Food & Drinks Industry Day
Converting Opportunities to Business:
Russian and Ukrainian
Markets Overview 2008
RUSSIA
Key Facts
• Real GDP growth in the first half of 2008: 8%. Real GDP
Growth averaged 6.5% annually over 2000-2007. Nominal GDP
in 2008 estimated at € 1,135 bln
• Inflation in 2007: 11%
• Unemployment in 2007: 6%
• Currency – Ruble: €1 = 35.4 Rubles (as of October 2008)
• Population - 142 million people
• GDP/cap, 2007: € 8,100.
• GDP composition by sector: agriculture, 4.6%; industry: 39.1%;
services: 56.3%.
Russian
consumption
• Income inequality higher than in Europe, but lower than in the US.
Top 10% Russian earners are responsible for 30% of
consumption in Russia.
• In 2007, the average Russian disposable income increased by
10.4%. In 2008 over 60% of the population had a disposable income
of €275 ($350) after household costs.
• Urban dwellers consume significantly more than their provincial
counterparts. Consumers in Moscow and St Petersburg spend the
most on consumer goods and services; other regions with high levels
of consumption include Yekaterinburg, Kazan, Krasnodar, Novosibirsk,
Tyumen and Rostov on Don
Top Consumer Trends
• “Quality is worth the money”. Consumers’ desires fuelled by easier access to
credit.
Spenders rather than savers. Growth of premium products.
•
Exponential development of retail sector
•
“Conspicuous consumption”; Consumption seen as a means to acquire
status. Russians, and Muscovites in particular, are extremely brand-conscious.
•
Growth of the food service industry: half of men and women aged 16-50 eat outside of
home at least once a week
•
Russians have more of an international outlook on consumption: one third of Russians
are able to afford holidays abroad.
•
Growing importance of advertising in determining Russian consumers’ choices.
(Euromonitor 2008)
Food & Drinks
Sector: Main Trends
•
According to AEB, Russia is the fastest growing market for Food & Drinks in
Europe, and should be the first F&D retail market in Europe by 2015.
•
Food & Drinks represented 45% of total retail turnover in Russia in 2007, i.e.
€ 140 million.
•
Russia’s Food & Drinks sector is to a large extent dependant on imports (up to
70% in some categories).
•
The HoReCa sector has also registered a boom especially in the lower-priced
end of this category (cafes). The premium segment (luxury restaurants) is highly
competitive and quite saturated in Moscow.
Irish Export
Performance
In 2007 Irish F&D exports to Russia amounted to €84,486,444.
Key export sectors include:
- Live pigs (including pure breed pigs), frozen/chilled pork meat:
€18,991,331
- Seafood (including mackerel, oysters etc): € 3,002,680
- Alcoholic beverages: € 23,127,564
Retail Market Overview
• In cities with over 100,000 inhabitants, modern retail outlets account for
around 60% of all purchasers' visits. Open-air markets account for a large
share of the remaining, but their share is decreasing. In the countryside and for
some categories of food such as horticulture, open-air markets prevail.
• The value of modern retail sales in Russia has increased by 60% over the
past 5 years. (Euromonitor)
Retail Market Overview
• Russia
is no. 9 in the world for grocery retail sales value. Sales in modern
retail outlets in 2007 amounted to €120 bln.
• Carrefour has announced plans to open its first Russian outlets in 2009 in
Moscow, Krasnodar and Rostov on Don. Foreign chains such as Metro Cash
and Carry, Real, Ramstore and Auchan are already well implanted in the
largest urban centers and are expanding in the regions.
• The retail market is highly fragmented: the Top 10 Russian retailers
control only 5% of the Russian retail market. Leading retailers in Russia
include the X5 Group (which appeared as a result of the merger of Pyaterochka
and Perekryostok), Metro Cash & Carry, Tander and Auchan Russia.
Retail Market Overview
(Source: IMCA 2008)
Retail Strategy Overview
-Main trends in Russian
retail industry
• Growth of the market share of premium outlets such as Azbuka
Vkusa and Globus Gourmet in order to cater for the supply of
premium F&D goods. The majority of goods in those shops are
imported as shoppers are extremely brand-conscious.
• Format diversification is currently at the core of the retail chains’
strategy for Russia. Following on the success of premium shops, retail
chains are diversifying their retail formats by trying out smaller shops
with a better quality of service. Others such as X5 are trying out large
Cash &Carry formats to appeal to a more popular base.
The Grocery Retail
Market- Structure
By Format
• The Russian retail market remains highly fragmented. The
structure includes open markets, street kiosks, pavillions, small
served independents (Gastronoms, Produkti) and
supermarkets/hypermarkets
• Modern developments have so far focused on the two major cities of
Moscow and St.Petersburg. Expansion in the most dynamic
regions is now underway.
• Retail activity remains localized by city and by region, with no
retailer approaching national coverage.
