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Russia Food and Drink Report Q2 2009
Business Monitor International, April 2009, Pages: 100
Russia Food and Drink Report provides independent forecasts and competitive intelligence on Russia's food and drink industry.
In the wake of a sustained deterioration in Russia's economic outlook, we are forecasting the economy to contract by 0.9% in 2009 before rebounding to average a respectable growth of 4.65% between 2010 and 2015. In the near term, it is likely that the country’s food and drink – as well as mass grocery retail (MGR) – sectors will consolidate as indebted companies are forced out of the market due to a shortage of credit. However, our bullish long-term MGR position is supported by the pace of Russia's economic recovery. Consequently, Russia is again found fourth overall in the Q209 Business Environment Ratings (BER) index, illustrating the resilience of the Russian marketplace in the face of severe – but probably shorter-term – difficulties. Nevertheless, current economic problems (including rising unemployment), modest per capita GDP levels, red tape and corruption will remain some of the major barriers to investment.
However, most foreign companies involved in the Russian marketplace are eyeing longer-term potential. To this end, Finland-based leading bakery Fazer Group – called Hlebny Dom in Russia – announced that it had completed the acquisition of 95% shares of frozen baked goods manufacturer BKK Neva. Fazer is also planning to construct a factory in Russia to manufacture fresh and frozen bakery products, which is expected to become operational by 2010. Similarly Nissin – Japan's biggest noodle manufacturer – entered the Russian market after acquiring a 33.5% stake in Angleside, the holding company of Russia's largest noodle manufacturer – Mareven Food Central. The current economic conditions are likely to stimulate sales of cheaper and more durable products, working in favour of Nissin, which is also aiming to cut its reliance on the flagging Japanese market. Finally, the US soup maker Campbell Soup, Hamé –the Czech arm of Icelandic food manufacturer Nordic Partners – and the Coca-Cola Company (TCCC) confirmed that they will continue to expand in Russia.
The situation in the MGR sector mirrored the above trends, with US behemoth Wal-Mart, the world's largest retailer, reportedly on the verge of entering Russia's retail market after joining the 28 member strong Russian Retail Association. With the capital bases of many Russian retailers severely eroded, Wal-Mart is likely to find itself in a strong position to buy smaller players, as domestic retailers seek cash injections. Wal-Mart's entrance would surely alter Russia's MGR landscape, which is already consolidating. Wal-Mart’s activities would also provide more competition in the discount sector (which is increasing in importance due to falling consumer confidence), on both a national and regional basis.
Nevertheless, the major Russian retail operators, including X5 Retail, Sedmoi Kontinent, Dixy, Lenta and Magnit, all posted strong financial year 2008 (FY08) sales, which were attributed to a combination of increased retail space through acquisitions and strong purchasing power, with lower supply costs passed onto consumers. Dixy, however, cautioned that Q408 like-for-like sales grew by a modest 15% year-on-year (y-o-y), reflecting a tightening in consumer spending forced by Russia's recession.
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