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In the Q110 Food & Drink Business Environment Ratings (BER) table for the emerging Europe region, which now includes Turkey, Russia retains top spot, despite a challenging economic environment. One of the key draws of Russia is its sheer population size, as the per capita level of consumer spending on food and beverages remains lower than in the more developed and established regional markets. Nevertheless, the country receives maximum points for its forecast per capita increase in food consumption, which is expected to rise by just under 76% in local currency terms through to 2014, from the projected 2009 levels, with the overall food consumption in the country reaching RUB11,055bn (US$350.9bn) at consumer prices.
A number of foreign majors are making longer-term investments in the country. In the past few months, US food and drink behemoth Kraft Foods opened a US$50mn biscuit manufacturing plant in Russia, as part of an ongoing initiative to improve its chocolate, biscuit and coffee ranges in one of its core growth markets. Additionally, Nestlรฉ Russia expanded its line of premium ice creams and is reportedly to invest in capacity expansion at its market leading Cereal Partners Worldwide (CPW) manufacturing facility in Russia. A more notable development in the drinks industry is the September 2009 announcement by the Russian arm of Anglo-South African beer behemoth SABMiller that it is poised to begin domestic production of a low-cost variant of Grolsch lager, which is currently imported from the Netherlands. On the other hand, Russia clearly represents a challenging market, as evidenced by the difficulties experienced by companies active in some market segments, notably alcoholic and soft drinks. For example, Dutch brewer Heineken, which has expanded in Russia through recent acquisitions, is closing its operations at the Ivan Taranov and Stepan Razin breweriers, as part of its global Total Cost Management scheme. However, the flagging demand must have also been a factor, especially in the face of the proposed hike in beer tax and the imposition of limits on sales of beer. Similarly, Russian statecontrolled bank Vneshtorgbank (VTB) secured control of 11 beverage-making plants in Russia from the debt-amassing state-owned vodka producer Rosspirtprom. In the soft drinks arena, UK-based leading consumer packaging company Rexam has slashed annual beverage can production in Russia by 1.3bn during 2009, as a result of a drop in demand for drinks.
In the meantime, economic downturn and flagging consumer confidence are resulting in an increase in competition across the board, and the companies' need to develop new strategies and play on their strengths. To this end, leading domestic kvas maker OAO Deka, which controls 31% of the kvas drinks market, may sell a 25% stake in the company, in a bid to raise money to fight the rising competition from new entrants - Baltika and the Coca Cola Helenic Bottling Company (CCHBC) - which are expecting a consumer shift from beer to kvas, if the taxes on the former are raised, as had been suggested.
Russia Food and Drink Report Q1 2010: http://www.companiesandmarkets.com/r.ashx?id=QSOB32W5O193278&prk=a17b0e3e70de274e35d585b299f5f12b
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