SNAPSHOT
The Manager: Tzvetan Lazhanski
The job: CEO of Devin AD, mineral and spring water bottling company.
The company: Devin is among the most popular and well-known Bulgarian brands. Devin AD was founded in 1992 as a limited liability company part-owned by the Municipality of Devin (near Smolyan, in southern Bulgaria). It became a joint stock company in 1999 with 100 per cent private capital. In 2006 it was purchased by Austrian investment fund Soravia Equity. Devin’s products include mineral water, spring water, carbonated and fruit-flavoured soft drinks, ice tea and energy drinks in plastic and glass packages.

“Today we have one extremely consolidated market with the top three brands having a market share of 80 per cent. Devin is number one with 32 per cent, followed by Gorna  Banya and Bankya (owned by Coca Cola) At the moment in terms of total litres of drinks sold we are if not the largest company in Bulgaria than at least equal to Coca-Cola, although their products are more expensive than ours.”

In a country of about 7.8 million people, companies offering products such as mineral and spring water have to be aggressive if they want to be successful. “It is a very competitive market, a very mature one in terms of strategies and tactics. In one word it’s a complicated market,” Lazhanski says.

His theory for the success of Devin, and the market as a whole, comes down to three factors. “The world trend is for the mineral water market to grow. In Bulgaria the standard of living has increased and people want to lead a healthy life. Add to this the fact that Bulgaria is a country where the bottled mineral water has the status of being a mass product. There isn’t a city or a village that does not sell bottled water in its shops.”

The third factor is the weather. “This year the hot summer weather was of key importance for the growth in bottled water consumption.”

Another important reason for the high consumption in Bulgaria is the poor state of the water supply network in many towns and villages. “We now have cities where the tap water is not good enough for drinking as oppose to Austria where the tap water is perfect for drinking. Even my mother who lives in Sofia buys filters for her water. This of course helps drive up the consumption of bottled water because it is a fact that bottled mineral water has a guaranteed quality.”

Devin has made its name as one of the most popular Bulgarian brands. Time and again one can see a Devin mineral or spring bottle on the TV screen or in newspaper photographs placed in front a high-ranked state official.

In 2006, Devin’s brand manager Milena Staykova was named Brand manager of 2006 by the Bulgarian Marketing Organisation and Euro RSCG Sofia.

“Devin has developed extremely well and today we all know where it stands on the market. Of course this did not happen overnight. It was not a result of some economic boom, but rather a result of aggressive sustainable development of the company,” Lazhanski says.

Proof of this was seen in Devin’s initial public offering (IPO) on the Bulgarian Stock Exchange this July. “For us this was the logical thing to do. We did not follow market trends. It was just part of the company’s development and a good way of raising and attracting capital.”

Devin is already using some of the money raised from the IPO to renovate its production units. “At the moment we are looking around for possible other producers of soda drinks in the region that we could buy. The bottom line is that we want to become the leading company in South East Europe in this business.” The company is progressing well in achieving this goal. Devin’s incomes for the third quarter of 2007 rose 75 per cent compared with the same period in 2006.

Lazhanski is a man who has had time to get to know his business well. “In 1996 I started working for the Bulgarian American Investment Fund (BAIF), after I had just graduated from Sofia University’s economic faculty. In 1998, BAIF bought shares in Devin and I was the Fund’s representative on Devin’s board.” It did not take long for the Devin’s owners to invite Lazhanski to stay with the company and as a result he joined Devin in 2000.

“In 2000 Devin was what I would describe as an emerging company. Back then, there were more than 40 brands, each of them fighting for market share.” Lazhanski felt he had the advantage as he knew the market of the company he had joined. “I knew the market because I had already been on Devin’s board of directors for two years and BAIF had supplied some of the funds for the future development of Devin.”

Competition is a word that you hear Lazhanski using a lot. Despite his seemingly cool view on the subject he leaves now doubt, however, that he knows his rivals well.

Surprisingly Lazhanski says that Coca Cola and its mineral water brand in Bulgaria, Bankya, is not very strong competition to Devin. “At the moment Bankya has an 11 per cent market share.”

Usually, in the soft drinks market, if Coca Cola is there then so is PepsiCo and it is also true in this case. Although PepsiCo has been in Bulgarian market since 1993 through soft drinks producer Agrima, Lazhanski sees this year as a turning point in Agrima’s attitude to the market.

The reason: this September, a joint venture of New York-listed Pepsi Americas and an unnamed partner bought a 99 per cent stake in Agrima with Pepsi Americas initially owning a 20 per cent share in the venture.

“I am sure that given this Agrima will develop as a more focused and aggressive company. I think that by the next summer they will be ready to take their share of the market.”

