The market growth rates slow down due to complex of factors

The Russian packaged food market saw growth slowing down along the review period with its current value growth declining from 20% in 2007 to 9% in 2012. The beginning of the review period saw strong economic growth resulting in increasing purchasing power for Russian consumers. From 2008, the economy saw difficult times, leading to the slowing down of consumer spending. Growing prices for milk, sunflower seeds, cocoa, cereals and sugar drove inflation and raised packaged food prices resulting in market growth during the review period. In 2012, the category saw the lowest inflation in the last 10 years and stable commodity prices. Competition among retailers and increased sophistication of consumers were the reasons for the relatively moderate market performance.

Changing economic conditions lead to shift in consumers’ behaviour in 2012

The increase in demand from the largest cities slowed down as the Russian economy saw a change in the pattern of resource flows. Saint-Petersburg lacked a large proportion of its budget inflows due to changes in taxation regulations in 2012. The general income level growth of St Petersburg citizens slowed down. Citizens of Moscow did not see as high a growth in income levels’ as was seen earlier in the review period due to difficult conditions in the world economy leading to an increase in general economic uncertainty. Slowdown in income growth made many Russian consumers more price-conscious towards the end of the review period. Companies operating in the packaged food market faced the declining effectiveness of marketing claims and greater consumer attention to the price/quality ratio.

Russia joined the World Trade Organisation in 2012

On 22 August 2012, Russia officially became a WTO member. This is expected to affect the packaged food market due to the gradual decrease of import tax decrease on dairy products, cereals and other processed and raw material products. The import tax decrease will be gradually implemented over three years and will not strongly affect category prices due to its minor impact in absolute terms. However, it may make the country more attractive for international companies which did not consider the Russian market beforehand. It will lead to a further increase of competition in the Russian packaged food market.

Largest grocery retail chains continue expansion in Russia

During the review period the largest grocery retail chains in Russia approached a scale that would make further growth through acquisitions impossible due to federal anti-monopoly regulations. However, Tander ZAO, X5 Retail Group and Dixi Group continued active organic growth by opening new stores. In the first six months of 2012, X5 Retail Group opened 171 new stores while closing only 12. Over the same period Tander ZAO opened 272 new stores under its Magnit brand.

Packaged food will not see abundant growth over the forecast period

The packaged food market is expected to see a slowdown in constant value growth over 2012-2017. The country’s economic growth is expected to be moderate, which will not create an environment for purchasing power growth among Russian consumers. Commodity prices are expected to be stable in the internal market. In a situation of stagnating demand, competition among manufacturers is expected to continue growing. Pickier consumer behaviour will lead to growing demand for standard and economy packaged food in the forecast period.