just the facts - Russian dairy industry

French dairy giant Danone is to merge its Russian fresh dairy business with local firm Unimilk. Here, with Euromonitor, we take a look at the Russian dairy market.

Danone ranks second in yoghurt and sour milk drinks, with a near 11% value share in 2008. The company is poorly represented in sour milk drinks, while in yoghurt it has a 16% share, with sales of around RUB6.7bn. Wimm-Bill-Dann Foods continued to lead yoghurt and sour milk drinks in 2008, with a value share of 28%, due to its strong positions in sour milk drinks, with 27%, and in yoghurt, with 29%.

Many product areas within packaged dairy foods saw volume sales decline in 2009 over the previous year, as a result of consumers cutting back in response to the economic downturn. During the forecast period 2009-2014, however, many of these product areas will return to growth as consumer incomes improve. Ice cream for example saw 3% volume decline in 2009 over the previous year but is expected to see 2% volume CAGR during the forecast period.

The Russian dairy industry has become highly innovative, with an increasing number of manufacturers looking to supply functional and low-fat products, promoting wellbeing, to health-conscious consumers. This has helped drive growth in yoghurt in the country, where probiotic products became a real success. It is likely that functional and low-fat products will recover and start growing quicker than most other products after the economic crisis.

Three foreign companies rank in the top five in yoghurt in Russia: Danone Groupe (16%), Ehrmann (4%) and Campina (almost 3.7%). These companies benefit from significant brand awareness, as well as their ability to invest heavily in advertising and new product launches. According to Campina, Russia is now one of its four most important markets, alongside the Netherlands, Germany and Belgium. Campina plans to expand both storage and production capacity, and to broaden its portfolio in order to support further sales growth in the country

A shift towards healthier eating habits, especially among an emerging class of people with greater spending power, will continue to drive growth in functional yoghurt during the forecast period. Between 2009 and 2014, functional drinking yoghurt is expected to grow at a CAGR of 11% in constant value terms, to reach RUB5.2bn, while functional spoonable yoghurt is predicted even faster growth, with a 12% CAGR, to be worth almost RUB13bn in 2014.

Multinationals will continue to invest in developing their presence in Russia during the forecast period. Players will be keen to capitalise on forecasts of economic growth in the country. Given the impact of currency fluctuations and import duties, they will also be keen to develop domestic manufacturing within the country. Multinationals are expected to continue to seek out domestic acquisition targets, while they will also invest in developing their own production plants in the country. Unilever for example plans to invest EUR100m in expanding its ice cream production in Russia.