Nestlé: recession stunts Russian confectionery market growth

Related tags Russia Economics

The economic downturn has put the brakes on the development of the Russian confectionery market and led to subdued growth for Nestlé in Russia in the first half of 2011, according to the company.

At Nestlé’s Investor Roadshow last Wednesday, the company’s chief financial officer, James Singh, reported organic growth of 4.2 per cent and a trading operating profit margin of 16.1 per cent for the Swiss group’s confectionery business.

While top performing markets included the UK, Japan, Brazil, Canada, Ukraine and China, Russia’s growth ‘continued to be subdued’.

Bruno Emmenegger, business executive manager of Nestlé Russia’s confectionery business, told the Russian confectionery market had been affected by the recession.

“Russia is a very large and highly competitive market which has been growing a lot in the past. However, the recent crisis has impacted the development of the category, which is recovering differently for various segments and companies.”

Nestlé is a key player in the Russian confectionery market, with brands like Rossiya-Schedray Dusha, Comilfo, Kit Kat Nesquik and Bon Pari.

Emmenegger said Nestlé Russia had adapted its confectionery portfolio in line with market trends and intensified competition by investing in development of its brands and reorganisation of its production capacities.

Optimistic on growth

Despite an unremarkable first half of the year, Nestlé is optimistic about future growth prospects for the market.

“We see potential for growth for the Russian confectionery market, first of all due to low per capita consumption of chocolate products in Russia and CIS [the Commonwealth of Independent States]. In Russia, chocolate consumption per person is just 50 per cent that of some European countries – Russians eat on average 4-5kg of chocolate goods per year, while the Irish or Swiss eat more than 10kg,” ​said Emmenegger.

He added that another factor in favour of the development of the market is the Customs Union that saw the removal of all customs borders between Belarus, Kazakhstan and Russia in July of this year.

“New simplified customs procedures and liberalisation of control procedures along with the cancellation of healthcare certificates for finished products makes importing materials for confectionery production to the Customs Union simpler,” explained Emmenegger.

In the short term, however, market analyst Euromonitor International does not expect the sector to see significant growth.

“The growth of the overall confectionery market in Russia is not expected to be significant in 2012,”​ Anastasija Goncarova, research analyst for Eastern Europe, told “We forecast slightly over 2 per cent volume sales increase in comparison with 2010 and value sales growth of 9 per cent in current value terms. The growth rates are quite low when compared with how rapidly the Russian market was developing earlier.”

She noted that after strong ‘downtrade’ during the recession, the premiumisation trend is returning to Russia. “However,”​ she cautioned, “the purchasing power is still relatively low. Russians like different types of confectionery, but the majority cannot afford to buy expensive products for themselves too often.”

Related topics Manufacturers Nestle Emerging Markets

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