Ukrainian company able to adapt to tough times and keep going

WAR IN EUROPE

Kormotech employs 1,300 people, some of whom had to be evacuated from the eastern part of Ukraine. After the Russian invasion, officials went to work adapting a new plan. MACIEK NABRDALIK — THE NEW YORK TIMES

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By Patricia Cohen

The New York Times

LVIV, Ukraine >> It was exactly a year ago, and Ukrainian pet food maker Kormotech had concluded its annual meeting. The mood was buoyant. Business was booming, the factory was running 24/7, and sales were projected to grow by double digits. “We had a beautiful budget,” Rostyslav Vovk, the company’s founder and CEO, recalled almost dreamily.

The next morning, air sirens sounded.

Russia had invaded. Vovk called his top managers to meet at a nearby hotel, avoiding the company’s windowed seventh-floor headquarters in Lviv. They had a plan for what had been considered a very unlikely risk — Russian aggression — but it soon proved wholly inadequate.

“We were not ready,” Vovk said. He closed the plant. Raw materials couldn’t get into the country, and deliveries headed abroad couldn’t get out. Staff from the besieged eastern part of the country needed to be evacuated. Employees were joining the military. And the company’s biggest export market, Belarus, was a close ally of Russian President Vladimir Putin.

“We would make decisions,” Vovk said of that first week after the invasion, “and then the next morning, we would change all the information.”

Like leaders at tens of thousands of companies throughout Ukraine, Vovk and his team were suddenly confronted with a new and bewildering responsibility: keeping a business going through the chaos and danger of war.

For many, the task has 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, head of the International Finance Corp. in Ukraine. She said that 83% of businesses experienced losses related to the war. Forty percent suffered direct damage, such as a factory or store decimated by a missile, and 25% were in what is now occupied territory.

Last year, Ukraine’s overall output plunged by nearly one-third, wrecking the country’s economy and hampering its ability to battle Russian forces.

Kormotech, a family-owned business with 1,300 employees worldwide, does not produce weapons or drones. It isn’t involved in supplying critically needed electricity, transport or fresh water to ravaged cities. But it employs people, produces income, earns foreign currency from exports, and contributes tax revenue that the government in Kyiv desperately needs to pay soldiers, repair power lines and buy medical equipment.

A year later, Vovk and his management team have found reason to again celebrate. Vovk was back in his offices getting ready for the latest annual meeting with his staff — and some of their dogs, which are fixtures around the office and often serve as product taste testers. Despite the odds, business grew more than expected.

Kormotech had a few things going for it. The company’s plant was outside Lviv in the westernmost part of the country, near the Polish border, one of the safest parts of Ukraine. The two factories in Prylbychi were able to reopen less than two weeks after the war began.

An earlier decision to start an additional factory in Lithuania, which opened in 2020 and was operating around the clock, turned out to be a boon. It could continue smoothly producing and delivering tons of Kormotech’s Club 4 Paws, Optimeal, Miau and Gav brands.

After a helter-skelter start, Vovk and his top managers reorganized. The company, which sells its products in 35 countries including the United States and Europe, had a little wiggle room because they had avoided just-in-time practices that eliminated backup inventory — a cost-cutting approach that had stymied so many companies worldwide during the pandemic. Kormotech routinely kept stock in its warehouses — at least a month and a half’s worth in Ukraine, two months in other countries in Europe and 2 1/2 in the United States.

Still, Kormotech’s supply chain was disrupted. Before the war, roughly half its raw materials, like meat and chicken meal, came from abroad. Now border crossing delays and rising import prices had prompted a search for domestic producers. It found two that had never produced pet meal before and taught them what to do.

As it turned out, the local producers were not only cheaper but also didn’t have to be paid in precious foreign currency. Instead of buying 500 tons of meal from abroad, the company now buys 100 tons.

Kormotech stepped up its purchase of Ukrainian grains and corn as well. The war and Russian blockade caused a drastic drop in grain exports, spiraling food prices and a global hunger crisis. But it also meant that domestic businesses like Kormotech could buy at a discount.

Supermarket chains were eager to step in and replace Russian-made goods with Ukrainian ones.

The enormous growth in both the European and U.S. markets means that the company’s sales are expected to increase to $155 million this year from $124 million. The main obstacle to expanding even more is capacity.