This is how a Ukrainian business survived and thrived through a year of war

Exactly a year ago, the Ukrainian pet food manufacturer Kormotech their annual meeting was over. Mood he was optimistic. business was booming, the factory was operating 24/7 and sales were expected to grow by double digits. “We had a nice budget,” recalls Rostyslav Vovk, founder and CEO of the almost egocentric company.

The next morning, the air raid sirens sounded.

Russia invaded. Vovk called its top executives to meet at a nearby hotel to avoid traveling to the company’s window-filled seventh-floor headquarters in Lviv. They had a plan for what had been considered a highly unlikely risk, Russian aggression, but they soon realized it was totally inadequate.

“We weren’t ready,” Vovk said. The factory has closed. Raw materials could not enter the country and deliveries to foreign countries could not leave. Personnel from the beleaguered eastern part of the country had to be evacuated. Employees joined the army. And the company’s biggest export market, Belarus, was a close ally of Russian President Vladimir Putin..

“We were making decisions,” Vovk said of the first week after the invasion, “then the next morning we change all the information.”

Like the leaders of tens of thousands of businesses across Ukraine, Vovk and his team were suddenly faced with a baffling new responsibility: keep a business afloat amidst the chaos and danger of war.

For many, the task proved impossible. Before the war, Ukraine’s private sector, including its huge steel and agricultural industries, accounted for 70% of the country’s gross domestic product, said Elena Voloshina, director of the International Finance Corporation in Ukraine. She said that 83% of businesses suffered war-related losses. 40% suffered direct damagelike a factory or store decimated by a missile, and 25% of the facilities are in what is now occupied territory.

Last year, Ukraine’s total production fell by almost a third, ruining the country’s economy and hampering its ability to fight Russian forces.

Kormotech, a family business with 1,300 employees worldwide, does not produce weapons or drones. It is not involved in the provision of electricity, transport or fresh water which the devastated cities urgently need. But it employs people, generates income, earns hard currency from exports and brings desperately needed tax revenue to the Kyiv government to pay soldiers, repair power lines and buy medical equipment.

A year later, Vovk and its management team have reason to celebrate again. Vovk returned to his offices and was preparing for the last annual meeting with his staff and with some of his dogs who are often in the office and often serve as product taste testers. Despite the obstacles, the business grew more than expected.

Kormotech had a few advantages. The company’s factory was on the outskirts of Lviv, in the westernmost part of the country, near the border with Poland, one of the safest areas in Ukraine. The two Prylbychi factories were able to reopen less than two weeks after the start of the war.

A prior decision to establish a additional factory in Lithuania, which opened in 2020 and was open 24 hours a day, proved to be a godsend. This facility was able to continue production and delivery of tons of Kormotech’s Club 4 Paws, Optimeal, Meow and Gav brands without issue.

After a rocky start, Vovk and its top executives reorganized. The company, which sells its products in 35 countries, including the United States and Europe, had little leeway because had avoided the “just in time” method which eliminated support inventory, a cost-cutting approach that has stalled many businesses around the world during the pandemic. It was common for Kormotech to keep stock in its warehouses: at least a month and a half in Ukraine, two months in other European countries and two and a half months in the United States.

However, Kormotech’s supply chain was disrupted. Before the war, about half of its raw materials, such as meat and chicken meal, came from abroad. Now delays at border crossings and rising import prices had prompted a search for domestic producers. The company found two who had never produced pet food before and taught them what to do.

It turned out that local producers, who were less than 40 miles from the factory, were not only cheaper, but also didn’t have to pay them in precious foreign currency.. Instead of buying 500 tons of flour abroad, the company now buys 100 tons.

Kormotech has also increased its purchases of Ukrainian cereals and corn. The war and the Russian blockade caused a drastic drop in grain exports, a dizzying rise in food prices and a hunger crisis in the world. But it also meant domestic companies like Kormotech could buy in at a discount.

The manufacturing of the product was an obstacle; getting delivered abroad was another. At a time when Ukraine banned men under the age of 60 from leaving the country, the Ministry of Commerce granted exemptions for delivery people.

But the wait at the borders could extend from a few days to a few weeks. AND, with most seaports blocked, export remained a costly and complicated problem.

“Nobody knew where to go or how,” Vovk said. The first truck shipped to Azerbaijan, he said, cost more than $8,000; before the war it cost about $2,000.

Domestic demand for the company’s products remained stable, but finding new export markets was another challenge. Belarus, which allowed Russia to carry out attacks from within its border, accounted for 25% of Kormotech’s export market. The management team decided to withdraw, but had to replace these customers.

Supermarket chains, especially in the Baltics and Poland, were eager to step in and replace Russian-made products with Ukrainian ones.

“For the first time in my life, “Made in Ukraine” meant top qualitysaid Vovk. Back when the company appeared at international pet supply shows, he laughed, people knew so little about the country’s products that they asked if the letters ” u” and “r” referred to “United Kingdom”.

However, goodwill has its limits. Buyers wanted assurances that Kormotech’s products would continue to circulate. So the company provided warranties, set up a warehouse in Poland with reserve stocks of its 650 products, outsourced some production to facilities in Germany and Poland, and made ultimate plans to move production out of Ukraine.

Huge growth in the European and US markets means the company’s sales are expected to rise from $124 million to $155 million this year. The main barrier to expansion is capacity.

© The New York Times 2023