Production of sugar confectionery has been one of the leaders of Russian food industry for quite a while. This market offers both domestic and imported products, competition between them brings sugar confectionery to a new level.
Every year sales of confectionery in Russia increase almost by 10%. Russian confectioners are equal rivals to foreign companies both in terms of equipment and technologies. By the end of 2014 ratio of large Russian and foreign companies on the review market was approximately 2:1. Same ratio is true for domestic and imported offerings.
Basing on market studies and analysis of accounting reports of confectionery companies top three operators of the review market can be described the following way. The first place is shared by “Nestle Russia” LLC and “Mars” LLC, each company controls about one fifth of market value. The leaders are followed by “Mondelez Rus” LLC. These companies have the highest and high solvency indices. The group of top ten operators also includes “MKF “Krasny Oktyabr” (Moscow Confectionery Factory “Red October”)” OJSC, “KK (Confectionery Concern) “Babaevsky” OJSC and “Rot Front” OJSC, all parts of confectionery holding “Obyedinennye Conditery (United Confectioners)”. These companies have the highest solvency indices.
Considering this and also analysis of market performance it can be forecasted that during the next 2-3 years Russian market of sugar confectionery will grow impressively - by more than 10% annually. However as the market will be getting closer to saturation point its growth will inevitably slow down to 5% annually. It should be mentioned that forecast for the coming 2-3 years is more precise because in long term perspective influence of various factors upon market performance is harder to anticipate.
Most vibrant development of sugar confectionery is expected in Central Federal District, in particular in Moscow and Moscow Region. Exactly this region is the key distribution market for the largest manufacturers because incomes are high and unemployment is low there, respectively consumers can afford not only staples but also indulgence products.
Analysts also think that sales of confectionery will grow even in the context of growing prices underpinned by increased cost of ingredients including cocoa. This trend was mainly shaped by active marketing held by manufacturers which stimulates consumer demand for small-size and thus relatively inexpensive offerings.
Consumption rate of the review category demonstrates robust growth, in 2007-2011 per capita consumption grew by 1.6 kg and reached 12 kg per person annually.
According to experts, consumption of confectionery in Russia is by 50% less than in Europe and this is another evidence of great opportunities of the review market.
Of course, demand is mainly driven by consumer preferences. Most recent trend here is healthy living actively promoted in mass media. In this context demand is shifting to premium category offerings complying with ideas of healthy lifestyles: low calorie, rich in nutrients, vitamins and minerals, fast carbs or easy-to-digest proteins, anything advised today by coaches in dietology and sports.
However, health benefits and premium quality increase unit price and this is a big stumbling stone on a way to market leadership for premium confectionery. Today the highest demand is enjoyed by unpacked chocolate sweets sold by weight, 66.2% of Russian consumers buy them. About half of consumers prefer chocolate bars. Marmalade and pastila are less popular; they are preferred respectively by 49.9% and 49.2% of respondents. In the category of sugar confectionery the most popular segment is unpacked (sold by weight) sweets and bars in chocolate and white chocolate glazing.
Recently Russia lived through two big recessions, so high price of premium products and low price in economy segment during recessions determined demand. Interestingly, though in 2011 demand for premium products declined significantly, standard offerings of sugar confectionery enjoyed even higher demand though not a staple. Maybe this stimulated merge of two best qualities of both price categories by the end of 2014. For instance, sugar candies are loosing consumers due to their negative health effects. To break this trend manufacturers started to enhance consumer properties of sugar candies: enrich them with vitamins, add natural ingredients (like juice). However, even with new properties sugar candies remain practically in the same price category. If manufacturers do not accent health benefits then they stimulate sale in other ways like promoting various extra properties of candies: breath refreshing, teeth whitening, mouth antiseptic treatment, etc. Such marketing is also determined by fierce competition.
Another peculiarity of demand and offer on Russian market of sugar confectionery (and confectionery market in general) is distinct seasonality both of production and consumption. Before and during holiday seasons confectionery shifts from the category of daily demand to the category of high demand. Peak of confectionery sales usually falls on festive periods.
Exactly during holidays demand for premium confectionery can get equal or even surpass demand for standard offerings. The reason is increasing popularity of using sugar confectionery as a gift for colleagues, friends, classmates and fellow students. Such gift is trendy and relatively inexpensive. Seasonal offerings constitute an independent segment of confectionery market and this segment grows every year.
Third important factor stimulating changes in demand and offer on confectionery market is pricing which in its turn is under the influence of various factors and trends. Some of them stimulate development of Russian confectionery market:
* increasing number of new products;
* sustained demand for confectionery;
* domination of domestic products on the review market;
* cutting-edge technologies and equipment used by Russian confectioners.
Others on the contrary restrain development of the review market:
* review product category is not a staple, so in case of income decline consumers can stop buying it;
* gradual decline of sugar production on global market in volume and forecasted increase of price for sugar;
* review category is rich in calories, so in the context of growing popularity of healthy living consumption of this category can be reduced.
Dynamics of prices for sugar and candies/sweets is highly uneven, but prices for sugar were performing in leaps and bounds. Significant increase of prices for sugar was registered in 2009 and 2014, in 2011 prices went down by impressive 24%. Meanwhile candies/sweets saw no decline of prices during recent 6 years, on the contrary, prices demonstrated continuous growth with most impressive increases in 2011 and 2014.
In the summary we can say that by 2020 volume of the review market can be about 2 million tons. During the next 2-3 years the market is forecasted to grow by about 2% annually; further on growth rate can go down to 0.5%. After 2017 Russian market of sugar confectionery is expected to plateau with the average annual decline by 0.5% in volume and by 2% in value. This negative dynamics will be mainly driven by reduction of sugar candies segment due to consumers’ desire to eat healthier foods. Expected decline of market value is related to fierce price competition between the largest players.