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Branding in the Russian Market of Confectionery Products

Research by the Branding Company Labelmen
In most product categories, the processes of branding and market consolidation go hand in hand. The market switches from free competition with numerous weak and little-known brands to an oligopoly a type of market structure where very few companies dominate, having strong, popular brands. This pattern of development is followed by the markets of soft drinks, dairy products, tea, coffee and vegetable oil. The rate of transformation processes usually depends on several key factors: disposition of consumers toward certain brands, technological capabilities, production concentration, and product differentiation. For instance, the markets of tea and instant coffee, relatively homogeneous in products, are branded and consolidated faster than the dairy market, which is more diverse in its products. The development of the confectionery market all in all follows the general laws: the role of brands in it is extremely important however, the wide product variety and technological differences in production result in a low level of consolidation.
In the segment of instant coffee, the top three companies include Nestle Russia LLC, "Mondelez Rus LLC and Tchibo. The leaders in the segment of dairy products are Danone, Pepsico and Molvest holding company; in the segment of confectionery the leaders would be: Nestle Russia, Mars LLC and Mondelez Rus.
As in the most other product categories, the transnational local players distinction goes by the products shelf life and manufacturing technologies. Transnationals and the largest Russian players (Nestle Russia LLC, Mars LLC, Mondelez Rus LLC, Obyedinennye Konditery (United Confectioners) LLC, Ferrero Russia CJSC, Fazer LLC, Slavyanka-Torg LLC, Konti-Rus CJSC, KDV-Group LLC) are interested in mass production of confectionery products with a long shelf life. Their advantages are the scale, manufacturability, low costs, considerable marketing budgets, and the ability to reach agreements with major retail networks.
On the contrary, the segment of confectionery products with a short shelf life is dominated by local players, which can provide their consumers with fresh bakery products and cream confectionery with a shelf life of 3 days and above. The distribution of the most successful ones (Nevskie Berega (Neva Banks) OJSC, Khlebprom OJSC, Fili-Baker LLC (Saint Petersburg), Kombinat Pitaniya (Food Factory) U Palycha (At Palychs) LLC (Samara)) includes several cities and towns; what limits their geographic expansion is what also protects them from direct competition with transnational companies the short shelf life of the products, their fragility and manual labor required for their manufacture.
The key consumer choice criteria for confectionery products in descending order of importance (based on consumer research carried out in 20122016 for the categories of confectionery products with long and short shelf lives) are as follows:
* appearance (packaging design/product appearance);
* consumption experience;
* expiry date (freshness of the product);
* composition;
* price;
* manufacturer/brand;
* recommendations of friends/relatives/acquaintances.
Important features of confectionery consumption are its impulsiveness and a pronounced emotional nature of the purchase. Confectionery products are purchased for pleasure, in order to spoil oneself. On the one hand, it ensures the importance of brands and their role, which can attract and retain customers due to the emotional appeal; on the other hand, however, it contributes to the tendency of consumers to switch to other offers. Whereas butter, kefir, cheese or milk are basic products of everyday consumption for most Russians, confectionery products are a large group of products with a wide variety they are bought with a cause, and consumers easily migrate between product categories, switching from chocolate bars to marshmallows, from fresh cream cakes to cookies and pies. The high consumer commitment to favorite brands and, at the same time, the desire to try something new and delicious provide a favorable environment for entry for new brands, but at the same time create limitations for their further development. All this encourages market players to constantly expand their brand portfolios and create product innovations.
Technological innovations and consumers getting tired of confectionery products they are used to stimulate constant creation of new product categories and subcategories. At times they appear inside an already existing category. Players that have produced successful novelties are able to rapidly become the leaders in the newly formed market niches, and success of product innovations highly depends on following consumer trends.
In the 2000s, due to an increase in incomes, consumers not only increased the volumes of confectionery product consumption, but also switched to more expensive products such as cream cakes, marzipan, and chocolate candies with natural fruit and berries. Consumption of cream cakes and pastries was consistently growing throughout the 2000s and early 2010s. The peak of consumption took place in 2013, when per capita annual consumption thereof reached 2.4 kilograms*. Consumption growth contributed to successful development of market players in this product category. Companies such as Nevskie Berega, Fili-Baker, Khlebprom and U Palycha were able to not only increase their sales volumes and to strengthen their positions in the domestic markets, but also to substantially expand their sales geography to other regions. Numerous innovations (yogurt cakes, sour cream desserts, crepe cakes, cheesecakes, berry baskets, marzipan cakes, pies with a short shelf life, custard desserts) met the general consumer trends and further increased consumer interest in the category. However, the decrease in consumer incomes that followed in 2014 and the increasing prices for these products have been forcing consumers to switch back to more affordable alternatives. In 2016, consumption of fresh cream cakes and pastries decreased to 1.7 kilograms per capita per year. Compared to the prosperous 2013, the volume of consumption in the category dropped by 30%. Consumption of chocolate, which is a middle product category on the premium scale, decreased by 8.8% in 2016 compared to 2015.