• Local retailers are stepping up their expansion. They benefit
from first-mover advantage and an understanding of both Russian
consumers and the bureaucratic system
Retail Market Overview
- Opportunities -
•
Strong growth: An opportunity for strong growth is what Russia offers. Growt
50% are still commonplace for retailers, who are seeking to expand their oper
at an incredible pace. New entrants such as Carrefour will also be looking for
and could provide opportunities for Irish exporters.
•
Consolidation: Retail consolidation is well underway (e.g. merger of Pyatero
Perekrestok which gave rise to the X5 group) and is set to increase further
•
Premiumisation: Premium shops are currently the most dynamic segment o
sector, even though they are currently concentrated in Moscow and St Peters
them are planning on expanding in the regions and in other countries of the C
Azbuka Vkusa, for example, is planning to spend $230 mil in the next three
expansion plans. This retail format could be highly advantageous for Irish pre
Russian Food service
market
• The HoReCa sector is one of the fastest growing segments in the
Russian economy and experiencing growth rates of 20-30% per year
• Growth of Russian Food service market: 2005 – €9.97 bn, 2006 –
€11.36 bn Euro, 2007- €13.36 bn Euro
13,36
14
11,36
12
10
9,07
8
Euro (bn)
6
4
2
0
2005
2006
2007
Foodservice Market Overview
-Consumer trends -
• The majority of HoReCa customers are price sensitive, but
very interested in new and innovative products. As the Russian
restaurant culture grows in sophistication, the demand for different
products increases.
• Russians now spend more of their income on food than any other
country in Europe and dining out is beginning to replace home as
the preferred venue for entertaining.
• New shopping centres also play a central role, as all large shopping
centres have ‘food courts’ with low-priced restaurants.
Food service Market overview
-Subsectors in MoscowOne quarter of all Russian restaurants are in Moscow
In Moscow, low-priced restaurants are the most successful with 60% of
the catering market share, followed by elite restaurants (14%) and fastfood outlets (11%):
Budget
Restaurants
Elite dining
Fast Food
Other HoReCa
Foodservice Market Overview
• Russian restaurants’ turnover for 2007 amounted to €14.2 bln.
• This represented an increase in profits of 29% by comparison with
2006, or a net profit increase of 18% (if taking inflation into account).
• 2007-2008 saw the entry of global chain Starbucks on the
Russian market as well as the café chain Costa Coffee. The café
segment is the most dynamic, especially in Moscow, where annual
profits increased by 37% in 2007.
• In the area of food catering, the most popular catering formats are
cafes offering ‘lunch deals’ and with a buffet option; as for the menu,
European and Asian cuisines are the most popular.
Food Service Market Overview
•
For the first time since the late 1990’s the fine dining elite sector did not
register an increase in profits in 2007. Profit growth was of 7%, which
was negated by inflation.
• However, there are still opportunities for Irish exporters in this segment,
especially for seafood products, meat and alcoholic drinks.
• The mid-range, low priced restaurants and cafes are the ones
developing the fastest. Imported products there can make up to 85% of
the menu; however, they are much more price conscious. Furthermore,
budget restaurant chains often do not act as a unified entity; each catering
outlet often has its own suppliers.
Foodservice Market Overview
-Fast Food-
• Fast food restaurants tend to use a higher percentage of local
ingredients (around 50%).
• Many chains use imported sauces, breads, and
occasionally fruit. Some may import meat and some
produce.
• The number of independent stands is decreasing, but sales and
the number of outlets are increasing.
• National chains such “Kroshka Kartoshka” (baked potatoes),
“Stardog” (hot dogs), and “Teremok” (pancakes) are ubiquitous
in the major cities and are expanding regionally as well.
Main challenges in
supplying Russia
• Finding an experienced and trustworthy distributor
Big distributors are better suited to commodity exporters, small
distributors are more suited to high end and branded products
that need marketing attention and brand management.
• Strong competition from other importers. European
competitors established in many niches.
• Although improving, distribution and logistics remain
underdeveloped outside of the largest urban centers, making
distribution of imported products to cities in the regions difficult.
• However, the entire spectrum of categories and niches (high
end/limited and mass market) are still open to new suppliers.
Why Target the
Russian Market
•
Rising disposable income of Russian consumers and growth in retailing
•
Highly urban population – geographically concentrated demand
•
One of the world’s largest retail markets
•
Imported food estimated to account for 90 percent of total HoReCa use
•
Location: Easy Access through European Supply chain
•
European foods and cuisine have wide market penetration and the Russian
consumers are familiar with these products.
•
Russia’s future access to WTO should reduce tariffs on a wide range of imported
products
Bord Bia Services in the
Russian Market for 2009
•
Develop an information seminar on the Russian market for Irish clients to
be held in conjunction with Enterprise Ireland in February.
