Mr. Cohen, who are your customers? Do you deal mostly with individuals, or do you have big companies among your clients as well?
We operate across different segments. The majority of our products are sold to individuals. We use all channels to advertise our products to people, including the Internet. But we work with commercial enterprises as well. We primarily sell them High-efficiency floor-standing boilers. This kind of equipment is usually installed on the roof of a building because that takes up a lot less space and eliminates the need to construct separate boiler rooms. This segment is very important for us, especially considering that it is rapidly developing in Russia.
When I talk about progress in these segments, I am talking about general trends, not 2015-2016 specifically, which has been a difficult time for almost everybody on the Russian market. And the trend is that the market in Russia, although not mature, is growing and evolving. It is going through a challenging time right now, but we think that the Russian market has potential both in terms of working with individual clients and cooperating with commercial enterprises.
Why did Ariston decide to enter the Russian market? How did this idea come about?
Ariston came to Russia in the mid-1990s, specifically in 1995. This was a time when a lot of European companies were looking to enter the Russian market. We were no exception. We opened a representative office in the RF and initially stuck to a very typical model: we looked at how existing distributors were operating when importing European products. It became obvious that the Russian market was of interest to us. We then decided to open an Ariston sales office in Russia and enter the structures of our main distributors, which is what happened in 2002-2003.
The next important step was opening our own Ariston factory in 2005. The factory, which manufactured electric water heaters, was located in Vsevolozhsk – one of the industrial centers of St. Petersburg region, located 28 kilometers outside of St. Petersburg. By that time, it was even more obvious that the Russian market has a lot of potential and that geographical proximity to the end user was important.
You entered the Russian market in the 1990s, which was a wild time in Russia – the social status of the country’s population changed radically, unemployment grew, companies withheld pay, store shelves were often empty, there was a serious jump in criminal activity in Russia…a brave decision. Were you afraid this would be a risky move?
As they say in Russia, those who don’t take risks don’t get to drink champagne. The beginning of the 1990s was a truly challenging time, but by 1994-1995 things were better. Not everything was running smoothly, but things were a lot more stable. This is why a lot of companies, including Ariston, established themselves here around this time period. There were challenges, but it’s worth noting that almost all of the distributors we worked with at the time turned out to be reliable and responsible partners. They researched the product that would be offered, how the market would react, and ways to get the needed results. At first there were relatively small companies that operated as heating systems distributors, but, as they worked with us, they started to grow and develop themselves. It’s also important that the consumers themselves were able to develop an understanding of what an Ariston water heater is and what its advantages are. Everything was happening at the same time, so that was an interesting period.
Times change and, unfortunately, not always for the best. A lot of foreign businessmen today talk about new risks and are either exiting the market or a temporarily holding off on projects. What about Ariston?
I’m not so sure that a lot of companies are doing this. In my opinion, the number of companies that think Russia has become a dangerous place and it’s best to leave the market is not that huge. It is obvious that every market has its ups and downs. The climate right now is truly challenging: there is a crisis and people have less money – this is an undeniable fact. But I wouldn’t say that doing and managing business in Russia has become more risky. Ariston, for example, continues to operate like we always have. Our plant in St. Petersburg is doing great – it’s one of the most successful enterprises in our group. In short, we don’t have more problems today than we used to. Of course, we can’t completely discount the effects of the crisis. But we are convinced that the situation will straighten out in 2-3 years and that the Russian market will start growing again. Our partners agree. There is a lot of potential here.
What about the EU sanctions against Russia? What effects have they had on Ariston’s business in the RF?
The equipment we manufacture is blatantly for civilian use, so of course there is no direct effect from the sanctions. But, of course, there has been an indirect impact, as the financial sanctions have affected the economic sector, and the population’s paying capacity. I want to believe that things will stabilize in the near future and that the sanctions will be lifted. Either way, Ariston will continue to operate under these new conditions as well. Our equipment is in demand. Of course, one can delay purchasing a water heater for a while, but not forever. Right now customers are opting for cheaper equipment, but they also pay close attention to the price-quality ratio. We think that the equipment we offer is of very high quality.
In the meantime, Russia has decided to focus on import substitution. Is Ariston in any way concerned about this development?
When it comes to water heaters, we already have our own plant in Russia. The Ariston plant in Vsevolozhsk is an advanced enterprise that manufactures about 600,000 round and flat electric water heaters every year. This is our advantage. Of course we are trying to localize our production more, to manufacture more in Russia. And this isn’t just because of the present focus on import substitution: it’s good for the company in any case.
This isn’t the case with gas boilers. They are manufactured with the use of complex technology that requires a lot of investment. This is why we import the boilers. Ariston manufactures them outside of the RF. This won’t necessarily always be the case: we are always looking into opportunities and options for manufacturing equipment in Russia.
Does your plant outside of St. Petersburg use parts made in Russia, or do you import parts from Italy?
We use both. There are some parts that we unfortunately cannot purchase or manufacture in Russia. We import the electronic boards, for example. We need quality that would meet the requirements of the company and, of course, the consumer as well.
There is no doubt that Ariston’s equipment meets top quality requirements, but all equipment eventually needs to be serviced or repaired. How is your company doing in this respect?
Selling goods is the first task, but it is no less important to make sure that the equipment works. This is why Ariston has over 400 service centers in Russia. They are based out of partner enterprises that we have signed contracts with and are active all over the country. They carry out service work when necessary. Thus, Ariston covers the entirety of Russia in terms of both sales and service. We also have a network of warehouses for space parts. Obviously, if a boiler malfunctions in the middle of winter, when it’s -30 degrees outside, the part has to be replaced immediately.
You have been in Moscow for 20 years and have a lot of experience. What do you think of how the capital is developing?
With incredible speed. If you compare it with what was happening in Moscow two decades ago, it is day and night. There are a lot of new buildings and more cars, which is good for drivers, but the traffic jams are sometimes incomprehensible. The good thing for our company is that the distribution of Ariston equipment is advancing rapidly.
Note from Capital Ideas:
The name “Ariston” comes from the Greek “Aristos,” which means “the best” or “noble.” These words definitely describe the Italian company, which sells equipment in over 150 countries, including in Russia. Ariston is one of the global leaders in the manufacture of Water heaters and heating equipment, from compact Electric water heaters for domestic use to gas boilers and innovative soar heating systems. The company has over 20 manufacturing centers in 12 countries (including Russia), which speaks to Ariston’s success.
Aristide Merlone, the Italian who established a company for the manufacture of scales back in the 1930s, was the company’s founding father. The family business developed over time, and in the 1960s a company called Indesit, with the brand Ariston, was established to sell big home appliances. Later, the business was split up and a separate enterprise was established for the manufacture of heating equipment. About a year ago, Indesit was sold to US-based Whirlpool. Ariston is now a brand that belongs to Ariston Thermo Group.
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