Review of the Russian Market of Chilled Convenience Meat ProductsResearch by the Expert Consulting Company “Dvornikova & Partners”
The volume of meat consumption in Russia has been steadily increasing during the past 10 years. Even in the depressive 2015 a 3-percent increase to the previous period was recorded. In the meat consumption structure in 2015, the largest shares fell on poultry and pork – 45 and 30% respectively. Beef accounted for 23% of the total volume of consumption.
At customer request, expert consulting company “Dvornikova & Partners” conducted a research on the market of chilled convenience meat products. Study area: Vladimir, Moscow, Yaroslavl, Tver and Ryazan regions. The estimation of the market size is based on official statistical data from public sources.
Output of convenience foods keeps increasing, and so does their consumption. This is caused by the employment and business of the population as well as the accelerated pace of modern life.
According to www.meatbranch.com, around 50% of the total volume of meat present in the market (both Russian and imported) is sold raw. Around 30% is processed into sausage products, 15% goes to convenience good production, and 5% fall on canned meat production.
Convenience meat products are made from all types of meat, such as beef, pork and poultry as well as offal. The range currently includes about 40 items. The products are usually divided into two large categories: chilled and frozen. In terms of production technologies the distinction is as follows:
* natural meat products – including large and small pieces, made primarily out of chilled meat (oven-baked beef and pork, beefsteaks, natural cutlets, kebabs, stews, soup sets);
* breaded convenience products – ready-to-cook goods produced from fresh or defrosted meat in a liquid (with eggs) breadcrumb cover (offal, chops, rumps);
* chopped convenience meat products – goods made from low-grade raw materials, often with bread and spices added (cutlets, beefsteaks, meatballs, packaged minced meat and minced meat sold by weight).
Mixed convenience food products are widespread in the Russian market, with dough or vegetables added to meat.
Domestic goods dominate in the market of convenience meat products, which can be explained by the high profitability of production, raw materials and the consumption market for which both lie within the same geographical area.
The leading region in convenience meat product output is Russia’s largest raw meat region – Belgorod region. In 2012–2015, 300-350 thousand tons of said products were produced in the area, which accounted for around 15% of the total volume for Russia. The region is followed by Moscow region with a large gap, its figure estimated at 8-10%. Stavropol Krai is third with the share of 5-7%. Kaluga region is next with a slightly lower share of 4-6% of the total Russian production volume.
According to the Institute for Agricultural Market Studies (IKAR), beef production in 2016 will be declining despite the successful launch of a number of major projects in beef cattle farming and the development of said sub-industry in farms. According to IKAR, in 2015 decline in production equaled 20 thousand tons (-1.1% to 2014). The reduction is caused by a decrease in cattle population in both the corporate sector and private farms.
All in all, the meat industry underwent significant changes in 2014-2015. This was due to restrictions on meat and meat product imports from countries of the EU, Canada and the USA.
Within Russia, the market is starting to consolidate, although full market consolidation is still far from being reached. For instance, in the US thee companies occupy 60% of the market, whereas in Russia the three leaders – “Miratorg” Agricultural Holding, “Rusagro” Group and “Gruppa “Cherkizovo” PJSC – account for 24% of the market at the moment. There are no more simple options for growth of producers, and fierce competition for the consumer is starting in both the B2B and retail markets.
The convenience food segment is the most stable – it is safe to state that no drop in production will occur in this segment in terms of beef, even though market growth is unlikely as well. Thus, convenience beef market capacity in the territories examined can be estimated at production volumes, i.e. within 7,463.6 million rubles per year.
Some analysts of the rabbit meat market believe that the demand of Russian consumers for this type of meat is met by no higher than 2%, which implies that the potential for growth in this segment is huge. According to the most skeptical estimates, the market of rabbit meat will not grow in the nearest future due to conservative tastes of Russian consumers. More cautious estimates indicate an opportunity for 3-fold growth. By using conservative forecasts one can estimate the size of the market of convenience rabbit meat products at 1,300 million rubles per annum, as the number of healthy eaters and consumers with allergies keeps increasing. It is fairly safe to assume that the market segment in question has potential for growth, but its realization requires considerable marketing investments in order to form demand.
Given the lack of resources for such market expansion, the size of the market of convenience rabbit meat products within the study area at the current level of production is estimated at 469 million rubles.
Regarding the key distribution channels for convenience meat products, manufacturing companies are characterized by not realizing their own goods directly, which implies that the main consumers are companies of the B2B sector. Even if a company has its own retail chain, sales are established through own trading houses and companies.
