Supply on Russian confectionery market is dominated by domestic production. Share of imported confectionery is small and declines due to ruble devaluation and import bans. In 2014 volume of Russian confectionery market constituted about 3.5 million tons, by 2% more than in 2013.
Since 2009 domestic production of confectionery in Russia demonstrated annual growth. In 2014 confectionery production hit the record volume of recent decade, 3.4 million tons. In H1 2015 this trend continued and production volume increased by 3.7% over the same period of 2014. Interestingly, the leaders of Russian confectionery market in terms of production volume, Central Federal District and Privolzhsky FD, saw practically no year-to-year change of confectionery output, so market growth was mainly driven by other regions. Most impressive increase of domestic production in H1 2015 was demonstrated by North Caucasian Federal District (19%).
During 2011–2014 split of confectionery production by product categories was practically unchanged. About half of production volume (47%) in January–June 2015 was provided by cocoa, chocolate and sugar confectionery. Cumulative share of gingerbread category, sweet biscuits and wafers constituted 42%. Share of baked confectionery, cakes and pastry with short shelf life* was 11%.
Production of baked confectionery, cocoa, chocolate and sugar confectionery was the same as in 2014. Meanwhile production volume of biscuits/cookies, gingerbread and wafers was by 9.5% larger than in the same period of 2014.
According to Rosstat, most impressive decline of production volume was seen by liquor candies and boxed/packed chocolate. Production of boiled candies on the contrary increased by 10.1%, production of other kinds of chocolate candies grew by 15.3%.
More than half of baked confectionery, cakes and pastry with short shelf life in Russia is produced by 10 federal subjects. In terms of production volume the leader in this product group is Chelyabinsk Region with 9.8% in 2014. Such largest manufacturers as Group of Companies “Uralskie Konditery (Ural Confectioners)”, “PTK “Kolos (Spike)” LLC, “Sladky Kondi (Sweet Kondi)” LLC, “Confectionery “Kremenkulskaya” LLC, “Yuzhuralkonditer” OJSC and others. In January–June 2015 production volume in this federal subject declined by 17% against same period of 2014. Next important supplier is Krasnodar Territory with 8.8% of production volume in 2014. In H1 2015 production volume of fresh cakes and pastry in Krasnodar Territory increased by 7.9%. Voronezh Region became the third large manufacturer of cakes and pastry with short shelf life in 2014 due to more than 2 times increase of production volume in the review category. In January–June 2015 production volume in this federal subject declined by 24.4%. Moscow moved down from the third to the fourth line in this rating in comparison to 2013 and demonstrated 10% increase of production volume of the review category. In H1 2015 production volume of cakes and pastry with short shelf life in Moscow increased by 64.5%, so Moscow went up to the second line in production volume rating. In 2014 the named four federal subjects provided 30% of production in Russia.
In segment of wafer, gingerbread and biscuits/cookies the leader is Saint Petersburg with 16% increase of production volume in 2014. In January–June 2015 production volume in this federal subject increased by 32.2%. Second large supplier is Kemerovo Region with 6.6% increase of production volume in H1 2015. Moscow Region, third large manufacturer of wafer, gingerbread and biscuits/cookies, demonstrated increase of production volume by 24.7%.
More than one third of production volume in segment of cocoa, chocolate and sugar confectionery in 2014 in Russia was provided by three federal subjects: Moscow, Moscow Region and Belgorod Region. In January–June 2015 Moscow Region saw 4.7% increase of production volume while Moscow and Belgorod Region on the contrary saw decline respectively by 1 and 8.2%.
Impressive 45% increase of production volume in Rostov Region in 2014 over 2013 should also be mentioned. This trend continued in H1 2015, so production volume in this federal subject grew by 7.5%.
Import** of confectionery*** in 2014 constituted 218.7 thousand tons, by 30% less against 2013. In total market volume share of import reduced from 9.3 to 6.3%. In H1 2015 import of confectionery to Russia declined by 54% against same period of 2014. Decline was mainly driven by baked confectionery**** import of which in January–May 2015 declined almost by 70% due to embargo on Ukrainian products.
More than half of import volume (51%) is provided by chocolate and other cocoa based products. The reason is that basic ingredients for this category are not produced in Russia. In January–May 2015 share of chocolate in import saw insignificant decline down to 48%. At the same time share of baked confectionery saw impressive reduction, from 21% in 2014 down to 15% in 2015. Share of confectionery not containing cocoa including white chocolate constituted 28% in 2014; in January–May 2015 it reached 37%.