Consumers are switching to more affordable categories such as waffles, cookies, pies, Swiss rolls and muffins and a long shelf life. These categories also provide enough opportunities for innovation. For example, sweet pies are a popular product category in Russia and are represented by numerous local players. Among the largest and most successful players one can highlight Krug CJSC from Moscow (Tirolskie Pirogi (Tyrol Pies) trademark shelf life of 120 hours) and Fili-Baker (Saint Petersburg) with its trademark Venskiy Pirog (Viennese Pie) with a shelf life of 1 month. For a long time a short shelf life and high prices were a constraining factor for development. Feretti Rus LLC (Moscow) with its Faretti brand basically introduced a whole new subcategory of affordable sweet pies with a long shelf life (6 months) in Russia in 2010, and became one of the leaders in the segment. The company successfully uses consumer trends switching from traditional high-calorie cream cakes and pastries to homemade cakes (trend observed since 2008) and the desire to buy affordable but not any less delicious confectionery products (trend having started in 2014).
Given the disappointing economic forecasts for 20172018, one can expect the existing consumer trends in the confectionery market to stay: Russians will be trying to maintain the volume of consumption by switching from visiting coffee shops and buying fresh cream cakes and expensive chocolate products to purchasing more affordable sweets. At the same time the premium product categories may serve as donors of product innovation ideas for players operating in the segment of long shelf life products. Following pies with a long shelf life, analogues of traditional cream pastries such as profiteroles, Bouchée puff pastries, Kartoshka (potato) pastries, custard rolls and others may appear.
However, product innovations alone, even if they meet significant consumer trends, are not sufficient for long-term success, as, unlike brands, they may end up being copied by competitors. Clear and attractive brand positioning is no less important for long-term market success, which requires appealing to emotions in consumers. The emotional image has to emphasize the product core of the brand. This pattern can be detected by comparing strong players with less successful ones.
For example, the promise of heavenly pleasure perfectly matches the Bounty brand, which offers an exotic mix of coconut meat and milk chocolate. The brutal and sporty image is perfect for Snickers, which has to be actively bitten and chewed due to peanuts, caramel, nougat and chocolate the bar contains. There have been numerous Russian alternatives to Snickers, the most successful of which is Zolotoy (Golden) Step by Slavyanka (Slavic Woman) factory, which offered a virtually identical product composition and taste to its consumers at a lower price in the emotional image it became the complete opposite to the foreign brand.
There is a large number of Russian affordable brands in traditional confectionery categories with a long shelf life (waffles, cookies or gingerbreads). Among the numerous popular brands, success of Yashkino was, among other reasons, caused by a fortunate combination of the product core (delicious affordable waffles) and the name translating affordability, simplicity, colorfulness and individuality. There is the expensive and pretentious A.Korkunov, and then there are simple and familiar sweets by Yashkino. The name Sladonezh by one of the largest confectionery market players in Russia, however, cannot be called 100% successful despite its savouriness and dessertness. Combining sweetness and tenderness, it is more appropriate for a single-product brand of soft confectionery (zefir, marshmallows, nougat, soft caramel, rahat lokum etc.), but barely suits hard sweets such as cookies, waffles or ginderbreads.
Among relatively new players in the Russian market one can highlight Grondard, a brand of chocolate and marzipan this French-German name, pretentious and heavy, perfectly suits the dense consistency of this exquisite dessert, and the vintage style of the package makes it stand out among modern confectionery products and simplified sweet snacks.
In the rapidly growing bakery category, we would like to once again note the brand Faretti, the name of which translates savouriness, lightness and Italian expression, which beautifully highlights it among the more heavy-weight and high-calorie fresh cream cakes and pastries.
The wide product variety, the high consumer disposition towards brands and at the same time their readiness to try new things make the Russian market of confectionery products attractive for development of existing brands and entry of new ones. True success requires a skillful use of administrative, financial, technological and marketing tools as well as product and branding innovations that follow important consumer trends

* Source: http://cikr.ru/news/?ELEMENT_ID=463.

Irina Vedenetskaya,
General Manager
Branding Company Labelmen

Dmitry Golovnev,
Marketing Director