Russian market of Juices in 2007 - 1H2008

Producers
Consumer preference
Price segmentation
Package
Niche products

Over the last decade, the juice market of the Russian Federation has been developing dynamically demonstrating two-digit growth rates every year. Due to the income level growth of the population and efficient managing of Russian businessmen involved into juice business, fruit and vegetable juice production has grown several times during this period and reached an all-time high of ... mln liters in 2007.

There are other estimations. According to marketing company ‛Business Analytica“ in 2007 sales volume of juice products on the home market amounted to ... mln liters increased by ...% as against the previous year. Thus, in 2006 the Russian market volume was ... mln liters.

In 2010 the world market of fruit and vegetable juice will amount to the volume of ... billion liters and the European market - ...billion liters according Global Industry Analysts, Inc forecasts company.
As predicted by home experts sales volumes of the Russian juice market in 2010 will total ... billion liters. Thus, in three years, the share of Russia in the world juice production may amount about ...% and it may also make up a third of the European market. This leads Russia to the rank of the biggest producers and consumers of this product.
Such ‛tasty gulp“ of juicy market of course would not escape the attention of transnational companies and international investment funds.
During several years of intensive growth the biggest Russian producers increased their existing productive capacities and acquire the new ones. Domestic producers introduced and strengthened a range of juice trade marks are rated highly among consumers. The Russian juice market rapidly attained large production volume and high volume of assets consolidation, which attracted attention of the Western business ‛sharks“. Over the last 3.5 years almost all leading juice brands passed into the ownership of multinational corporations

In March 2008, company PepsiCo agreed on the purchase of ...% shares of the JSC ‛Lebedyansky“- the biggest juice producer in Russia. In such a way, about ...% of the Russian juice market has passed under control of foreign transnational corporations.
Thus, transnational corporations have gained not only a permit to a large-scale, growing and already quite civilized market, but also a substantial share of it. What have Russian companies got in return?
Up to the present day the market was growing due to easy raising of productive capacities and meeting demand in large cities. The companies hurried to saturate densely populated areas with their goods in order to secure a bigger market share for themselves. This goal was achieved by the great juice four – JSC ‛Lebedyansky“, JSC ‛Multon“, JSC ‛Vimm-Bill-Dann Foods“ and JSC ‛Nidan-Soki“.
After sales growth rate lowering the producers faced the need to retain their market share and if possible to strengthen their position. This task can be fulfilled by expanding the market in regions which are not saturated so far (fortunately one can still find such regions in Russia) and outstripping competitors on the old markets. One can do this by improving sales system, marketing, product quality raising and range widening. Each of the enumerated measures requires substantial financial resources. Expansion into the regions is complicated with long transportation routs, which not only raises the cost of the final product, but also demands constant logistics optimization. Thus competitive activity on formed markets is more severe, requires significant financial and other resources, which Russian juice producers had to face already.
The world experience demonstrates that in the end 3-5 transnational corporations will control the whole market. This is the model which can be observed on the developed food markets – in particular, on the Russian beer market. Almost 90% of the Russian beer market belongs to five foreign companies. Thus, the Russian juice market is likely to follow the beer market pass.
Certainly, in view of this tendency juice assets owners preferred to leave the market on rising trend leaving the battlefield for giants. In their turn with owner change the producers gained access to powerful financial resources of transnational corporations, newer, more perfect production, logistics and distribution technologies and above all to bigger experience of market competition.

PRODUCERS

As stated above, foreign companies control about ...% of the Russian juice market. Remaining ...% is divided almost equally by JSC ‛Vimm-Bill-Dann Foods“ and other members of the juice market.

