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. Last Updated: 07/27/2016

Patriotic Pitch Reaps Sweet Rewards for Nestle

SAMARA, Southern Russia -- The chocolate wrappers tout the patriotic brand name "Rossiya" embossed on a red onion dome.

The lavish advertisements tap nostalgia for the days of tsarist Russia and the lives of Russia's literary heroes.

The products are described as "classic Russian chocolate."

But the marketing and packaging strategy masks the fact that one of Russia's biggest selling chocolate bars is produced and marketed by Swiss food giant Nestl?.

The patriotic appeal, however, appears to be paying sweet rewards.

Rossiya has cornered a staggering 23.2 percent of the chocolate bar market - almost double its 12.3 percent share of January 1998, according Andreas Schlaepfer, Nestl?'s managing director for Russia.

Not bad for a brand name that had fallen by the wayside.

In the years following the collapse of the Soviet Union, sales of Rossiya bars plummeted as the Samara-based Rossiya chocolate factory where they were produced fell onto hard times.

A turnabout came in 1995 when Nestl? bought a majority stake in the factory Rossiya and initiated an investment program that saw the production lines modernized and output raised toward levels not seen for years.

In buying into the factory Nestl? not only gained a ready-made household name, but the Swiss giant also got access to authentic Russian chocolate recipes and the infrastructure required to embark on local production, lowering costs and avoiding the exchange-rate risks of importing.

A flip-flop in sentiment away from imported chocolate to domestically produced candy in recent years gave Nestl? the chance to exploit its new acquisition.

In September last year, Nestl? mounted a massive advertising campaign for Rossiya chocolate that uses imagery to appeal to Russians' sense of patriotism.

"We wanted to create the idea of authentic Russian chocolate through the imagery we used. There was no need to use Nestl?'s name and there was nothing to stop us using the Rossiya brand name when it already existed," Schlaepfer said.

"After all, if you were a Japanese manufacturer making Swiss fondues in Switzerland, you wouldn't use your Japanese name," he added.

Nestl? account manager Irina Suvarina at Adventa ad agency agreed: "We chose to concentrate on patriotic imagery because it was a Russian product and Russian consumers have always considered domestically produced chocolate to be of higher quality."

Officials declined to say how much had been spent on the advertising drive that blanketed media from television to outdoor venues. Ad experts put the figure spent to date at about $10 million.

However, the success of Nestl?'s heavy reliance on exploiting national imagery can be seen in a comparison of market share figures for the Nestl? and the Rossiya brands.

Nestl? Classic chocolate bars have a market share of just 4.8 percent, according to figures provided by Nestl?. Although this figure is way up on the 1.4 percent the brand held in January 1998, it still lies far behind the 23.2 percent share cornered by Rossiya.

Pricing, however, does play a role in the relative success of the Rossiya brand. A large bar of Nestl? Classic retails at 14 to 17 rubles, while a Rossiya bar of the same size averages at around 13 to 15 rubles.

Nestl? refused to give sales figures.

Embarking on local production with the Rossiya factory has also allowed Rossiya to tinker with Russian chocolate recipes to manufacture cheaper, more economic products - a move that is gradually bending the traditional taste of Russian chocolate.

In the wake of plummeting sales following the August crisis last year, this strategy appeared to make even more sense.

Nestl? has upped the sugar content in Rossiya chocolate to cut down on the use of expensive cocoa products and at the same time changing the traditional cocoa-rich taste of what had been regarded as authentic Russian chocolate.

"Rossiya now produces chocolate with 30 to 40 percent lower cocoa content," said Alexei Kholmyakov, the managing director of the chocolate factory.

Chocolate makers in Soviet times used to manufacture chocolate with cocoa contents of as much as 90 percent. Chocolate producers in the 1970s were rewarded by the authorities for using as much cocoa as possible as part of a Soviet policy of helping out ideological brothers in Africa. Even if world cocoa prices soared, the price of cocoa-rich Russian chocolate stayed at a steady knockdown price, said Viktor Sharpashin, the president of the Russian Association of Confectionary Industry Enterprises.

But Nestl? for now appears to be employing a winning strategy, despite its cavalier attitude to Russian chocolate tastes.

"Local production gave us a competitive edge over other Western brands. It gave us a very versatile infrastructure that helped us adapt very quickly to new market requirements and consumer preferences," Schlaepfer said.