Each time an air raid siren sounds over the western Ukrainian region of Lviv, Nestle’s production lines come to a halt. While staff decamp to the bomb shelter, often for two hours or more, rows of chocolate-covered Nesquik wafers sit out in the open. By the time it’s safe to come out, the candy bars are no longer fresh and will need to be crushed and recycled as wafer filling. Further up the production line, unused wafer dough will have started to ferment, and must simply be tossed.

Whenever these raids happen, usually about twice a week, all 250 employees race to the three basement shelters for cover. Once there, nerves set in, says Iryna Popova, who is head of the chocolate subdivision. “If you’re here in the factory, you are safe because we have shelters and it’s okay. But then you start to think about your family, your relatives, and you don’t know where they are,” she says. “Psychologically and emotionally, it’s very difficult.”

In the second year after Russia’s full-scale invasion, companies in Ukraine must contend with power cuts and air raids, declining consumer demand, and staffing shortages as workers join the fight or flee the country. For multinationals like Nestle, which also runs large operations in Russia, the challenges are compounded. Bloomberg traveled to Nestle’s sites in western Ukraine and talked to around a dozen staff members about their experience of the war and how the company has adapted to uncertain times.

Nestle has been making chocolate products in Ukraine since 1998 when it acquired the Lviv factory as part of its usual emerging market approach – buying regional heritage brands, tweaking recipes, and starting to produce international products. Since then, it has expanded its footprint to include two more factories and a business services center and employs about 5,500 people domestically. While Nestle’s entire Ukrainian business makes up only a fraction of the company’s total operations, that’s set to expand. In a signal of confidence about the country’s future, the company is investing 40 million Swiss francs ($44 million) in a fourth factory in the Volyn region, just under an hour’s drive from the border of Poland.

Alessandro Zanelli, Kyiv-based head of the South and Eastern Europe market, expects Nestle’s sales volumes in Ukraine to rise 8% to 10% this year, after a 15% decline last year due to people leaving and the country’s territorial losses. But, he’s careful to add, that keeping the business afloat is only one priority, alongside making sure staff stay safe.

When Bloomberg visited in October, the west and central parts of the country were mostly quiet. But with winter approaching and the world’s attention diverted to Israel, Ukrainians fear a repeat of last year: an escalation of attacks designed to overwhelm defense systems and knock out key infrastructure like heating, electricity, and water. Should that be the plan, there’s little anyone can do to prepare other than buy generators and stock up on fuel. While multinationals are not specifically targeted, the unexpected does happen, and collateral damage is always a risk: In September, a PepsiCo factory near Kyiv was damaged by fragments after a Russian missile was shot out of the sky.

At a site closer to the front lines, Nestle has taken extra precautions. In Kharkiv, which is close enough to the Russian border to be within reach of artillery fire, bombardment shut down a Nestle noodles and seasonings factory for about ten months. To ensure it could safely go back online, the company spent $3 million to build overground capsule shelters that workers can get to within 10 seconds, Zanelli said. Around 650 of the factory’s employees now spend between two and three hours a day there waiting for the sirens to stop.

Beyond the threat of missiles and rockets, war has brought about other unusual “health and safety” challenges. When Nestle bought a sophisticated coffee-packing robot, the Italian manufacturer refused to travel to Ukraine to install it. Instead, they used smart glasses to guide Lviv workers through the process themselves. Raw material suppliers have refused to ship ingredients such as spices for sauces, and imports like packaging foil have gotten more expensive as trucks have been backed up for days on Ukraine’s western border.

The greatest challenge, however, has been navigating the emotional and psychological fallout of a conflict that has already killed nearly 10,000 civilians, according to UN figures, with unofficial estimates putting the numbers far higher. Workers and their relatives have been called up to fight, lives have been overturned, and like many of their fellow Ukrainians, Nestle staff have suffered huge personal losses.

As the supervisor of 120 people, Popova received special psychological training to help her keep employees from shutting down when things get too hard. Tragically, she had to apply these lessons to herself when she lost her husband, an intelligence volunteer, during fighting in the Kharkiv region a year ago. Returning to work provided her with a much-needed routine, she said, and the support of her colleagues has helped her move forward.

To people like Popova, who don’t want to leave the country, Nestle provides a degree of stability. And as the war drags on, seeing familiar staples on grocery shelves has given Ukrainians a semblance of normalcy.

But sitting uncomfortably beside Nestle’s support for Ukraine is the fact that the Swiss company’s business in Russia is much larger. Nestle retains six factories in Russia, employing 7,000 workers and paying taxes that fuel the country’s war efforts. Nestle has stopped advertising and capital investment in Russia and scaled back production of most of its international products, but still, Ukraine’s National Agency of Corruption Prevention last week added the company to a list of “international sponsors of the war.”

These continued operations in Russia are an awkward reflection of Nestle’s need to balance ethics, economic pressures, and stakeholder demands. It’s also an acknowledgment that there may not be better options. Companies that have tried to sell out, such as Danone, have had their assets seized by the state.

“It’s realpolitik, rather than ESG. And that’s not a criticism,” Bruno Monteyne, a senior analyst at Bernstein, said of Nestle’s Russia dilemma. “These are questions to which there are no good answers.”

Yet in Ukraine, unlike in Russia, Nestle is making long-term investments. With the help of a loan from the European Bank of Reconstruction and Development, the company is in the early stages of setting up its next factory in the Volyn region. A handful of white and burgundy warehouses are now being converted into a multistory 15,000-square meter site that will meet Europe’s entire demand for Maggi noodles. Production is on track to start towards the end of next year.

“We wanted to demonstrate that there is a commitment, that we believe in the future of Ukraine, in the victory of Ukraine,” Zanelli said of the project, encouraging other multinationals to invest before the war ends.

The combination of localized product sourcing and the availability of a skilled workforce – what Zanelli refers to as “grains and brains” – is one of the big reasons why consumer food manufacturers are drawn to Ukraine. The country, for example, produces almost all of the raw materials used in Maggi noodles: wheat, vegetables for seasonings, and special sunflower oil for frying. Moreover, Zanelli added, that while overall production costs remain low, employee salaries are still competitive.

Even so, finding workers is getting more complicated.

Anna Pasichnyk started as an assistant 17 years ago before rising through the ranks to become the head of Nestle’s sauces factory in Volyn. Seated at an imposing brown table, the 41-year-old complained about worker shortages. Dozens of her 600 employees have enlisted in the army or lost relatives in the fighting. Pasichnyk mentioned one woman whose son was killed. “The only light in this situation is that his wife was pregnant, so at least she will have a grandchild,” she said, looking down.

Two of her five electrical mechanics also joined the army, making it all the more difficult to ensure that somebody was keeping an eye on the factory’s 24-hour operations. To find new ones, she had to hire expensive recruiters. “For me, it was a disaster,” she said.

Longer-term, the problem is likely to become more acute as military demand for people with technical skills remains high. “We are now focused on [hiring] young men,” Pasichnyk said, explaining that men in their early 20s without military experience cannot be mobilized. One of the mechanics who joined the army did so of his own volition: he was too young to be drafted. With Russian attacks on Ukraine once again ramping up, this kind of esprit de corps will likely shape the country’s future. According to Zanelli, it ought to have another effect – drawing greater international investment to Ukraine.

With assistance from Daryna Krasnolutska.

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