JSC EKZ ‛Lebedyansky“
The Russian juice market leader is JSC ‛Lebedyansky“. The revenue of the company in 2007 amounted to $... mln, its net profit totaled $... mln. The sales volume reached ... mln liters.
Competitive advantages of JSC ‛Lebedyansky“ are significant productive capacities, proximity of the source of raw materials (Lebedyan, Lipetsk region) and wise systems of logistics and distribution in Russia and other CIS states.
The company structure consists of three productive enterprises: plant ‛Lebedyansky“ (Lebedyan town), JSC ‛Progress“ (Lipetsk city) and ‛TROYA-Ultra“ Ltd (Saint Petersburg city) and a logistic operator ‛ENTER logistics“ Ltd.
JSC ‛Lebedyansky“ produces juices and nectars under trade marks ‛Ya“, ‛Tonus“, ‛Fructovy sad“, ‛Privet“, ‛Dolka“, ‛Tusa Djusa“, juice drink ‛Frustyle“, baby food and juices ‛FrutoNyanya“, fruit waters and compotes ‛Severnaya yagoda“.

JSC ‛Multon“
In 2005, JSC ‛Multon“ (Saint Petersburg) was bought by Coca-Cola Ltd. Since then ‛Multon“ partly uses the developed Coca-Cola infrastructure for production realization in Russia region, which is a competitive advantage over other market members. According to RSPS (Russian Union of Juice Producers) data the sales volume on the home market of this company reached ... mln liters in 2007.
Productive capacities of ‛Multon“ company consist of two plants situated in the near Moscow Schelkovo and Saint Petersburg. Aggregate potential capacities of these enterprises make up ... mln liters of juice and nectar per year.
‛Multon“ produces juices and nectars under trade marks ‛Rich“, ‛Nico“, ‛Dobriy“, ‛Diva“, ‛Nico Biotime“, puree ‛Rich Fruit Mix“, juices and nectars for baby food ‛Yasli-Sad“.

JSC ‛Vimm-Bill-Dann“
JSC ‛Vimm-Bill-Dann“ (Moscow) rated first on the market five years ago. In 2002 holding VBD was the first among the domestic enterprises to place its shares on New York exchange which allowed it to attract substantial financial resources. However presently the company is only the third on the juice market. This happened because of excessive attention of the top-management on business diversification, on other holding development directions, and as a result marketing miscalculation in juice segment of the company activity. In 2007 more than ... % of VBD group proceeds was made up by dairy products sales return, ... % of proceeds was due to soft drinks segment which contains juice and mineral water sales, ... % of proceeds came from baby food sales.
Juice sales volume on the home market in 2007 by RSPS data totaled ... mln liters.
VBD produces juices in several enterprises near Moscow, in Novosibirsk, in Kursk and Tula regions.
The main enterprise is JSC ‛Ramenskiy molochniy zavod“ situated in town Ramenskoye in Moscow region. Its productive capacity is ... mln liters per year.
The primary trade marks are ‛J-7“, ‛100% Gold Premium“, ‛Lyubimiy sad“. The enterprise also produces juices for children under trade mark ‛Agusha“.

JSC ‛Nidan Soki“
In 2007 the income from the principal activity of JSC ‛Nidan Soki“ over the reporting period comprised $... mln and the profit - $... mln. The realization volume of juice production amounted to ... mln liters (data of company).
The company is the absolute leader in the Siberian Region where it has ... % of the market. The engine of the company success is their main brand ‛Moya Semya“ which is the most recognized brand in Russia (... % of the questioned according to the company ‛Romir“ and ... % according to the COMCON TGI-Russia). In 2007 the sales volume of this brand made up ... % of all JSC ‛Nidan Soki“ sales.
Since 2003 American corporation PepsiCo has bottled its new juice Tropicana on ‛Nidana“ capacities and has helped it with distribution. By expert estimations ... % of juices ‛Nidana“ is distributed via PepsiCo channels. In Moscow this share makes up ... %.
In August 2007 the sale of ‛Nidan Soki“majority share holding to British investment fund ‛Lion Capital LLP“ took place.
Plants ‛Nidan-Gross“ Ltd (Moscow region) and ‛JP Nidan-Ekofrukt“ Ltd (Novosibirsk) belong to ‛Nidan Soki“ structure. The productive capacity of plant ‛Nidan-Gross“ reaches ... mln liters per year and that of ‛Nidan-Ekofrukt“ reaches ... mln liters per year.
The main trade marks are ‛Moya Semya“, ‛Da!“, ‛Champion“, ‛Sokos“, ‛Caprice“, baby food ‛Moya Semya dlya malishey“.

