French Kiss is one of the producers and distributors in Russia’s confectionery market, and VIYM, an independent private equity services organization, closed a deal to acquire a stake in French Kiss on behalf of its pool of investors in 2014, according to Dmitry Schuetzle, managing director at VIYM.
French Kiss currently has 23 boutique stores in Moscow, and a further 18 franchises in key regions across Russia, Schuetzle said, and it’s set to nearly double its retail network in the coming years.
However, VIYM declined to disclose financial details on the business’ market value and sale performance.
Growing Russian chocolate market
“As of today, the Russian confectionery market produces about three million tons per year, of which chocolate accounts for 0.5 million tons,” Schuetzle said.
According to Euromonitor, the Russian chocolate market was worth about $6.6bn in 2014 retail value sales, representing as much as 5.8% of the world’s chocolate industry.
However, “chocolate consumption in Russia remains relatively low by world standards, at about 4 kg per person per year. By comparison, the European average is about 8 kg,” Schuetzle said.
The premium chocolate segment makes up about 5% of the total chocolate market in Russia, according to KPMG forecasts, and this percentage will continue to increase. By 2016, the total market is expected to grow by 45%, reaching a monetary value of approximately $9.6bn, representing 7.5% of the world’s chocolate industry.
Rouble devaluation imposes challenges
Although French Kiss' sales have been strong over the past year, it’s been affected by the current economic situation in Russia, according to Schuetzle.
“Rouble devaluation makes the renting process more complicated as lease rent is in USD. There are difficulties in the delivery of ingredients due to sanctions and decrease in demand due to reduction in population income, etc.”
However, Schuetzle said he feels confident about the future development of their business.
“After all, we are a chocolate producer, and people eat chocolate all the time,” he said.
Business expansion goals
French Kiss’ development strategy includes entering and developing new sales channels, and significantly expanding its product range, Schuetzle said. “Production of premium ice cream has been launched and there are plans to launch a range of biscuits, cakes and baked-goods.”
One thing French Kiss hopes to be more focused on in the future is developing its retail chains, according to Schuetzle.
“In 2015, we have concluded agreements for test sales in a number of Moscow outlets of supermarket chains, and we continue to keep our relations with them in 2016,” he said.
In terms of exporting French Kiss’ chocolate products, Schuetzle added that the company has seen interest from China and the Middle East, and it’s considering various scenarios for developing business in those regions.