It was exactly one year ago, and the Ukrainian pet food manufacturer Kormotech had wrapped up its annual meeting. The mood was upbeat. 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 CEO and founder, recalled almost dreamily.
The next morning, the air sirens sounded.
Russia had invaded. Vovk called his top managers to meet at a nearby hotel, avoiding the windows of the company’s seventh-floor headquarters in Lviv. They had a plan for what had been considered a highly unlikely risk, Russian aggression, but it soon proved totally inadequate.
“We weren’t ready,” Vovk said. He closed the plant. Raw materials could not enter the country and foreign-bound deliveries could not leave. Personnel from the besieged eastern part of the country needed to be evacuated. Employees joined the army. And the company’s biggest export market, Belarus, was a close ally of Vladimir V. Putin, the Russian president.
“We would make decisions,” Vovk said of the first week after the invasion, “and then the next morning we would change all the information.”
Like the leaders of tens of thousands of companies across Ukraine, Mr. Vovk and his team were suddenly faced with a bewildering new 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 agriculture industries, accounted for 70 percent of the country’s gross domestic product, said Elena Voloshina, director of the International Finance Corporation in Ukraine. Eighty-three percent of businesses experienced war-related losses, she said. Forty percent suffered direct damage, such as a factory or store decimated by a missile, while 25 percent were in what is now occupied territory.
Last year, Ukraine’s total output plummeted 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 providing critically needed electricity, transportation or fresh water in devastated cities. But it employs people, produces income, earns hard currency from exports and brings desperately needed tax revenue to the Kiev government to pay soldiers, repair power lines and buy medical equipment.
One year later, Mr. Vovk and his management team have found reason to celebrate again. Mr. Vovk was back in his office preparing for the last annual meeting with his staff, and some of his dogs, who are a fixture in the office and often serve as product testers. Despite the odds, the business grew more than expected.
Kormotech had a few things going for it. The company’s plant 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 factories in Prylbychi were able to reopen less than two weeks after the war started.
An earlier decision to open an additional factory in Lithuania, which opened in 2020 and ran around the clock, turned out to be a boon. It could seamlessly continue to produce and deliver tons of Kormotech’s Club 4 Paws, Optimeal, Meow and Gav brands.
After a bumpy start, Vovk and his top managers reorganized. The company, which sells its products in 35 countries, including the United States and Europe, had little leeway because it had avoided just-in-time practices that eliminated backing inventory, a cost-cutting approach that had stymied so many companies. around the world during the pandemic Kormotech routinely kept stocks in its warehouses: at least a month and a half in Ukraine, two months in other countries in Europe, and two and a half months in the United States.
Still, Kormotech’s supply chain was disrupted. Before the war, about half of its raw materials, such as chicken meat and meal, came from abroad. Now, border crossing delays and rising import prices had prompted the search for domestic producers. He found two that had never produced pet food before and taught them what to do.
Kateryna Kovaliuk, Kormotech’s director of reputation, emphasized that pet food standards can often be more demanding than food produced for people. During a recent tour of the Lviv plant, she picked up some kibble-sized pieces cut from long, stringy strands of cat food fresh off the production line.
“Try it,” she urged, before popping a couple of pieces into her mouth and smiling. “He is good. He tastes like meat without salt.”
As it turned out, local growers, less than 40 miles from the plant, were not only cheaper, but also didn’t have to pay in valuable foreign currency. Instead of buying 500 tons of flour from abroad, the company now buys 100 tons.
Kormotech also stepped up its purchase of Ukrainian grains and corn. The war and the Russian blockade caused a drastic drop in grain exports, a dizzying rise in food prices and a global hunger crisis. But it also meant that national companies like Kormotech could buy at a discount.
Manufacturing the product was an obstacle; getting it delivered abroad was another. At a time when Ukraine has banned men under the age of 60 from leaving the country, the Ministry of Commerce has granted exemptions to delivery men.
But the wait at the borders could extend from a few days to a few weeks. And with most seaports blocked, exporting remained a costly and complicated problem.
“No one 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 approximately $2,000.
Domestic demand for its products remained stable, but finding new export markets was another challenge. Belarus, which has allowed Russia to carry out attacks from inside its border, accounted for 25 percent of Kormotech’s export market. The management team decided to pull out but needed to replace those clients.
Supermarket chains, particularly in the Baltics and Poland, were eager to step in and replace Russian-made products with Ukrainian products.
“For the first time in my life, ‘Made in Ukraine’ was an award,” Mr. Vovk said. Previously, when the company appeared at international pet-supply shows, he said with a laugh that people weren’t so familiar with the country’s products that they asked if the letters “u” and “k” referred to “United Kingdom,” for the United States. Kingdom.
Even so, the goodwill extended only so far. Buyers wanted assurances that Kormotech’s products would continue to flow. So the company provided guarantees, set up a warehouse in Poland with back-up stocks of its 650 different products, outsourced some production to facilities in Germany and Poland, and drew up last resort plans to move production out of Ukraine.
Huge growth in both the European and US markets means the company’s sales are expected to rise from $124 million to $155 million this year. The main obstacle to expanding further is capacity.
Kormotech scrapped plans for a new €92 million factory due to uncertainty and difficulty getting financing. But it invested 5 million euros (5.34 million dollars) in the Prylbychi plant and 7 million euros (7.5 million dollars) in Lithuania.
Of course, many companies have not been as successful as Kormotech, either because their facilities were damaged or because demand for their products fell as people fled the country, as well as because of ravenous inflation and reduced incomes. Vovk said the exodus of millions of mothers and children had left a friend’s diaper-making business in shambles.
A new report from the American Chamber of Commerce in Ukraine and McKinsey & Company found that only 15 percent of businesses grew last year, while nearly half saw sales decline.
Others have adapted by relocating to places like Lviv, or changing their production to meet new wartime demands, like lingerie seamstresses who have switched to sewing cloth vests to fit body armor plates. Ukraine’s large and mobile information technology sector has also remained strong.
Businesses are still struggling to adapt. Russian attacks on Ukraine’s power grids forced Kormotech to buy two generators at 150,000 euros each, oversized versions of the colorful little units that hum noisily outside almost every shop and cafe on Lviv’s streets.
Now the Russians are stepping up missile attacks. On a recent weekday, air-raid alerts caused 200 plant workers to spend more than half their 12-hour shift in a tunnel-like storage area about three steps wide that doubles as a shelter. antiaircraft.
Viza Protsyk, who would normally be packing boxes, sat on one of the wooden benches that lined the 100-foot-long wall. “It’s kind of boring,” she said of the forced breaks. This was the second alert of the day. “I didn’t want to go to the shelter. I prefer to work.
Yurii Shyvala contributed to this reporting.
