Review of the Russian Confectionery MarketResearch by the Information Agency “Credinform”
VOLUME OF DOMESTIC PRODUCTION
The Russian confectionery market is among the world’s largest markets. It includes a large number of products by popular brands. In order to increase profitability, the key foreign manufacturers establish or acquire production facilities within the Russian Federation. Domestic companies also have a rich history and culinary traditions.
In 2016, 3,569 thousand tons of various confectionery were produced in Russia, which is 2.1% more than in 2015. If last year’s figure is compared to the level of 2010, growth in domestic production equals 23.5%.
During the past 3 years production of confectionery has been increasing at a slower rate than before 2014, which can be explained by the overall decline in consumer demand caused by a decrease in real incomes. It should be noted that in the late 2016 a drop in prices for cocoa beans started. However, companies tend to create food stocks, which especially concerns raw materials that can be stored for a long duration. It is most likely that Russian companies were purchasing cocoa beans at prices substantially higher than the current levels.
The market of confectionery products can be divided into 2 large groups (segments):
* sugar confectionery – berry products, caramel, drag?es, chocolate and cocoa-based products, candy, toffee, halva and oriental sweets such as caramel and candies;
* flour confections – cookies, gingerbread, waffles, muffins, rum babas, rolls, oriental pastries, cakes. Flour confections, in turn, are usually divided into products with a long shelf life and products with a short shelf life. Production of the former involves the use of a number of preservatives and substitutes.
Confectionery based on cocoa and chocolate form 49.4% of the market. Sweet cookies and ginderbread, waffles, and cakes with a long shelf life account for 40.5%. The remaining share of the domestic market equaling 10% falls on cakes and other flour confections with a short shelf life.
PRODUCTION DYNAMICS IN THE KEY SEGMENTS
Production of chocolate-based confectionery reached its peak in modern history of Russia in 2014, namely 1,759 thousand tons. In 2015 there was a slight decline in the level, followed by slight growth in 2016. The reason is obvious – ruble devaluation, which increased companies’ expenses, thus causing growth in prices and a decline in demand, resulting in stagnation of the chocolate industry.
Flour confections with a long shelf life, on the other hand, are demonstrating firm positive dynamics of production indicators. If the results of the previous year (1,436 thousand tons) are compared to 2010, growth equals 30.9%.
Demand for confectionery with a short shelf life (cakes) remains at a stable level. Output of sweets in the category in 2016 slightly exceeded 356 thousand tons.
FOREIGN TRADE TURNOVER
Having analyzed foreign trade turnover, one can state with certainty that Russian confectioners are practically fully meeting the domestic demand and are in addition successfully supplying their products to other countries. With the exception of cocoa beans, domestic suppliers are able to offer all primary raw materials required for confectionery production.
In 2016 the volume of confectionery imports amounted to 162 thousand tons, whereas exports equaled 339 thousand tons with the volume of domestic production at 3,569 thousand tons. Therefore, the share of imports in Russian stores does not exceed 5% in physical terms with the total market volume of 3,392 thousand tons. Based on this data, one can conclude that per capita consumption of sweets in Russia equals 23.1 kilograms per year.
In 2016, after the currency exchange rate got stabilized, foreign trade turnover in the confectionery market started slowly recovering after the disastrous 2015, when imports plummeted by 41.4% and exports declined by 4.8%.
Russia’s main foreign partners in confectionery imports into the country are the EU countries, primarily Germany, Italy and Poland. The top 5 importers also include EAEU partners – Belarus and Kazakhstan. These countries together account for 60% of all supplies. Ukraine has lost the Russian market almost completely: while in 2013 the share of products from this country was reaching 33%, in 2016 it dropped to as low as 1.6%. Russia was importing confectionery from 79 countries of the world in 2016.
Confectionery exports from Russia remain rather stable despite the complications – in 2016 they amounted to 339 thousand tons, and the decline in purchase prices (due to ruble devaluation) for foreign contractors made Russian goods more competitive in foreign markets.
Russia’s main partners in exports are countries of the EAEU – Kazakhstan (26.3% of supplies in volume terms), Belarus (13.8%), and China (10.4%). The total share of these 3 countries in the overall volume of domestic exports is 50.5%.
The share of EU countries in the total volume of Russian confectionery exports remains insignificant – around 4% in physical terms. All in all, Russian confectionery in 2016 was exported into 78 countries, including exotic countries such as Somalia, Algeria, Tunisia, Chile and others.
Regarding average retail prices that have been established for the main types of confectionery products around the country, a certain degree of stabilization can be observed in the situation, especially after the inflation surge in 2015–2016. The only exception is chocolate, prices for which keep growing, even though not as rapidly. The reason lies in the unfavorable global pricing environment in terms of cocoa beans, which the Russian chocolate manufacturer fully depends upon as the raw material.
In June 2017, a kilogram of chocolate in Russia cost 836 rubles on average. Chocolate candies were being sold at 591 rubles per kilogram, cakes – at 431 rubles per kilogram, gingerbread – at 127 rubles per kilogram.
The declining purchasing power of the Russian population serves as a limiting factor for further growth in prices.
According to the information-analytical system GLOBAS® of the information agency “Credinform”, among confectionery producers one can distinguish top 10 companies operating in the Russian market most successful in terms of annual sales revenue. The key players are: “Nestl? Russia” LLC, “Mars” LLC, and “Mondelez Rus” LLC. The three leaders have firm positions in the Russian confectionery market on an industrial scale. The companies in question have established their own production inside the country and produce goods under well-known global brands.
“Fazer” LLC is worthy of a separate mention, demonstrating a considerable decline in annual revenue due to the high import content in the main food ingredients, which led to a significant increase in costs. One can conclude that in today’s economic situation companies that did not manage to localize their production and organize supplier chains inside Russia are losing noticeably.
Virtually all Russians spoil themselves with various sweets in one form or another. Today a transformation is taking place in the confectionery market: Ukraine has almost completely left it, supplies of imported goods from other countries decreased significantly. Devaluation of the ruble provides domestic companies with an excellent chance to aim for an expansion of their presence in the neighboring countries as well as to establish new directions for sales of products, which is practically as good as European goods in terms of quality.
Information Agency “Credinform”