Heinz greatly enhanced its prospects in the expanding but demanding Russian market by entering a joint venture with an established Russian food company last year. Katy Humphries spoke with Heinz Russia’s transformation director and chairman Robin Walker about the particular challenges of doing business in Russia and the company’s plans for the future.

Having identified Russia as one of its four main development markets, Heinz backed its words with investment last April, forming a joint venture with Russian food manufacturer Petrosoyuz, and purchasing a majority stake in the privately owned food company.

Under the joint venture agreement, Heinz’ and Petrosoyuz’ brands and manufacturing facilities were merged to form a single unit – Heinz Petrosoyuz. The integration created a powerful player. Petrosoyuz was already the market leader in spreads and mayonnaise and held the number two spot in the ketchup sector, while Heinz was operating in Russia under its own brand name, most notably in the baby food category.

“Quite simply, we see Russia as a growth opportunity,” says Robin Walker, Heinz Russia’s transformation director and chairman. “For us, Russia is about top-line growth. We are primarily focused on global categories – sauces, baby food, snacks and meals.”

Market share data in Russia is by Walker’s own admission “immensely debatable”, with frequent squabbles between rival companies about their comparative strengths. But Heinz Petrosoyuz claims a commanding 58% share of the spreads category through key brands like Derevenskoye, Mechta Hoziajki, Moya Semya, Stanichnoye and Pokrovskoye.

Through the long-established Heinz brand, it has a 20% share of the infant nutrition category, while well known Russian brands, such as Moya Semya and Mechta Hoziajki, give it about 10% of mayonnaise sales. The company also operates in the frozen foods and bottled oil sectors.

Interestingly, in Russia Heinz finds itself in the unusual position of playing catch-up in the ketchup market, with rival Baltimore brand claiming around half of all ketchup sales in the country. Heinz Petrosoyuz puts its share of the sauces and ketchup sector at 16%, with the Heinz, Picador and Moya Semya brands.

However, the company is looking to expand in the ketchup market, building both on Petrosoyuz’ existing strengths and the pull of the Heinz brand name. And it is easy to see why Heinz is targeting growth in the category. Average annual consumption of tomato ketchup in Russia is estimated at more than three pounds per person and, according to Euromonitor International, Russians spent more than US$2bn on sauces, dressings and condiments last year.

Taking a significant step forward in this quest, the company recently inked an important deal with McDonald’s in Russia, to provide dipping sauces and sauces for burgers.

Walker sees McDonald’s as an important customer, both because of the scale of its buying power and the exposure it gives the Heinz brand. “The McDonald’s contract is part of exposing the Heinz brand to more consumers,” he says. “Products that go into the burgers will be made to the traditional McDonald’s recipe, but sachets will carry the Heinz brand name.”

While extending the presence of its globally known brand name is important, Heinz realises that its Russian brands and the joint venture’s status as a Russian company are key to achieving its goals. “One reason why we chose to enter Russia through a joint venture is the experience and familiarity that the Russian company has with the market,” Walker says.

Linking with a joint venture partner – even though Heinz has the majority share of the company – also helps the company deal with some of the unique difficulties presented by the Russian market.

One of the biggest challenges is the sheer physical size of the country. “Russia’s geographical size is certainly a challenge,” Walker says. “When transporting goods, the physical delivery and logistics is very different – you can’t just put goods in a truck and expect them to arrive the next day. I’m visiting our operations in the south soon and it’s an eight-hour flight from St Petersburg where my office is based.”

While Heinz does import some products into Russia, it has three plants in the country: a facility in the south producing baby food; a factory making sauces and margarine near St Petersburg, which is now also starting to produce ketchup; and a site in Ivanovo near Moscow which primarily produces mayonnaise and other sauces.

The difficulties of transporting goods coupled with the wide divergence in the development of consumer markets – many rural areas still lack basic retail channels – means that getting products to consumers can be quite testing.

Walker also conceded that Russian bureaucracy can be tiresome and, at times, frustrating. But again he emphasised that Heinz Petrosoyuz is more than up to the task. “There is more paperwork and administration necessary here, but we are very familiar with what is required.” Heinz Petrosoyuz‘ workforce is largely Russian and Heinz itself had been active in Russia for more than ten years. Walker was also quick to point out that being a global force Heinz is accustomed to adapting to differing market conditions.

In addition to the logistical and practical differences, the company also has to cater for Russian consumer tastes. When the company first began manufacturing and marketing Heinz infant foods in Russia, it adapted to local customs by offering Heinz buckwheat varieties, a common Russian baby cereal. One of the company’s stated aims when it announced the merger with Petrosoyuz was to gain local insight and expertise. And in this respect Walker said the acquisition has been entirely successful.

“As a Russian company Petrosoyuz’ products were already targeted at Russian tastes,” he said. “Petrosoyuz brands still constitute a majority of our sales.”

Heinz has worked to understand Russian consumer trends and tailor the company’s product offering to the market. “Everything that is manufactured outside Russia is made to Russian tastes. Of the products that are manufactured in the country, like dry baby food, there is little export outside the country – except to some of the Baltic States, which have similar tastes anyway.”

There is, of course, one exception: “Heinz ketchup is a global recipe”.

Looking to the future, Walker notes that advertising has become central to Heinz’ achieving its growth potential in Russia. “We carry a substantial marketing budget with consumer media advertising behind the Heinz brand,” he says. “At the moment we are preparing to launch a major new campaign.”