Let us examine the main sales channels of convenience meat products in the Russian market. Around 50% of all sales fall on retail networks. Around 15% of convenience meat products are realized through the HoReCa segment. This segment develops the fastest due to fast food expansion. Most of the time catering establishments receive frozen goods, and thus large-scale, high-tech production is in the win here. Convenience goods are also demanded in restaurant network projects, where it is essential to maintain an evenly high level of service and meal quality. Specialized cookeries account for approximately 10% in the structure of convenience meat sales. For the most part these are stores selling said goods from the counters – their own kitchens allow them to offer a rich variety of ready-made meals and to quickly adapt to seasonality and changes in tastes and demands. The share of other sales channels (markets, school canteens and others) equals 25%.
The structure of the key consumers of producing companies’ goods corresponds with the structure of the main sales channels. Federal retail networks occupy 30%. Local retail chains, including own retail outlets, account for 20%. The HoReCa segment occupies 15%, and specialized cookeries and agricultural markets take 10% each.
An important point is that in most Russian regions preference is given to goods by local producers, as their price is usually lower, including products of the high-price segment.
We would also like to draw attention to the fact that consumption of various types of convenience foods is presented unevenly and depends on the trade format. Dumplings and cutlets are sold in virtually all types of outlets. Pancakes, manti, minced meat, stuffed vegetables, meat rolls and various sliced meat (goulash, azu, entrecotes, beef stroganoff, langets etc.) are mainly in demand at markets and in supermarkets. Ready-made meals are usually sold in supermarkets.
The results of the study conducted revealed three segments of convenience meat consumers most promising in terms of sales volumes and growth rates: federal retail chains, federal restaurant chains and own retail networks (branded storefronts, counters in non-network stores).
The meat market is specific in the sense that a large number of producers offer goods with similar names to their consumers, and ranges of large enterprises exceed 300 items. It is extremely important to differentiate one’s products in the market in these conditions.
A significant difference for the non-branded FMCG segment is that the level of income and price of the product are not among the key factors in choosing meat. Most of all consumers value appearance, color and leanness of meat. Freshness and packing date come second. And only if the first two criteria satisfy the consumer they look at the price, which is one of the main features of this FMCG market segment.
In order to compete in the convenience meat market successfully, the producer needs to take its specifics into account. Firstly, the market has reached saturation, and thus the rules of the game are defined by tough competition, which determines the product range, quality and price policy. Secondly, branding is at the stage of development, and therefore most actions in terms of company development and brand creation are taken spontaneously. Finally, the excess of meat products in retail outlets orients the manufacturer towards producing quality branded products, searching for new niches and creating innovative products.
The analysis of promotion strategies of the market leaders allows us to conclude that the key factors of success are the stability of product quality, product branding (development of brand concepts and strategies that are then thoroughly followed) and product promotion in points of sale.
The limiting factors in the market include high ‘entry fees’ for the opportunity to sell products in large retail chains. There are also a number of administrative and legal barriers. For example, veterinary, sanitary and epidemiological control is required for production and slaughtering facilities; there are requirements for cutting and storing, staff, packaging and other aspects.
The changing lifestyle, the pace of modern life and its trends dictate their conditions. The lack of time makes people try to save it in all aspects of life, including cooking. This leads to an increase in the number of convenience meat consumers.
According to experts, the main trends in the domestic meat market include:
1. Consumers switching from frozen meat to chilled meat. The most rapid dynamics of development and quick growth are demonstrated by the segment of chilled meat and natural convenience meat products.
2. Consumer interest shifting from packaged convenience goods towards convenience food sold by weight. The share of convenience meat sales by weight is currently around 65%, whereas the share of packaged convenience meat product sales is 35%.
3. As a result of the first two points, related markets demonstrate increased interest in the segment of convenience meat products and vertical integration chains of the full (production-processing-realization) or incomplete (processing-realization) cycle appear, which leads to retail networks strengthening their positions as producers of chilled convenience meat products.
4. Manufacturers launching and developing their own retail chains ("Myasnov" Group being the most notable example).
All in all, one can identify three key factors affecting the market of convenience meat products. One of them is the population’s level of purchasing power, and data for this factor indicate a steady positive trend. The second factor is the level of demand for quality products for an affordable price. The level of development of retail trade and distribution among producers and expanding product ranges serve as indicators for this. The third factor is the increase in competition in the segment of chilled convenience meat production, which forces manufacturers to look for new technologies in product processing, implement new original recipes and packaging, and expand their range.
Founder of the Expert Consulting Company
“Dvornikova & Partners”