In recent years the Russian dairy market has posted some impressive growth rates – expanding 22 per cent in 2007/2008 according to Euromonitor.
Attracted by the prospect of such high growth and good volumes, multinationals have begun to make their move on the market. Ildikó Szalai, food company analyst at Euromonitor International, told DairyReporter.com that the Russian dairy market had been thought of as ‘local’ in orientation, with its own set of dairies and brands.
That is now set to change following the Danone merger with Unimilk and the PepsiCo acquisition of Wimm-Bill-Dann.
Once the deals have been completed, Szalai said PepsiCo will become the biggest player in the Russian dairy market with a 12.5 per cent share and Danone and Unimilk will be in second place with 7.8 per cent. The third biggest brand owner in the market, Ostankinsky Molkombinat, will stand some way behind the top two with a 1.8 per cent share.
Danone had held an 18 per cent stake in Wimm-Bill-Dann but decided to sell last year and opt for a merger instead with Unimilk. Szalai suggested that the reason why Danone went in that direction while PepsiCo made a move on Wimm-Bill-Dann is linked to the make up of the Russian businesses and the strategy of the two multinationals.
She said Danone may not have been interested in taking on the diverse businesses of a company like Wimm-Bill-Dann and preferred a more pure-play dairy company like Unimilk. PepsiCo on the other hand is a more diversified business itself that may be a better fit for Wimm-Bill-Dann.
For Danone competition issues related to its presence in the baby food market may also have made Wimm-Bill-Dann an inappropriate target.
Now that both Danone and PepsiCo have hooked up with their favoured partners in Russia, they can look forward to good growth prospects, according to Szalai.
The market has dipped since the highs of 2007/2008 as the country was hit particularly hard by the financial crisis. Growth in the dairy market fell to 9.5 per cent in 2009/2010 but is expected to return to double digits this year, according to Euromonitor.
Szalai said the dairy market is pretty well insulated from the crisis, compared to other sectors like construction, as the Russian consumer, generally unhindered by a mortgage, still has enough disposable income to keep up spending on consumer goods.
The analyst added that moving forward, 40 per cent of market growth is expected to come from cheese with the rest from drinking milk, yoghurt and other dairy products. In this regard it stands between Asia, where growth is due to coming mainly from milk and Western Europe where cheese and yoghurt products are the main drivers.