Despite the ban laid on September 5, 2014 upon import of confectionery from Ukraine this country remained the leading supplier in 2014 (fig. 10). Meanwhile in H1 2015 Germany became the leader of confectionery import; 70% of import from Germany was provided by chocolate and other cocoa-based products.
Export of confectionery from Russia in 2014 constituted 175.1 thousand tons, by 5% less than a year before. In H1 2015 decline of confectionery export from Russia constituted 10.5%. Expansive growth of export of sugar confectionery products (including chocolate) in October 2014 can be explained by seasonal factor and decrease of sales in Ukraine.
Most impressive decline of export was seen in segment of confectionery not containing cocoa including white chocolate where Ukraine was the main destination market. Worsened relations with the closest neighbor resulted in 50% decline of confectionery export in 2014 and 71% decline in five months of 2015.
More than half of confectionery export from Russia in 2014 was constituted by chocolate and other cocoa-based products. In January–May 2015 export structure saw no significant changes; the only news was slight decline of chocolate share (down to 48%) on the background of increased share of baked confectionery (from 23% in 2014 to 27% in January–May 2015). Share of confectionery not containing cocoa including white chocolate remained unchanged (25%).
Most popular kind of confectionery in Russia is chocolate. According to Rosstat, in 2014 consumption of chocolate and chocolate candies reached 5.5 kg per person in Russia which was by 1.8% more than in 2013. Consumption of baked confectionery was also high: in 2014 it constituted 15.6 kg per person, by 1.3% more than in 2013. However, decline of consumer incomes promises no growth in sales of chocolate because chocolate is among the first product categories people stop buying during recession.
The category of chocolate and other cocoa-based products faces the highest risk of sales decline because import dependence is the highest in this segment.
Russia is the seventh large importer of cocoa butter in the world. Since 2010 import of cocoa butter was growing in volume every year. In 2012 import volume increased by 15.8% over previous year. In 2013 import increased by 16.1%. However, in 2014 import of cocoa butter to Russia declined by 8.2% in volume.
Peak of cocoa paste import to Russia in recent 4 years was registered in 2013. Last year import of this category declined by 18.3% against record volumes of 2013. Though manufacturers try to cut production cost introducing cocoa butter substitutes and equivalents domestic production of such categories is still underdeveloped and thus the segment strongly depends upon import.
A number of factors determine current performance of Russian confectionery market:
* growing prices for ingredients and raw materials including cocoa products, sugar, cooking fats and flour;
* shift of consumer demand to less expensive products and economy packaging;
* market consolidation: in the context of growing production costs and declining demand only large players survive;
* increase of prices for confectionery;
* increase of share of ingredients and raw materials of domestic origin in confectionery production; this trend is determined by sanction wars and ruble devaluation.
Despite recession of Russian economy Russian confectionery market is one of five largest markets in the world. Besides, a number of manufacturers continue to work on their investment projects. For instance, a 4 billion ruble project for construction of confectionery plant is planned in Novosibirsk Region. In Primorsky Krai the company “Primorsky Konditer (Maritime Confectioner)” is working on 3 billion ruble investment project which includes construction of a complex to bake bread and produce confectionery.
Operating companies also increase production capacity. For instance, in July 2015 “Mars” started a new plant to produce drag?e; this increased production capacity of candy factory by 18%. Amount of investments to this project constituted 3 billion rubles.
Kursk confectionery factory “Konti Rus” is to start a new plant to produce sponge rolls. Amount of investment to this project is 180 million rubles, plant production capacity is 8.7 thousand tons annually. The plant is to start working in Q3 2015. In 2014 “Konti” announced its plans to invest about 1 billion rubles to its Kursk facility.
* According to Russian Classification of Products by Economic Activities, the group “baked confectionery, cakes and pastry with short shelf life” includes cakes, pastry, oriental sweets and other baked confectionery which are not included in other groups.
** Analysis did not consider foreign trade with Customs Union countries, Kazakhstan and Byelorussia.
*** Categories of TN VED codes 1704, “sugar confectionery not containing cocoa including white chocolate”, 1806 “chocolate and other cocoa containing food products”, 190520 “gingerbread cookies and similar products”, 190531 “sweet biscuits”, 190532 “plain and sandwiched wafers”.
**** Categories of TN VED codes 190520 “gingerbread cookies and similar products”, 190531 “sweet biscuits”, 190532 “plain and sandwiched wafers”.