Among the regional producers the most significant are:
• JSC ‛National product group ‛Sadi Pridonya“ (Volgograd region, trade marks ‛Zolotaya rys“, ‛Sadi Pridonya“, ‛Moy“, ‛Spelenok“);
• ‛Sunfruit- trade“ Ltd (Perm, trade marks ‛Dario“, ‛Krasavchik“);
• ‛PepsiCo Holdings“ Ltd (PepsiCo subdivision) the USA trade mark is ‛Tropicana“);
• ‛Interagrosistemi Ltd“ (Krasnodar Territory, juices ‛Viko“, ‛Sochnaya dolina“, ‛Vitaktiv“);
• ‛Eckes-Granini Rus“ Ltd (‛Eckes-Granini Gruppe“ subdivision, Germany, trade marks ‛Uslada“, ‛Granini“);
• and the companies holding less than 1% of the market TIU ‛Amtel“ (Moscow region, the trade marks ‛Kurortnaya seriya“, ‛2:0“), ‛Company ‛DigiDon“ Ltd (Kurgansk region, trade marks ‛Del Tropico“, ‛5+“, ‛Dvizhok“ and ‛Argo-Juice“ Ltd (Vladivostok, the trade marks ‛Argo“, ‛Jumbo“).

By the Russian Union of Juice Producers data the juice production sales volumes on the home market by the end of 2007 totaled:

The main productive capacities of the juice market members are situated on the territory of ... states of the Russian Federation. There about ... % of all juice in the Russian Federation is produced.

According to Nielsen Institute of Market Research the aggregate share of the retail sales leaders over the period June 2007 – May 2008 reduced approximately by ... % as against the same period the previous year.

Cumulative share of leading juice producers.
Nielsen Institute data on juices retail sales in Russian cities with the population more than 10 thousand people.

Over 2007, the juice consumption in Russia totaled ... liters per head, having reached the average per capita level in the Eastern Europe. However, there is still a significant potential of market growth, as juice consumption in the countries of Western Europe makes up about ... liters per head and in the most ‛juice consuming“ states the USA, Canada and Germany this index is in 2-3 times higher than the Russian one and reaches ..., ... and ... liters per each citizen correspondingly.
About a fourth of juice market sales falls to Moscow and Saint Petersburg. Over 2007, by expert estimations an average statistical Moscower drank ... liters of juice. In regions the consumption is considerably lower than the Moscow level and totals about ... -... liters per each citizen. This index can’t be compared with the European indices, so their further development juice producers associate with the expansion to the regional markets.
The market members are sure of its potential and are still raising capacities.
JSC ‛Lebedyansky“ is building a plant in the Novosibirsk region. The capacity planned is ... mln liters per year and it can be increased. Construction of the productive complex in the Siberia allows to considerably cut logistics costs. It is easier and less costly to deliver goods from Novosibirsk to the Siberia, Ural, the Far East and Kazakhstan. Plant construction costs in ‛Lebedyansky“ are estimated at $... mln.
In spring 2008, in Novosibirsk ‛Vimm-Bill-Dann“ started the testing exploitation of medium and premium segment juice ‛J7“ and ‛100% Gold Premium“ production line. A line with the capacity of ... liter packages/h (... mln per year) is installed on the VBD plant ‛Sibirskoye moloko“. The investment amounted to $... mln.
Ukrainian company ‛Erlan“ announced about the construction plans of juice and juice containing drinks ‛Biola“ plant with the capacity of ... mln liters per year and value of $... mln.

