Siberian Becomes Billionaire as Russians Reach for Cheap Snacks

(Bloomberg) -- Denis Shtengelov knows Russians like their junk food, especially when the economy is in the dumps.

Setting out to give the country’s 147 million citizens a fix for every sweet and savory snack craving -- typically for less than $1 -- has turned him into Russia’s newest billionaire.

His company, KDV Group LLC, has exploited Russia’s economic downturn and rampant inflation, as well as the country’s snack-food obsession, to challenge to market leaders Frito-Lay and Mondelez International Inc. 

“Shtengelov used the recession to expand and seriously strengthen his business,” said Artem Motorny, the managing partner of Moscow-based Walnut Capital, who in June advised on a deal that saw Shtengelov buy a confectionery plant in Ulyanovsk, southeast of Moscow. “Retailers are eager to earn additional margins on selling good quality, optimal-priced products in large volume. KDV gives them this.”

Shtengelov, 45, has a net worth valued by the Bloomberg Billionaires Index at just over $1 billion. He founded KDV in 1997 and expanded it into an operation that produces 350 snacks under 20 brand names -- including Yashkino, popular for traditional wafer biscuits and gingerbread, and BEERka, a range of dried fish and meat snacks that Russians enjoy with a pint.

Sales of these distinctly Russian delicacies more than doubled to 95 billion rubles ($1.6 billion) since 2013, just before oil prices collapsed, the U.S. and Europe imposed a swathe of sanctions on Russia and President Vladimir Putin retaliated with a food-import ban, now running into its fourth year.

Hard Times

Shtengelov, who declined to be interviewed, is among local businessmen who profited as the ruble’s 45 percent depreciation in the past four years drove up the cost of importing basic ingredients, particularly cocoa. Chocolate got so expensive that many Russians turned to pastries made from locally sourced flour instead, according to Elizaveta Nikitina, executive director of the Confectionery Market Research Center in Moscow.

He’s thrived on hard times from the beginning.

As a university grad after the collapse of the Soviet Union, Shtengelov supplied sunflower seeds to elderly women, or babushkas, in his native Siberia, who roasted and sold pouches of the popular snack known as semechki on street corners in Tomsk. He also ground the seeds into oil for bartering to confectioners who were so cash strapped they paid him with candies.

KDV’s business model does well in downturns because Shtengelov made a point to acquire businesses across the supply chain, from milk farms to factories producing chocolates, choux pastry and cookies. So even as inflation soared, peaking near 17 percent two years ago, KDV charges 24 percent less per kilogram of snacks than competitors, according to figures of market research company Nielsen Russia.

Cautious Consumers

“Denis is a super detailed person who understands his business in and out,” said Alexander Ageev, who used to do business with Shtengelov while working for a retail chain that sold KDV products in the Siberian region of Novosibirsk. “While other companies let their budgets go when margins were high, KDV was always tough about cutting costs.”

Based in the city of Tomsk in the western Siberian region where Shtengelov was born, KDV operates 11 processing plants that produce over 500,000 tons of snacks sold across Russia and exported to former Soviet republics including Belarus and Azerbaijan.

KDV was Russia’s second-largest snackseller last year, according to Euromonitor International, just behind Frito-Lay in savory snacks and Mondelez, maker of Oreo cookies and TUC crackers, in sweets. The rise led to a deal with Moscow-based UFG Asset Management, which bought a minority stake last year, although it declined to disclose the size.

Even now that Russia’s economy is recovering and consumer spending is on the rise, almost three out of every four Russians surveyed by Nielsen in the second quarter said they had cut spending compared with last year. More than half said they’d switched to cheaper brands.

“His company is doomed to succeed,” said Vadim Eliseev, another acquaintance of Shtengelov’s who part owns a small confectionery business in the Moscow region. “In three years, KDV could be the market leader.”

To contact the reporters on this story: Alex Sazonov in Moscow at asazonov@bloomberg.net, Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net.

To contact the editors responsible for this story: Robert LaFranco at rlafranco@bloomberg.net, Daliah Merzaban, Dan Reichl

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