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July 27, 2009

Unilever, Nestle lick their lips at Russian ice cream

The global downturn may have cooled the recent expansion of the Russian economy but competition in the country's ice cream sector is heating up.

By Dean Best

The global downturn may have cooled the recent expansion of the Russian economy but competition in the country’s ice cream sector is heating up.


In recent weeks, many column inches have been devoted to the Russian food retail sector, to the ongoing speculation surrounding the level of foreign interest in Russia’s retail chains and to the potential restrictions Prime Minister Putin could put on the sector.


Anglo-Dutch food giant Unilever, which last year snapped up Russia’s largest ice cream maker Inmarko last year, has started building a US$140m manufacturing facility in Tula.


Production at the Tula site is expected to start in 2011 and Unilever is also looking to build on Inmarko’s market leadership with the construction of several production facilities near St. Petersburg and the west of Russia.


Nestle, meanwhile, is keen to boost its presence in Russia’s ice cream sector. The world’s largest food company told just-food that it is looking at product innovation in a bid to build its share of a steadily growing market.


Nestle’s strongest market is Moscow, where it also sells the Haagen-Dazs and Movenpick brands – two brands seen is super-premium in Russia – but the Swiss group trails Unilever in terms of market share across the whole of the country.


According to industry analysts Euromonitor, Unilever’s Inmarko accounted for almost 10% of ice cream sales in value terms in 2008. Euromonitor describes the Russian ice cream sector as “fiercely competitive” and points out that the market is seeing an increasing amount of consolidation. Inmarko leads a sector that includes Nestle but two Russian firms Russky Kholod and Talosto among its leading players.


“Due to further consolidation, driven by rising energy and raw material costs, competition between the leading players is expected to intensify, while many small domestic manufacturers will be driven out of the market,” Euromonitor says.


Fellow analysts BMI suggests that the potential of Russia’s ice cream market could attract other players from outside the country. “Ice cream is a popular commodity, although the potential of the market is likely to attract strong competition from other global players,” it says.


Between now and 2013, ice cream makers in Russia are expected to see a 3% CAGR rise in sales revenue to RUB53.3bn, according to Euromonitor forecasts. Volume sales are expected to rise by a CAGR of 2% to 454m litres.


What this trend suggests is that there will be growing demand for more expensive products. The global downturn on the Russian economy may have had an impact on consumer spending but ice cream remains a relatively inexpensive indulgence.


Couple that trend with the growth of the impulse channel and it is clear to see why the likes of Unilever and Nestle are licking their lips at the thought of the potential of Russia’s ice cream sector.

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