RUSSIA FORUM BUZZ. Made in Russia: Domestic Consumer Goods



Richard Smyth: Russia is the third largest market for Mars, they will not jeopardize the quality of their product despite the potential slowdown in demand. The company successfully overcame the challenges of 1998, and argues that the current environment is much more benign, as both customers and corporates have a stronger foundation compared with previous years. Two key challenges are uncertainty in demand and ruble depreciation, but new opportunities arise as highly professional staff is becoming more available, and marketing prices are heading south.

Sergei Ivanov: The companies producing staples are in good shape to overcome the crisis, as they have already adjusted their business models to the challenging environment. The historically low-margin nature of their businesses, alongside raw materials inflation in 2007, encouraged companies to shift to a lean cost base and tight cash flow control a year and a half ago. The demand for oil products is not declining, but Solnechnyie Produkty Holding foresees a revenue slowdown. The key problem is financial stability of the distribution chain, encouraging companies to be selective in choosing counteragents.

Andrey Yanovsky: The juice industry, where domestic producers account for 99% of the market and around 60% of raw materials costs are forex-denominated, will see tough times ahead. It may be challenging to pass on the pricing pressures to the customers, especially as juices are considered a non-essential item. Producers need to work with distributors and retailers more closely to overcome the slowdown. Opportunities may arise from the labor market, with demand for qualified personnel easing.

Patricia O’Hayer: The market is not seeing a trading shift yet. In 4Q08, Unilever saw double-digit revenue growth in Russia and it is looking at this country as a research and manufacturing base. It is important to have brands across the entire price spectrum in a time of slowdown. The company is pressing on with its operations in Tula and its investment plan for Russia.

Stefan De Loecker: Consumers are anticipating that things will get worse, as frequency of shopping is increasing but the average ticket falling. Companies need to focus on efficiency to overcome raw material price inflation. Innovation is important, and Nestle Rossiya is considering evolving its products to fit the demand ratio, including changing packaging size.

PANEL:

Richard Smyth, General Manager, Mars LLC
Stefan De Loecker, Chief Executive Officer, Nestle Rossiya LLC
Sergei Ivanov, Chief Executive Officer, Solnechnyie Produkty Holding
Patricia O’Hayer, Vice President Communications and Corporate Relations, Unilever
Andrey Yanovsky, Chief Executive Officer, Nidan

Troika Dialog