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Russia Food and Drink Report Q4 2010
Business Monitor International, Sep 2010, Pages: 89
Business Monitor International's Russia Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Russia's food and drink industry.
Although we expect consumer confidence in Russia to remain fundamentally weak over H210 (calendar), with retrenchment continuing to have a large bearing on expenditure, it is coming back more strongly than much of Europe.
Although Russia does not carry quite the phenomenal long-term appeal of fellow BRICs, China and India in particular, it continues to attract significant interest from multi-national corporations (MNCs). Disposable incomes are expected to grow considerably over the coming years (faster than the other three BRIC markets on a per capita GDP basis).
Importantly when assessing Russia’s gro
wth outlook, key food and drink industry indicators such as per capita consumption levels (on both absolute spending and volume metrics) and the proportional contribution of organised retail sales to consolidated grocery sales remain well off developed markets.
Headline Industry Data
- 2010 per capita food consumption +7.7%=; forecast to 2014 =+43.98%
- 2010 beer volume sales = +4.36%; forecast to 2014 = +22.06%
- 2010 mass grocery retail sales = +18.06%; forecast to 2014 = +68.41%
Key Company Trends
Beer Market Less Bad Than Previously Thought – Russia’s beer industry is expected to perform better than initially expected in 2010 after the government hiked excise rates early in the year. Market leader Carlsberg (owner of Baltika) met its year-end volume guidance after reporting above-consensus Q2 (to June 30 2010) data In August 2010. Supported by a better than expected second quarter, the Russian beer market contracted by 9% year-on-year (y-o-y) in H1.
A mishmash of weak household spending compounded by a big spike in excise taxes effective January 2010 reined in the beer industry, with Carlsberg initially forecasting a low double-digit decline in yearend volumes (now revised up to low single digits). Reflecting the excise hike, Carlsberg’s prices in Russia have increased by 25% since November 2009.
Vodka Clampdown Continues – Russia is clamping down hard on vodka as the government enforces measures aimed at reining in overall consumption. About 20 litres of pure alcohol per capita are drunk annually – a figure almost without parallel – with vodka by far the most popular drink. Shops and kiosks are facing more stringent restrictions on when they can sell vodka, and in January 2010 Russia introduced a RUB89 (US$2.93) price floor on the price of half litre bottles. The ongoing clampdown on alcohol is arguably the toughest in Russia in the post-Soviet era.
Branded vodka typically sells well above the price floor introduced earlier in the year. Tighter restrictions on vodka sales could speed up the transition from the grey to formal market, at least to some extent, although this will depend on how successful the renewed measures are.
Consolidation In Food Industry Continuing – Russia’s food industry continues to consolidate. In August 2010, it was announced that Danone would sell its 18.4% stake in the Russian dairy major Wimm-Bill- Dann (WBD) back to the company for US$470mn. Earlier in the same month, Danone received regulatory clearance to complete a merger with Unimilk, Russia's second largest dairy company by market share. In February 2010, Danone announced that Russia's underdeveloped east regions would figure prominently in the group's 2010 growth strategy.
Risks To Outlook
Given economic dependency on hydrocarbons, any deterioration in the global energy outlook would weigh on Russia’s economy and consumer spending. We also continue to flag up significant risks to doing business in the country. Chief among these is the business environment, with the legal system, regulatory framework and political risk premium continuing to put off some investors.
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