Translation Polina Pushina
Entering the New Year, even the most global skeptics are waiting for change for the better. We often hear people say, “Everything is going to remain the same, it’s important not to make it worse.” But deep inside we all believe in a miracle.
However, in order to make a marvel come true, one needs not only to dream, but act for the dream to come true. The truth is that it’s not always clear what direction one should act in.
Assume that a businessman is dreaming of a sharp step-up in sales, the ousting of competitors from the market, the long-term contracts with foreign partners. And he understands what changes are needed for his business.
For better understanding what the year 2011 is going to be for the representatives of the confectionery and baking industries, we’ve defined last year’s milestones and tried to understand how they can reflect the next year.
Major players of the “confectionery field”
According to the researches of Intesco Research Group, the Russian market size of the confectionery in 2010 increased by 1.6% last year. The huge part of the confectionery market is occupied by home producers. The largest producers of the confectionery are Mars, OOO (about 5% of all confectionery in Russia), Lipetsk confectionary factory Likonf, OAO (more than 3%), Konti-Rus, ZAO (2,3%). Rot Front, OAO, Confectionery Union Rossiya, OAO, Babaevskiy Confectionery Concern, OAO, Kraft Foods Rus, OOO, and KDV Yashino, OOO. These companies produce more than 10% of the total volume of the Russian confectionery. Share of the import product is rather 12% more. Major exporters of the confectionery are Ukraine, Poland, Germany, Austria, Slovakia, Czech Republic, Italy, Greece, Belgium, Switzerland, the Netherlands, Great Britain, Sweden, Denmark, Chile, Argentina, Republic of South Africa, Turkey, Azerbaijan, Iran, China, Korea and Thailand. Chocolate and chocolate goods account for one-third of all Russian imports.
Several major changes were made in the legislation, and they’ve made a different impact on confectionery and bakery manufactures. Under discussion was implementing into force the Federal Law on Trade. According to the legislators, this law was supposed to simplify food manufacturer’s work. The law has limited trade operator’s work: revocation of retro-bonuses, limit establishment on delay in paymentetc. At the same time producers confessed that there had been no changes in their cooperation with companies.
The second event is revocation of the all-Union State Standard (GOST) for some of confectionery and bakery products. It had an ambiguous effect. Right after replacing GOST into declaring products, producers didn’t know what to do. They were worried that they would have to change all regulatory documents. But it turned out not to be necessary, producers can choose between two ways of certification.
Replacing the all-Union State Standard with declaring made the quality of some products much worse, especially oil fat and creamery. At the same time revocation of GOST didn’t influence confectionery and bakery industries much. The reasons for that are obvious. Bakery producers work in a long-established scheme and have gained a good reputation in the market, so most companies did not make any changes in the formula in order to reduce the cost of the product. Quality of confectionery didn’t get worse as confectioners realized that their products were supplementary ration, and customers can always buy competitor’s products, if they have a better quality.
Summer drought and embargo on exports of grain have also influenced the industry. Experts say that these factors damaged millers, as they had lost foreign outlet, the blank space was taken by foreign companies.
Waiting for… what?
The next year, buying preferences will remain the same; people will choose well-packed products, containing natural ingredients. The information on the packing is to be truthful and full.
Development of the bakery business is largely driven by the specificity of the product. Bread is a perishable product; it is to be baked locally. Thereby, one of the priority tasks for the branch associations is development of the local bread baking. It will be a priority for the next year.
Thus, in 2011 baking and confectionery industries will be developing in several different ways. Customers with higher incomes won’t be as money-saving as in the previous year; therefore people’s attitude to the quality of the product and good packing will become more scrupulous. Branch associations aim to struggle for introduction of changes in the legislation on behalf of producers and local baking industry development.