CONSUMER PREFERENCE

By the authoritative marketing company COMCON date, the share of juice consumers over the first half of 2008 did not change as against the previous year with minor fluctuation in the regions.

The share of juices, nectars, and fruit drinks consumers in the regions of Russia

According to COMCON TGI-Russia researches ТОP-20 of the most popular juices, nectars and fruit drinks marks in June 2008 looked as follows:

The research of COMCON TGI-Russia (Target Groups Index of Russia) was conducted in 70 cities (with the population of more than 100 thousand citizens) representing 12 macroregions of Russia. Moscow and Saint Petersburg are marked out as separate entities.
Sample structure: Women and men 10 years of age or older (all household members fill out questionnaires), consuming natural juices, nectars and fruit drinks. The year sample of the whole research TGI-Russia totals 19000 of households.
Periodicity is quarterly.

By retail sales audit data of Nielsen Institute of Market Researches the share of 100% juices consumption over the period June 2007-May 2008 reduced by about ... % as against the same period of the previous year. The biggest market still belongs to nectars and this segment growth is the most significant it has increased by ... % in natural and ... % in value terms. The share of juice containing drinks has already grown – by ... % and ... % accordingly. Over the reviewed period Russians have been drinking more fruit drinks, also ... %.

Segments share in juice category.
Nielsen Institute data on juices retail sales in Russian cities with the population more than 10 thousand people.

The taste preferences of Russian consumers are still the most stable component of juice market. The Russians still prefer various fruit mixtures and apple, orange and tomato juices. In the middle of 2008, the proportion of mixture-lovers equaled the proportion of traditional monotaste consumers – ... %.

Taste dynamics of the most popular juices.
The data of ACNielson Institute on juice retail sales in natural terms in Russian cities with the population more than 10 thousand people.

PRICE SEGMENTATION

There is no single approach to juice market price classification which is developed by operators and experts. According to one of variants the Russian juice market may be presented by five segments different in product quality and targeting on various consumer groups according to income level.

Premium is a segment including pure juices (Produced not of concentrate) and amounts to ... % of market in natural terms. The biggest part of such juices is consumed in Moscow and Saint Petersburg – the greatest Russian cities with the highest income level.
Juices ‛Ya“ of direct extraction (‛Lebedyansky“), ‛Caprice Beliy“ (‛Nidan“) and ‛Rio Grande“ (‛Vimm-Bill-Dann“) belong to this segment.
Above the Average – this segment which includes high-quality juices and nectars makes up 22.0% of the market.
This segment is presented on the Russian market by marks ‛Ya“ (‛Lebedyansky“), ‛Rich“ (‛Multon“), ‛Caprice Krasniy“, ‛Champion“ (‛Nidan“), ‛J7“ and ‛Chudo yagoda“ (‛Vimm-Bill-Dann“).
Average segment – includes enriched juices and traditional berry drinks.
It has one of the highest growth rates and in natural terms amounts to ... % of the whole market. The average price segment drinks are popular among working modern young people.
‛Tonus“ (‛Lebedyansky“), ‛Nico Biotime“ (‛Multon“), ‛Sokos“ (‛Nidan“) and ‛100% Gold Premium“ (‛Vimm-Bill-Dann“) belong to this price segment.
Below average. These are juices, nectars, juice drinks and berry waters produced from concentrate. At present these are the most demanded products on the market with the market share of ... %.
The Lowest segment – this segment includes mainly juices produced under the marks of retail trading chains and makes up about ... %.
Exactly the low price segment is considered to be the most dynamic at the moment. The sales growth in this segment outruns the market growth in general. The mass segment widens due to the growing prosperity of regional population who switch from home stocks to juice consumption.
The main representatives of this segment are juices and nectars ‛Dobry“ (‛Multon“), ‛Lyubimy sad“ (‛Vimm-Bill-Dann“), ‛Moya Semya“, (‛Nidan- Soki“) and ‛Fruktovy sad“ (‛Lebedyansky“) as well as juice drinks Frustyle (‛Lebedyansky“) and ‛Da!“ (‛Nidan-Soki“)

There is no stability of price diapasons in determining of these segments. Their bounds vary depending on the geographic location of sales and forcedly reflect inflation processes.
In June 2008, the average prices of packed juices in the Russian Federation ranged from ... to ... rubles for a liter depending on the region.