For Lazhanski, he sees Devin’s future in export growth. “Although at the moment the export of products is a small part of our business (about one per cent of the production volume) we intend to change this soon with the focus being on our neighbours Romania and Greece.”

Lazhanski does not hide that Bulgaria’s EU membership from January 1 this year has a lot to do with Devin’s expansion plans. “The fact that there are no borders between Bulgaria, Romania and Greece is very important for a company such as Devin. Of crucial importance was the lifting of excise duties on water imports because water is among the cheapest products available and even the smallest excise duty changes a lot in terms of the consumer price. Now we have nothing like this.”

Geographical location was another thing.

“With Bulgaria and Romania part of the EU for us there isn’t much of a difference whether we supply Rousse on the Danube or Bucharest.”

Lazhanski has done his homework. When he spoke to The Sofia Echo, he had just returned from a week spent in Romania assessing the market. “Our main Romanian competitors are based in the Carpathian mountains, which is about 250-400km from Bucharest, while Rousse is just 60km from Bucharest. So for us is not a problem to go 60km further and supply Bucharest.” Simple as that.

As for Greece the prospects are even better.

“It is the same with Greece. Devin is in the Rhodope mountains close to the Greek border. Now there is a direct road connection from Devin to Thessaloniki, via the Gotse Delchev border check point. The distance is about 140km, which is not a challenge for our trucks.”

It looks good on paper too. “We simply thought: Thessaloniki has a population of two million and Bucharest has about four million residents. This will double our market. And this is a potentially strong market because these are two rich cities.

“Our first priority is entering Romanian market.”

As for any potential “threats” of Romanian bottling companies entering Bulgarian market, Lazhanski has an easy answer. “The mineral water in Bulgaria is still about 30 per cent cheaper than the water in Romania and Greece so I do not think that any of their companies stand a real chance selling their products in Bulgaria. The current price is what the market will pay, it is what Bulgarians are willing to pay for a bottle of water. The price will change of course because of factor such as oil and electricity prices but we will still have the cheapest mineral water in Europe.”

Indeed with the mineral water being a natural resource, other than the cost of bottling the water, the only thing that can make the product expensive is the quality of the bottles.  Devin, was the first water bottleing company, that started using glass bottles for some of its products. “It is more expensive to offer glass bottles, as opposed to plastic ones, but as along as there is a demand for them we will supply them. Of course this product is aimed at a more luxury segment such as hotels and high-class venues. In Romania for example, where they have bottling companies that have been on the market for the past 100 years, the glass bottle is actually a mass product.”

Entering new markets, however, means one thing: a new distribution and supply network. In Devin’s case when it come to distribution the company has taken its own “personal” approach. “We work with about 40 suppliers and distributors. Most of them have been with us for the past 10 years so we both know each other very well. We actually consider them as partners who have helped build Devin through the years. We simply rely on each other.” To make this business connection stronger Devin has developed a unique relationship with its distributors. “We provide them with training, we have signed frame agreements with banks to provide funding to our partners under conditions used by Devin.” Devin has similar contracts with leasing companies. “We like to take care of our partners. Even when it comes to developing a new market strategy we like to discuss it with them, because we consider them part of the company.”

In terms of what Devin has planned for Bulgarian market, Lazhanski is very enthusiastic. “The energy drinks market has a great potential here.”

In this case Devin has sided with the best. “We are the official distributor of Red Bull for Bulgaria.” This was why Devin was not considering taking on the distribution of any other energy drink because “once you have Red Bull in your portfolio you don’t need to bother with someone else”.

Natural fruit juices are another possibility. A while ago the Bulgarian-language media said that Devin was considering entering the fruit juice market. “What we actually intended back then was to acquire control of the natural juice producer BBB. The deal did not happen because BBB decided back out of it, but we have not given up the idea of adding a juice company to our portfolio.”

Of course there is always the possibility of being the distributor of a major world brand for Bulgaria. Agrima already distributes the Prisun juices and nectars under a licence from Israel’s Prigat International.

In the 21st century recycling has become a vital part of our culture. Devin is the founder of Ecopack, the  first and biggest company for separate refuse collection in Bulgaria. Until three months ago Lazhanski was executive director of Ecopack. “This was some pro-bono work and it shows that we are not there for the money but to develop the process of separate refuse collection in the country.” Ecopack is already working with about 80 municipalities and the process of developing a system for separate refuse collection is on its way. “Of course the creation of this kind of system takes between 10 to 15 years and we are only at the beginning of this process.

“Frankly it has a lot to do with people’s perceptions. We have municipalities where we have literary filled the place with bins for separate refuse collection and people still prefer not to use them. We cannot change this in a day.”