Retail sales of baby food in Russia will reach US$371m by the end of 2005, up by 10% in current value terms compared to the previous year. International manufacturers are moving into this lucrative market as demographic changes drive demand. Elena Ruiu, Packaged Food Analyst at Euromonitor International, investigates.
The positive performance of baby food sales in Russia is being driven by the improving birth rate, which increased by 16% over the 1999-2004 period, and more importantly by the growing number of children born to women over 30 years of age, living in urban areas.
Russian women are focusing on their careers and trying to achieve financial security before giving birth, often conceiving at a more mature age than before the 1990s financial crisis. The local authorities in Moscow and St Petersburg expect to be faced with a shortage of available places in nurseries and schools due to the high birth rates over the last few years.
Working mothers living in larger towns have also started to wean their children earlier and are using packaged baby food for a larger proportion of their children’s diet compared to mothers living in rural areas, who still prefer homemade food for their children.
However, in actual terms, the majority of babies still live in rural regions where unemployment rates are higher and disposable incomes lower. The breastfeeding rate is also above the national average of 40%. On the whole, according to local industry sources, this translates to only about 50% of parents regularly buying food for 0 to 12 month-old babies.
Disappearing “baby kitchens” and shorter breastfeeding periods benefit baby formula sales
Milk formula is still relatively underdeveloped in Russia and, according to Euromonitor International’s latest research, accounts for one third of total baby food volume sales. The peculiarity of the Russian market is that sales of toddler milk are minimal, confirming the popularity of dried, mostly homemade food for toddlers. In addition to this, the assumption that cow’s milk can easily replace milk formula is still widespread.
The relatively high breastfeeding rate (40% in the first three months) explains why standard formula accounts for just 30% of total baby milk volume sales, while follow-on milk accounts for a larger share, consistent with the increasing proportion of women who stop breastfeeding after the first few months.
Retail sales of milk formula have been given a boost over the past few years thanks to the declining number of government “baby kitchens” countrywide. In these kitchens, parents were entitled to receive free or discounted milk formula upon presentation of a prescription.
Home prepared food still a staple for children
The main food staples for Russian toddlers are porridge and oatmeal products. These products are available in branded/packaged formats, as dried baby food. However, packaged dried baby food sales only account for one-sixth of total packaged baby food sales. This is due to the fact that it is relatively easy for parents to cook such products themselves from scratch, instead of buying prepared dried versions from baby food manufacturers.
More than one-third of baby food is accounted for by prepared food (wet food in jars). This was one of the first product types to be developed specifically for babies, as the opportunity for parents to prepare vegetables/fruit-based meals at home was restricted by the limited availability of fresh ingredients. In spite of the high penetration rate of this product type, it does not seem to be suffering any symptoms of maturity yet, although its value growth rate is being hampered by the large share of cheap, locally manufactured products on the market.
In spite of its relevance and positive volume growth, prepared food is not showing great dynamism in terms of new product launches. Innovation is instead focused on dried food. Danish baby food manufacturer Dania proved particularly dynamic in 2005 launching a plethora of porridge and soup recipes, similar to Gerber with its range of porridges enriched with vitamins and minerals. Among the domestic companies, Pervy Kombiant Detskogo Pitaniya launched a whole new range of products, under the Tip Top brand, which are free from flavours and preservatives. It appears that dried food is showing a higher degree of innovation compared to prepared food because it offers more scope for development, considering its lower penetration.
New rules expected to improve baby food labelling
Poor labelling is a common problem in the Russian food market, and baby food is no exception. Some pack labels on baby food products have been marketed without the manufacturing/expiry date and have also failed to indicate nutritional information and type of fat content. Labelling is gradually improving following the new state food labelling standards, introduced in January 2005.
In addition to this, specific rules for baby food production were developed by the Russian Agency for Health and Consumer Rights (RosPotrebNadzor) and became effective in July 2005.
The new rules, detailing raw materials and process and packaging requirements, are mandatory for both producers and importers and harmonise Russian legislation with European standards, as part of Russia’s WTO accession process. Only raw materials with a low content of salt, fat and additives are admitted and only a small proportion of vitamins and minerals can be added.
The new rules ban GM ingredients as well, a decision prompted by the adverse reaction of customers to the claims by the Association of Genetic Security that “many types of baby food available in the Russian market contain 50% – 100% genetically modified components”. Foreign manufacturers in particular were accused of targeting GM prepared baby food for the Russian market, while selling GM-free products in Western European countries.
Ban after food scares
Food scares related to GM ingredients in baby food in 2005 followed the Russian ban on a number of imported brands manufactured by Valio Ltd, Gerber Products Co and Humana in 2004, on the grounds that they did not meet safety and quality standards set by the Russian Health Ministry. The negative reaction from consumers helped local manufactures and foreign companies that had already developed local production win customer loyalty.
Among these are the German company Kruger GmbH, which operates in partnership with local distributor Slavex, Heinz, which launched local production in the mid 1990s, and Royal Numico, which owns a plant in the Moscow region. Heinz adjusted to local consumers’ demands, launching a range of dried food made from wheat, which is particularly popular in Russia. However, the company continues to import its prepared products, due to problems in sourcing raw materials locally.
Vertical integration is a major barrier to the establishment of local plants, as demonstrated by the Swedish company Semper, which studied the possibility of producing baby food in Russia and abandoned such plans despite potential cost savings, due to prohibitive problems in guaranteeing the quality and safety of raw materials.
Socio-demographic changes expected to drive future growth
The increasing rate of working women combined with growing spending power will be a major driver of sales in baby food, despite the prediction that birth rates are expected to remain stagnant. Although in Russia, as in most other countries, baby food advertising is restricted, more advice about packaged baby food is expected to appear in the media. Companies are expected to launch premium products with enhanced nutritional properties. Also, increasing awareness about specific needs will mean that cow’s milk will gradually be substituted by milk formula and hypoallergenic products will overcome their current relegation to niche status. Value growth will take place mostly in urban areas, whereas in the remote regions, due to the lower average income per capita, the value growth of milk formula sales is likely to come at a slower pace.
It is not only the foreign majors that stand to gain. Local manufacturers will have opportunities to reinforce their position, as most consumers believe that locally produced baby food is healthier and more natural.
To view details of a comprehensive report on the Russian baby food market, click here.