The average consumer price in Russia of one liter of fruit juice totaled ... rubles in June 2008, having risen by ... % comparing to January 2007.
The periods of price decline on the graphic fall at autumn period and can be explained by seasonality of juice market. At the time of mass harvest of fruit and berry, demand on juice production falls. At the same time some raw material kinds become cheaper thus juice prices in autumn period tend to go down.

Over the twelve months after June of the last year, the inflation has made a considerable leap.
The average consumer price for one liter of fruit juice in Russia in June 2008 totaled ... rubles, having increased by ... % as against June 2007.
Over the 12 months since July 2007, the price for fruit juices have mostly risen in the Southern Federal District: from ... to ... rubles/liter, by ... %.
In North-Western Federal District the prices have risen by ... %, from ... to ... rubles/liter.
In the Central Federal District the prices have increased from ... to ... rubles/liter, by ... %.
The price growth in the Siberian Federal District has been almost equal to the average Russian growth rate, i.e. ... %, but the average consumer prices are lower there by approximately ... rubles/liter: ... in July 2007 and ... rubles/liter in June 2008.
The population of the Ural Federal District could drink juices for ... rubles/liter in July 2007 and for ... rubles/liter in June 2008. Over this period the price for a liter pack of juice has grown by ... %.
The Volga Federal District persistently keeps the lowest average prices. They totaled ... rubles/liter in July 2007 and ... rubles/liter in June 2008. The rise rate is also lower than the average in the federation i.e. ... %.
For the Far East District population the average prices are traditionally the highest in the country: ... rubles/liter in July 2007 and ... rubles/liter in June 2008. However the rise rates are the lowest – only ... %.

The regions of Russia are developing unevenly. The income level stratification effect is coupled with the transport factor which is quite significant for many regions.
Thus, the most expensive juice is sold in the Chukot Autonomous District. There a citizen willing to enjoy juice products, had to pay on average ... rubles/liter in June 2008. Without the Chukot Autonomous District the list of regions with the most expensive juices looks as follows:

Ten regions with the lowest average price for fruit juices, rubles/liter. June 2008

But there is rise in prices not only on product. During the period from July 2007 to May 2008 the average per capita income level in Russia grew by ... %. During the same period (11 months) the average consumer price for 1 liter of fruit juice in Russia grew by ... %.
If the juice consumption level were defined only by the price and the income level, the sales would depend on its affordability. The affordability index is usually defined as the share of average retail price in the income of the average consumer. Here it shows the percentage of the family budget a person should give away to buy a liter of fruit juice.
Over the period since the beginning of 2007, juice has become more affordable to the average consumer (judging by average statistical data). To buy a liter of juice a Russian has to spend a share of its budget which is ... % less than at the beginning of the last year.

However over the same reviewed period (since the beginning of the last year), this budget share of an average statistical citizen for some categories of the most demanded products has risen. This made Russians look for economizing opportunities, for example by cutting unnecessary costs.
By the market members’ forecasts, the Russian juice market will slow down its growth because of inflation effect on consumers.
‛It would be too optimistic to hope for the high growth rate of the juice market this year“ – says Andrei Yanovskiy, general director of ‛Nidan Soki“.

PACKAGE

In first six months of 2008 more than half of all juices has been sold in ... liter bottles. Nevertheless, the share of this most demanded segment of packing reduced to ... % in comparison with the similar period of the last year. There are the sales of juices in bottles from ... to ... liters which grown most of all. This segment has increased the share by ... % and has occupied in the considered period already more than a quarter of the market (... %).
Among packing up to one liter inclusive the buyers have preferred volumes of the top part of this range. The sector of juices in bottles from ... up to ... liter for the period winter—spring 2008 has grown in ... % against the similar last year's period. Such choice of buyers increased from ... % up to ... % the share of the segment of volumes up to ... liter.

NICHE PRODUCTS

Children’s market
Over the last three years, the segment of juices for young children has demonstrated record growth rates, increasing by ... % on average per year. In 2007 by RSPS its growth rate reached ... %, and the market itself grew to the volume of ... mln liters.
The technologies of production, promotion and logistics of adults’ and children’s juices are similar but the profitability (and accordingly the yield) of children’s juices is ... -... % higher. The growth rates of adults’ juices market are slowing, that is why many producers hurry to occupy their market share of the adjacent and perspective segment.
The leaders of this segment are the biggest juice producers ‛Lebedyansky“ (‛Frutonyanya“ trademark), ‛Vimm-Bill-Dann“ (‛Agusha“), ‛Multon“ (‛Yasli-Sad“), Nidan (‛Moya semya ‛Dlya malishey““), ‛Sadi Proidoniya“ (‛Spelenok“).
Beside the traditional juice producers on children’s juice market there are Russian and the world leaders of such as Asov industrial complex of baby food, Nestle (Switzerland) and Hipp (Germany).
The plans of baby food big producers are the evidence of undersaturated market. In winter 2008 company ‛Sivma“ plans to start the operation of a new plant for children’s juices; fruit, vegetable and meat puree production with the capacity of ... mln liters per year. In the beginning of 2008, company ‛Nutritek“, the baby food market leader in Russia, announced the company’s plans to enter the market of children’s juices, fruit and vegetable puree.
After restructuring of ‛Lebyadinsky“ according to the deal with PepsiCo and combining baby food and mineral water into a single company, the main company shareholders intend to develop in this direction. In Lipetsk region ‛Lebedyansky“ intends to open a workshop for baby food production with the area of ... thousand square kilometers.
The potential of this segment is still high, because the baby food consumption level per capita is about half as great as in the developed countries. The main reasons for the growth beside the purchasing capacity changing are the social-demographic changes of the last years, i.e. birth rate rise and target audience broadening. In 2007, in Russia ... mln children were born which is by ... % more than in 2006 (according to the data Ministry of Health and Social development of the Russian Federation). This is the highest rate for the last ... years. This record birth rate is expected to be broken in 2008. In January-February 2008, there were ... -... % more newborns than in the same months in 2007.

The market of ‛functional juices“
The enriched juices market is quite perspective. Juices of this kind may contain such ingredients as soda water, vitamins, minerals and tea or herb extracts.
Thus ‛Multon“ introduced five new tastes of nectar ‛Dobry“: with blackberry (for eyes), haw (for heart), chamomile (for beauty), green tea (for fitness) and hips (for immunity).
As the traditional juice market development slows down, producers will make more and more products with various functional features for narrow target segments and, thus, the functional juices share will grow. By SIG Combibloc analysts prognoses, the market of enriched drinks in Russia may reach ... mln liters as early as in 2008.

The share dynamics of juices with added vitamins.
The data of ACNielson Institute on juice retail sales in natural terms in Russian cities with the population more than 10 thousand people.

Vegetable juices
Vegetable juices in Russia never became popular. By ‛Business Analytica“ data the share of vegetable juices amounted to about ... % of the whole volume of the Russian juice market, and it has been stable for the last three year.
Company ‛Baltimor“ with its line of vegetable juices ‛Vosem ovoshchey“ dominates in this niche. Nevertheless, in August 2008, an American food product producer Campbell Soup Company applied to Rospatent for registration of its trade marks V8 and V-Fusion under which it sells vagetable juices all over the world. It is not unlikely that this company will try to enter the Russian market and change the situation.

Potential niches
There is a row of juice products which are quite common on other industrially developed countries, but practically absent in Russia. ...
You can not find a ....
In the RF this market segment development is slowed by the price factor – the expensiveness of such products of higher quality.