•
Support the market activities of Irish companies targeting Russia with
strategic advice, buyer profiles and contact details
•
Assist Irish companies at the Prodexpo Trade Fair February 09
•
Pursue Russian Media exposure of Irish products
•
Provide reports on strategic F&D categories
•
Market information will focus on supplying timely and accurate
information on market trends, product innovation, and developments in
the Russian market.
UKRAINE
Key Facts
• Second largest market of Eastern and Central Europe after
Russia with a population of 47 million.
• Real GDP growth: 7-8% a year
• Unemployment: 7%
• Currency: Hryvnia.100 Hryvnia= €13.24 (As of October 2008)
• Inflation rate (2007): 11%
• GDP/ capita (2007): € 5600
UKRAINIAN
CONSUMPTION
• The average salary in Ukraine remains quite low (€ 236/mth) but
the average disposable income rose by 30% in 2007.
• Ukraine has a growing middle-class which represents
between 15 and 20% of the population and a small proportion of
well-off residents (2-3% of the population).
• On average, Ukrainians spend 60% of their income on food
(including eating out), alcohol and tobacco products.
Why target Ukraine?
• Ukraine became a WTO member in May 2008. This will have
repercussions on customs duties for the import of food and
drinks products, and should ease complex legal procedures for
import.
• Ukraine is a major holiday destination, with over 23 million
visitors in 2007. The growth of the Ukrainian HoReCa sector in
particular is fostered by this trend.
• Ukraine is set to co-host the 2012 Euro Football
Championships; this event is set to draw in at least $23 billion
of FDI and improve infrastructure as well as attract more
international attention and tourism.
The Ukrainian Retail
Market Structure
Overview
•
Modern retail outlets (supermarkets) account for around 40% of the
volume of all Food & Drinks purchases in Ukraine.
•
Open-air markets account for the same share of all F&D purchases.
•
Small convenience shops and kiosks account for the remaining 1020%.
•
Depending on the category of product and the localisation, these
estimates tend to change; for example, in large urban centres around
80% of all purchases are made in modern retail outlets; but some
products such as honey or vegetables are still predominantly bought in
open-air markets.
Ukrainian Retail Market
• In 2007, the Ukrainian retail market was estimated at €19.5
bln. Retail-sales growth rates are spurred by higher personal incomes
and have exceeded GDP growth for the past several years.
• Food retail accounts for almost half of the entire retail
market.
•
International retailers began to enter the Ukrainian market in the early
2000’s. Metro and Spar are already well established there; Auchan has
invested in a local chain, Fourchette.
•
Ukraine ranked 5th on A.T. Kearney’s 2007 Global Retail Development
Index after India, Russia, China and Vietnam.
The Ukrainian Food
Service Sector
(Source: USDA)
• Spending on HRI in Ukraine has registered annual growth
rates of 30% for the past several years, and the fact that Ukraine will
host the 2012 Euro Championships should keep this trend going. ‘Very
positive growth’ expected for the next 5 to 10 years.
•
Population spending by different HoReCa channels (as of 2005: €641
million).
The Ukrainian Food
Service: Localisation
•
Food Service Outlets have a high-density localisation in large urban
centres. (Source: Independent consulting company)
The Ukrainian Food
Service Industry
• The presence of international fast-food chains remains limited,
and Ukrainian budget catering chains are developing fast.
• The elite dining segment is mostly represented by independent
restaurants but also two large groups (The Royal Card and The
World Map) which use a single food procurement and
distribution centre.
• However, hotels are under-developed in Ukraine and the
majority of tourists usually prefer to stay in rented apartments.
BEST PRODUCT
PROSPECTS
•
Meat: Pork and Beef
The Ukrainian red meat industry is currently undergoing a crisis
and red meat production is at an all time low, which drove prices
up so sharply that the Ukrainian government had to initiate red
meat imports in 2008.
• Alcoholic Drinks & Beverages
Licensing fees for the import of alcohol into Ukraine have been
adjusted to WTO requirements since membership was gained in
May 2008. In 2007 Ireland exported alcoholic drinks to Ukraine to a
value of €3.5 million.
CHALLENGES IN SUPPLYING
THE UKRAINIAN MARKET
• Strong competition from other EU and CIS exporters.
Currently over 30% of finished and raw products in Ukraine come from
the EU, and almost 19% from CIS countries (mainly Russia).
• Complex legal and sanitary requirements for some food
categories.
•
As Ukraine remains a country where personal contacts are necessary
in business endeavours, it is highly recommended to choose a large,
well-established domestic import company, preferably with
experience dealing with Western clients.
Bord Bia Services in
Ukraine for 2009
• Meetings with Ukrainian state and veterinary officials in
order to get access to the Ukrainian meat market.
• Attending the World Food exhibition in Kiev to identify
prospective importers and wholesalers and make contacts.
• Supporting the market activities of Irish companies
targeting Ukraine with market advice, buyer profiles and
market details.