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. Last Updated: 07/27/2016

Rossiya Opens $8M Nesquik Line

SAMARA, Southern Russia -- When Nestl? bought a majority stake in the Samara-based Rossiya chocolate factory in 1995, the factory's general director Alexei Kholmyakov sighed and said, "Well, we've just sold Russia - only this time it's only chocolate."

But those fears appeared to have been laid to rest Tuesday when regional and company officials launched with great fanfare an $8 million line to produce Nesquik chocolate drink at the Rossiya factory.

"Rossiya's success can be seen as a school for cooperation with foreign investors," Samara regional Governor Konstantin Titov said after cutting the ribbon to open the new line equipped with German technology.

The line can produce up to 3 tons of Nesquik powder an hour.

Nestl?, which has sunk some $100 million into its Russian operations, runs a total of six factories in Russia. After buying a majority stake in the Rossiya plant in 1995, the Swiss food giant has helped the factory gain a competitive edge by boosting flagging sales and gradually phasing out Soviet-era technology.

Opening the Nesquik line is part of Nestl?'s drive to drastically cut costs and reduce its reliance on more expensive imports in the face of falling post-crisis sales, said Andreas Schlaepfer, Nestl?'s managing director for Russia. "Before the August crisis, Nestl? sales recorded double-digit growth. We had confidence this would be sustained until the crisis struck," he said. "The crisis eliminated all these important volume gains."

He declined to provide figures.

Russia's economy was thrown into turmoil last summer when the government devalued the ruble and defaulted on some domestic debt.

Nestl? sprang into action by launching a major cost reduction drive, substituting imported goods by upping production in its Russian factories.

"A key conclusion from the crisis is that it validated Nestl?'s strategy of embarking on local production soon after it entered the market. It made us less dependent on the vagaries of the exchange rate," Schlaepfer said.

Nestl?'s clampdown on costs coincided with the high profile launch of the Rossiya chocolate brand in Moscow in September last year. Although Schlaepfer says Rossiya chocolate's market share has since rocketed, it is not clear whether sales are at sufficient volumes to start recouping Nestl?'s crisis losses. The Rossiya chocolate bar held a 12.3 percent share of the market in January and February 1998, according to market research figures provided by Nestl? from a survey conducted in 20 major cities. Figures for March and April show that share soared to 23.2 percent. Rival Krasny Oktyabr has 10.6 percent.