds to the same period of 2014, and it should be increased. The mills and the government are agreeing on limiting the export of wheat as well as state subsidies to stabilize the market situation. This procedure has already had its effect: we see a slight decrease in prices. And if this trend continues, we will pass the quarantine period until a new crop without losses and without the need for raising product prices in the future.
Much worse is the situation with niche raw materials, such as rye. The prices for it are running high. Thus, rye bread has turned from a mass product into an elite one. We are acutely short of oats and, therefore, of oatmeal. We are trying to collect the remains of oats throughout the country as well as in the neighboring countries.
In general, I think that at the end of the year there will be a shortage of some crops and rising prices for them. Imported cereals will disappear, given currency rate fluctuations. Besides, many countries are limiting exports due to increased quarantine needs within states. So, such a rush demand, I believe, is not justified.
– What about the export of HD-group? How was it reformatted during quarantine?
– We continue to export. But these shipments are somewhat irregular due to the closure of the borders. But we have concluded several new contracts for the supply of flour to Europe and the Middle East. I hope that soon export will become regular again and our products, as essential goods, will be in demand all over the world. Amid the panic, people are afraid to starve. That is why I think that such an increased demand for food will last for some time.
Ukraine has to take this chance by simplifying exports as much as possible, of course, after properly analyzing the problems of VAT refunds to exporters.
I also believe in the prospects of frozen bread export – the requests for such a supply have become more frequent. And I strongly believe that we have every reason to be a global exporter of frozen bread as a value-added product.
– The prospect is quite attractive. But for this, you need to overcome the current situation. How to survive in a global pandemic and economic crisis?
– We are aware that a long quarantine will result in a prolonged downturn in economic activity and we all, following the wave of the global pandemic, may face the consequences of a global economic crisis. In these circumstances, it is difficult to say something new or share some unique experiences. Yet, we have focused on the following basic steps: cost reduction; customer retention; sales development; careful monitoring of the range; maintaining human capital and maintaining the confidence of our employees in tomorrow; decent financial support for those workers whom we may part with.
Any business, even the smallest and niche one, is a part of the global economic construct. It is impossible that only one segment of the business to be affected by a crisis. Therefore, it is important to negotiate with banks and landlords in times of crisis. All parties must be contractual. Only in this case, the Ukrainian economy will not fall like a card house.