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Russia Food and Drink Report Q1 2009

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  • Russia is again found fourth overall in the Q109 Business Environment Ratings (BER) index, illustratingthe resilience of the Russian marketplace in the face of severe - but probably shorter-term - difficulties.However, the country’s score is markedly lower than in the previous period, hampered by the negativetrade balance and modest per capita GDP levels. Additionally, red tape and corruption remain majorbarriers to investment, while the stalled World Trade Organization (WTO) negotiations indicateunresolved political and economic issues with Russia’s trading partners.Moreover, we have slashed our growth forecasts for Russia to take into account a rapidly deceleratingglobal economy, falling oil prices and tightening credit conditions in the domestic banking sector. While arobust H108 performance will ensure that full-year growth in 2008 remains relatively strong at 5.9%,economic expansion is expected to fall markedly further to an 11-year low of 3.6% in 2009. Recovery canbe expected in 2010, though we stress that a return to the 2007 high of 8.1% growth is unlikely for theforeseeable future, with the annual increase in real GDP forecast to average 5.9% during 2010-2013.In the meantime, Belgian brewing giant InBev reported a mixed set of results for Q208, while Danishbrewer Carlsberg cut its 2008 growth forecasts for Russia, its largest market, despite gaining full controlof Baltic Beverages Holding (BBH), previously a joint venture with UK brewer Scottish & Newcastle(S&N), following its takeover of the UK company. The slowdown in sales is attributed to a combinationof bad weather, rising prices and global financial uncertainty, with fears that the Russian beer market isreaching saturation levels in terms of volumes. The country’s mass grocery retail (MGR) sector is alsofacing tough times ahead, with companies expecting some consolidation as 10 of Russia's leading MGRoperators asked for state bank loans.Nevertheless, the country’s large population, and in particular the affluent urban population of the capitalMoscow, should provide a solid base for expansion of food and drink values over the shorter term, whilethe unexplored rural areas of the country indicate a substantial room for further, longer-term growth.Unfazed by the economic woes, Norwegian dairy major Arla Foods prioritised Russia as one of the‘special growth area’ countries, while leading consumer goods firm Unilever, Finnish Fazer Group,South Korean Lotte Confectionery Co. and Italian confectionery firm Ferrero Group announced plansto construct local production facilities. Similarly, Wine Intelligence branded Russia as ‘probably themost exciting new wine market to emerge in the past five years’, following a major survey of consumersof imported wines. In order to explore this trend, Constellation Brands, a leading international producerand marketer of alcoholic drinks in the wine, spirits and imported beer categories, is to open a subsidiaryin Russia.
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    Business Monitor International
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    Russia Food and Drink Report Q1 2009
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