BMI's Executive Summary

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The Russian government moved in October to limit surging food prices, as leading food producers and retailers agreed to freeze prices on bread, cheese, eggs, milk and vegetable oil. The authorities applied tariffs on wheat exports of 10% from November to maximise supplies and left the option open to raise rates higher. Officially, food price inflation is being driven by global markets, where record demand from Asian markets and the diversion of crops to biofuels have led to record prices on benchmark commodity markets. Although redolent of Soviet command economy measures, the intervention in the market has been justified in order to restrain inflation, which threatens to exceed 10% for the first time in several years, hitting vulnerable pensioners in particular.

Public anger over rising food prices poses political risks as parliamentary elections loom at the beginning of December 2007. Despite the Kremlin's careful management of the pre-election campaign, this unrest could lead to sizeable demonstrations as well as low polling turnout, spoiling of ballots and other mischief. But while global food prices are playing a role, the move to price controls and other administrative measures paper over the longer term crisis in domestic agriculture. The dairy market is just one example: dairy farmers produced 31.4mn tonnes of milk in 2006, compared with 32.3mn tonnes in 2000 and 39.2mn tonnes in 1995. As a result, raw milk prices have risen rapidly, by an annual rate between 10% to 20% in recent years. Rising domestic production by players such as Wimm-Bill-Dann (WBD) and France's Danone are driving demand for raw milk without any increase in supply. With Russia's agricultural sector still dominated by poorly managed and largely unreformed collective enterprises, the pressure could be long-term.

Despite these huge challenges, BMI's updated food forecast estimates the total market value will have reached US$189.4bn in 2007, and is expected to grow to US$500.4bn by the end of 2012. Russia places a strong fourth in BMI's new Central and Eastern (CEE) European Food and Drink Business Environment Ranking, due to the continued enormous potential of the market. The country's consumer spending boom is finishing its seventh year and price controls do not affect the higher value-end of the food market or the drinks market.

The ongoing battle between Scottish & Newcastle and Carlsberg over control of their joint-venture Baltic Beverages Holding – which owns number-one beer maker Baltika – underlines the continued growth potential of the beer market. Snack makers are also investing heavily in new facilities, with Wrigley and Mars reportedly planning new green-field investments, Cadbury-Schweppes, Kraft and Nestlé planning to expand production and record valuations reported for independent confectionery makers currently up for grabs, such Ruzskaya Confectionery outside of Moscow. With March 2008 presidential polls looming, uncertainty will continue to haunt the current boom, of course and leave key issues such as World Trade Organisation accession up in the air.

Contents

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Chapter 1 – Business Environment

Retail Business Environment Rankings

Table: Central And Eastern Europe Business Environment Rankings

SWOT Analysis

Russia Food & Drink Industry SWOT

Russia Political SWOT

Russia Economic SWOT

Russia Business Environment SWOT

Macroeconomic Outlook

Table: Growth And Output

Chapter 2 – Retail

Plenty Of Potential For Private Labels In CEE

Table: PL Market Share Within Overall Food And Drink Retail Sales, 2006, Selected CEE Countries

Table: Leading CEE Retailers By PL Market Share

Industry Forecast Scenario

Table: Russia MGR Value Sales by Format – Historical Data & Forecasts

Company Developments

Market Overview – Russia

Table: Structure Of The MGR Market By Number Of Outlets

Table: Structure Of The MGR Market By Value (US$mn)

Table: Value Of Sales Per Outlet In 2005 (US$mn unless otherwise stated)

Chapter 3 – Food & Drink

CEE Food Focus: Fittest Fight For Future Of CEE Dairy Market

Table: EU Allocation Of Milk Quotas To 2004 Accession Countries In The CEE (1,000 Tonnes)

Industry Forecast Scenario

Food

Table: Russia Food Consumption Indicators – Historical Data & Forecasts

Drinks

Table: Russia Beverage Sectors Value/Volume Sales – Historical Data & Forecasts

Industry Developments

Company Developments – Drinks

Company Developments – Food

Market Overview – Russia

Table: Russia Agricultural Sub-sector Production (tonnes)

Chapter 4 – Tobacco

Industry Forecast Scenario

Table: Cigarette Value/Volume Sales – Historical Data & Forecasts

Industry Developments

Company Developments

Market Overview

Chapter 5 – Competitive Landscape

Key Players

Table: Key Players In Russia’s MGR Sector (2005)

Table: Key Players In Russia’s MGR Sector (2005) (continued)

Table: Key Players In Russia’s Food & Drink Sector (2005)

Regional Company Case Studies

Mercator – CEE Case Study

Financial Highlights

Table: Mercator’s Financial Highlights

The Only Way Is Up…

Current Position

Table: Mercator’s Market Share Growth To 2005

Covering All The Bases

The Importance Of Private Label

Future Position And Growth Strategies

Table: Projected Growth In Market Share, According To Company Strategy, 2005-2010

Group Diageo – CEE Case Study

Table: Brand Performance – Europe, Year Ending June 30 2006

Table: Diageo: Distribution In The CEE

Groupe Danone – CEE Case Study

Groupe Danone – The CEE Figures

Table: Key Figures By Business Line

Table: Key Figures Over Five Years, Fresh Dairy Products (EURmn)

Metro – CEE Case Study

Table: Metro’s Presence In CEE

Table: Development Of Group Sales And Divisional Sales As Well As Regional Sales

Company Analysis

Sedmoi Kontinent

Pyaterochka NV

Wimm-Bill-Dann (WBD) 8

Baltika Brewery

SUN Interbrew

Kraft Foods

Paterson

BMI Forecast Modelling

How We Generate Our Industry Forecasts

Retail Industry

Sources

Competitive Landscape for Europe Food & Drink Reports: Sample of  
Companies Ranked

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At-a-glance perspective on the strengths, weaknesses, opportunities and threats facing each market’s food & drink industry. BMI also provides similar economic and business environment studies. Company SWOTs (Strengths, Weaknesses, Opportunities, Threats) covering all leading food and drink companies operating in each market, including competitive intelligence on geographic presence and competitive positioning of multinationals against local companies; leading products, services and brands; sales and local market share; foreign direct investment, projects, partners and acquisition strategy. Illustration of the industry via rankings tables comparing revenues, number of outlets, number of employees and registration dates. BMI analyses each company’s performance, market position, strategy and investment potential.

Network of European Food Sources

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BMI's European Food Reports are based on an extensive network of multilateral organisations, government departments, food industry associations, chambers of commerce and company reports. Information sources include: