Russian Marketplace Trends And Environment For An American Bakery/Coffee - Essay Example

Russian Marketplace Trends and Environment for an American Bakery/Coffee RUSSIAN MARKETPLACE TRENDS AND ENVIRONMENT FOR AN AMERICAN BAKERY/COFFEE GRACE SARKAR Order No. 401302 26 February 2010 Table of Contents Introduction 3 Market for Bakery/Coffee 3 Dynamics of coffee market in physical terms 5 Distribution of retail sales among regions in terms of value 6 Competition 6 Purchasing Power 7 Conclusion 7 Sources 9 Table and Images 9 RUSSIAN MARKETPLACE TRENDS AND ENVIRONMENT FOR AN AMERICAN BAKERY/COFFEE Introduction Russia has learnt some good lessons in marketing in the recent decades. But it is not easy to crack the century-old political system it has known and the subservience of its people to it. As early as the 1980s it would have been quite difficult for foreigners to consider establishing business operations in Russia. However, the current situation has improved although difficulties persist in getting across culturally in order for foreigners to start and sustain business operations. The difficulties do not stem from any single source. There may be manifold obstacles ranging from stiff local competition to corrupt bureaucracy. The positive side to the bakery/coffee market is it is a growing market in Russia. For an American keen on establishing bakery/coffee outlet in Russia, the difficulties may not be more than what you may encounter in any other growing economy. However, it is important to do your groundwork properly before setting shop. Do not be in a hurry. Take your time. Build your contacts! (Successful Business in Russia, 2010) The distribution system in Russia does not appear to be well-organized and there are queues to make most purchases. The trend is changing with budding entrepreneurs coming up with marketing skills that, given the political nod, could easily upset the lethargic traditional system (Smilor, Ray; 2002). Market for Bakery/Coffee There are encouraging signs for anyone in America considering an entry into the bakery/coffee market in Russia. There is enormous potential for growth in this market. The annual per capita consumption of coffee in Russia is 500 gm as compared to 12 kg in neighbouring Scandinavian countries (Nestl to start coffee processing in Russia, 2004). Statistics are not available for bakery items which comprise large range of products comprising cakes, bread, biscuits, and other savouries. However, there is the eagerness to taste new assortment of baked items. There are also trade fairs and exhibitions for bakery items. So it should not be difficult for American entrepreneurs to participate in these fairs and exhibitions and glean information for starting bakery outlets in cities like Moscow and St. Petersburg to begin with (Event Profile, 2010) This does not mean that starting a bakery in Russia is a cakewalk. There are going to be difficulties and obstacles in the form of competition as well as other unknown problems. The iron curtain may not exist any longer. However, Russia is still going through teething problems and the transition to a free market is experiencing a pull between traditional radicals and budding entrepreneurs (Smilor, Ray; 2002). You got to stick to the budding entrepreneurs. While on the subject of bakeries, it is pertinent to make mention of Fazer's successful operations in Russia. "Fazer is one of Russia's leading bakery companies. During the past three years, Fazer's bakery operations in Russia have grown at an average rate of ca 40 per cent annually, and today they constitute 14 per cent of the Group's turnover. Fazer has during the past ten years invested ca 130 M in its operations in Russia and the Group's four bakeries in Russia employ 3 500 people. Fazer is a leading contract catering company in the Nordic and the Baltic countries, offering customers delicious food and tailor-made service solutions. The company operates in the Nordic countries, Estonia, Latvia and Russia." (Fazer's Ten Years of Success in Russia, 2007). In order to gain access to the Russian market for bakery/coffee there is the need to cultivate local contacts and form bonds with coffee outlets across Russia. As far as coffee is concerned, statistics clearly reveal the consumption pattern over the years. Coffee comes in various blend and flavor. According to methods of processing coffee may be divided into powdered, granular, freeze-dried and natural one (see Table 1). Table 1 Shares in total retail sales of coffee (according to data for February-March of 2007), % In physical sales,% In monetary sales,% Instant freeze-dried 24.9 52.1 Instant granular 20.9 23.0 Instant powdered 10.2 7.8 Coffee-mixes 25.8 7.5 Ground, coffee in the bean 18.1 9.6 (Table 1- Review of Coffee Market in Russia, 2009) Dynamics of coffee market in physical terms, thousand tons (Image 1) Distribution of retail sales among regions in terms of value, February-March 2007 The region-wise retail sales distribution of coffee in Russia is as below (Image 2): The total sales value of coffee was US2.2 billion in 2007. The growth rate for the period 2002-2007 was 20% annually (Review of Coffee Market in Russia, 2009). Competition The main competitors are the international brands Switzerland's Nestle and the U.S. brand Kraft. Nestle enjoyed a market share of 36% in 2001 (Nestl to start coffee processing in Russia, 2004). In 2007, the market share of Nestle was 28.9% to Krafts' 26.6% (Review of Coffee Market in Russia, 2009). Nestle and Kraft held more than half of the market value of Coffee in Russia. Other brands with market presence are Tchibo GmbH (Germany) 7.9%, CJSC (Moskovskava Kofeynia na Payah) 5.8%, and Food Empire Holdings Ltd. (Singapore) 3.3% (Review of Coffee Market in Russia, 2009). These total 17%. With Nestle 28.9%, Kraft 26.6%, and others 17%, the total works out to 72.5%, leaving the rest for smaller producers. Thus, there is room for the average manufacturer or dealer. Naturally, the government may try to favour the local manufacturer. However, competition is fair to the foreigner too. Purchasing Power "The average monthly wage in Russia stands at just over US$225, which allows for little discretionary spending in single-income households. Nevertheless, real disposable income rose 11.5 percent year-on-year January through April 2004 and healthy growth should persist into 2005" (Russian Household Budgets Expand, 2004). The purchasing power of the average Russian increased 150% during the four years 2001-2004. There is strong demand for local goods as well as imported goods (Russian Household Budgets Expand, 2004). Conclusion The socio-economic conditions in Russia are improving with the rest of the world. However, with women outnumbering men and large number of single parent (largely comprising women) families, hopefully marketing will take the lead in introducing bakery/coffee products along with schemes promoting stronger marital and family ties. Russia has been closed to open market for over seven decades. It will take time for this nation to adjust to the advantages of the open market. But there is a positive inclination in Russia on switching over to the new commitment to excellence and challenging work environment. The nation is doing its bit to provide good products and services to its customers, and also provide the best working environment for teamwork, creative thinking, and open communication amongst its employees (On the Road: Moscow, Decadence and Drizzle, 2009). This nation is consistently following the path of technological research and innovation. There is the willingness to change over and improve human resources to achieve growth. To an outsider, there are chances to participate in the emerging market scenario. However, it is necessary to exercise due care. It is necessary to thoroughly understand the Russian culture before launching business ventures in Russia. This will help deal with the market as well as the Russian bureaucracy. Sources: Event Profile, Modern Bakery, 2010, http://www.biztradeshows.com/trade-events/modern-bakery.html Fazer's Ten Years of Success in Russia, 30 October 2007, Fazer Bakeries Export, http://www.fazergroup.com/templates/Fazer_News.aspxid=65288&epslanguage=EN Nestl to start coffee processing in Russia, 13 April 2004, http://www.foodnavigator.com/Financial-Industry/Nestle-to-start-coffee-processing-in-Russia On the Road: Moscow, Decadence and Drizzle, 02 July 2009, http://www.chriskolbu.com/2009/07/on-the-road-moscow-decadence-and-drizzle/ Propexpo Agriculture, 05.02.2009, http://www.4to40.com/fairs_and_exhibitions/index.aspfairid=5596 Review of Coffee Market in Russia, 2009, http://business.export.by/en/act=s_docs&mode=view&id=10242&type=&mode2=archive&doc=64 Russian Household Budgets Expand, Entrepreneur, 01 September 2004, http://www.entrepreneur.com/tradejournals/article/121578176.html Smilor, Ray; Of Grocery Stores, Lines and Entrepreneurs, Beyster Institute, 2002, The U.S. Russia Center for Entrepreneurship, http://www.cfe.ru/eng/center/aid=69 Successful Business in Russia, 2010, http://biz-in-rus.com/bookgclid=CJ3H3ee3iqACFQ1B6wodDSogdg Successful Russian baker brings new culture to customers, Snack Food & Wholesale Bakery, 01 August 2005, http://www.highbeam.com/doc/1G1-137501501.html Tea & Coffee in Moscow, Russia Travel, 2010, http://www.justrussia.org/russia/moscow/tea-coffee2.asp Table and Images Image 1 & 2 - Review of Coffee Market in Russia, 2009, http://business.export.by/en/act=s_docs&mode=view&id=10242&type=&mode2=archive&doc=64 Table 1 - Review of Coffee Market in Russia, 2009, http://business.export.by/en/act=s_docs&mode=view&id=10242&type=&mode2=archive&doc=64 Read More