Ben & Jerry's Bids a Bittersweet Farewell

Ben & Jerry's, the upscale American ice-cream maker that built a plant in Karelia five years ago, has decided to pull out of Russia less than six weeks after the expiration of a U.S. government grant it received in 1994.


Company officials say the timing has nothing to do with the end of the grant from the U.S. Agency for International Development. Instead, they say, the Vermont-based company decided it no longer could justify the management resources consumed by the operation.


In addition to spending more than $700,000 of the USAID grant money, the company said it posted losses of about half a million dollars on the venture in Karelia, a region in northwestern Russia bordering Finland.


Though Ben & Jerry's filed legal papers to pull out of its joint venture Feb. 5, the move has been in the works for several months, Bram Kleppner, manager of the company's Russian operations, said in a telephone interview from company headquarters in Vermont.


The decision was "absolutely independent" of the expiration of the USAID grant, he said.


The company had spent about $720,000 of the maximum of $850,000 it could have used in the grant program, he said. The grant was intended to facilitate transfer of Western technology and management methods to Russia.


A USAID spokesman said Wednesday that the Ben & Jerry's venture was among 11 American-Russian partnerships that received a total of $20 million in grants under an agribusiness partnership program.


The time period for the grant awarded to Ben & Jerry's joint venture, Iceverk, expired Dec. 30, the spokesman said, adding that USAID was satisfied that the company had met its obligations under the program.


"The goal of the partnerships is a transfer of management experience and technology to Russian companies," said the official, who asked not to be identified. "We are satisfied this has been accomplished because the Russian partner will continue to manufacture ice cream, but of a higher standard than they did before."


The company is abandoning the venture at a time when many foreign ice-cream manufacturers are investing heavily in local production facilities to keep on top of the Russian ice cream market, estimated at 350,000 tons a year. Last year Baskin-Robbins completed a $30 million factory outside Moscow. Mars and Nestle have also bought into local ice cream factories.


But Kleppner said those are much bigger companies than Ben and Jerry's. "It is not easy to run a business from 8,000 miles away, and a lot of time was being spent on management resources," he said Tuesday. "The business began to take up more and more time from the Vermont management."


Russia's complicated accounting and taxation systems posed other problems, he added.


As recently as early last year, the picture in Russia appeared brighter for Ben & Jerry's.


According to information from the company's World Wide Web page, Russia sales in 1995 were approximately $750,000 and 1996 was poised for "substantial growth."


Ben & Jerry's ice cream proved to be so popular in Petrozavodsk that it expanded distribution with franchised "scoop shops" in Moscow, Yaroslavl and Sochi.


The two Moscow "scoop shops" on Novy Arbat and Staraya Basmannaya Ulitsa closed recently.


Ben & Jerry's became interested in Russia in 1988 after a trip to the Soviet Union by founder Ben Cohen. It formed the Iceverk joint venture in 1988 and started production in 1992, according to the company's Web page.


"We didn't originally plan to make money in Russia; our operation there was meant to be a sign of friendship between Vermont and Karelia," the web site statement said.


Kleppner said the grant had not enabled the ice-cream manufacturer to cover any investments and losses in Russia.


He said much of the money was used to cover costs for projects Ben & Jerry's might not have been able to undertake otherwise, including additional training programs for Russian employees.


"Generally we feel we have accomplished our regional goal to set up an operation in Vermont's sister state of Karelia," said Fran Rathke, the company's chief financial officer. Relations with the Russian partner had remained "close" to the end, she said.


The company is donating its 70 percent stake in the joint venture to the city of Petrozavodsk, which currently holds 10 percent. The remaining 20 percent is owned by a local bank, Petrobank.


Reuters quoted Kleppner as saying the venture was worth between $100,000 and $150,000, "but our ownership had depreciated to zero on our books so we're not going to take a hit."


Though Kleppner said the exact amount initially invested in Russia was not known to him, he acknowledged it was "close to $500,000 in terms of overheads, executive time spent, etc.""We never quite repatriated the amount we put in," he said.


The Wall Street Journal earlier quoted Kleppner as saying that the operation began to flounder despite subsidies poured in by the company. Problems included ice-cream shipments that were allowed to melt and then refreeze before reaching their final destinations.


Sergei Gankov, a manager at Iceverk, refused to comment on the issue. He referred questions to Iceverk director Vasily Mikheyev, who was in Vermont and not available for comment.


A Petrozavodsk city official said the company's departure would have no significant local impact, and that the venture would continue to make ice cream, though not under the Ben & Jerry's trademark.


"It was a big event when the joint venture was inaugurated," said Deputy Mayor Yevgeny Arkadiev. "But now there are over 8,000 enterprises here, including a number of joint ventures, and the city has a share in many of them."


"The company's aim was never to establish the Ben & Jerry's name in Russia but to set up a top class ice-cream making facility in our sister state," said Kleppner. "It's our baby and we are still going to be around to help it keep going."