President of the Russian Guild of Bakers and Confectioners (ROSPiK)
The overall situation in the bakery market
Today, the baking business in Russia is mainly presented by small and medium-sized companies, numbers prove that. Thus, in our country, the number of enterprises, employing over 250 people, is only 2,1% of the total number of bakery companies, and 7,3% of companies operates from 250 to 101 people. The largest number of enterprises - 76,9% have from 100 to 15 employees, and 11% of companies have less than 15 employees.
There are only 5.4% of companies in Russia with an annual turnover ranging from 400 to 1000 million rubles. The bulk of companies (68.2% ) have an annual turnover of less than 60 million rubles.
The potential of bread baking
Bakery sector has good prospects for development:
- Potential growth in employment - up to 300 thousand;
- Growth of the level of competition is more than twofold;
- The ability to set up about 22thousand new business units in the bakery.
In addition, market growth potential of bread and bakery products (in constant prices) is more than 500 billion rubles. And market growth potential of services of bakery infrastructure is more than 150 billion rubles.
In order to implement the existing potential of bakery business before 2020, the executive and legislative authorities of the Russian Federation should:
- Set up the regional guilds of bakers and confectioners in 2011;
- Develop and implement a regional program for the development of competition for small and medium-sized businesses in the bakery market;
- Develop strategies to attract investments, including foreign ones, in the baking industry for setting up new business entities, educational centers and infrastructure;
- Develop a draft regional law on bakery;
- Develop and implement changes in tax legislation in order to reallocate the tax flows from the baking industry in favor of municipalities.
Heading for the regions
The North-Caucasian Federal District (NCFD) was set up by the Decree of the President Dmitry Medvedev on January 19, 2010 № 82 “On Amendments to the federal list of districts”. The district includes: the Republic of Dagestan, the Ingush Republic, the Kabardino-Balkarian Republic, the Karachayevo-Cherkessian Republic, the Republic of North Ossetia-Alania, the Chechen Republic, and the Stavropol Territory. The center of the Federal District is Pyatigorsk.
The approach paper for the development of the region is the "Strategy of socio-economic development of the North-Caucasian federal district before 2025"; it is approved by the governmental decree on September 6, 2010.
The chief goal of the Strategy is providing facilities for the advanced development of the real economy for the members of the North-Caucasian Federal District, job creating and raising living standards of the people.
The transition of the constituent territories of NCFD from stabilization policies to the policy of forced growth is planned as a part of the Strategy. Key areas of the State support are investment in the economic development for achieving progressively self-sufficient life of NCFD regions, as well as facilitating their integration into national and global economy.
In accordance with the basic objectives of the Strategy, the Russian Guild of Bakers and Confectioners in conjunction with the Federation Assembly of Russia took the initiative of holding the Caucasus Cup for Bread baking “Bread is a world”, which was held in late October, 2010.
The Cup was held for the purpose of the economic and social development of the region.
“Bread is a world” was a federal level actions system. The main event was the competition of bakers and confectioners from NCFD regions. The second part was devoted to the Inter-Regional Conference on baking "Methods of socio-economic modernization of the North-Caucasian Federal District: an innovative approach." The third part was devoted to the Bread Fair.
Besides the teams from the Ingush Republic, the Kabardino-Balkaria, the Republic of North Ossetia-Alania, representatives from many other regions and cities of Russia (Moscow and the Moscow region, St. Petersburg, the Kaluga Region, the Voronezh Region, the Sverdlovsk Region , the Rostov Region, the Stavropol Territory, the Krasnodar Territory etc.) have also taken part in this event.
The conference showed that the considerable part of small and medium-sized businesses of NCFD was concentrated in trade and in the priority economy sectors of the district, which are construction, agriculture and tourism. In order to increase their access to financing, it is necessary to develop the microfinance system, set up guarantee funds, support small and medium-sized businesses by partly financing rate interest on loans, set up and develop inter-regional committees for the support and development of small and medium-sized businesses.
All participants agree that Caucasian bread baking Cup should become an important federal socio-economic measure, it is recommended to be hold annually in autumn (October) in one of the regions of the North-Caucasian Federal District.
The Trade act, which came into force on February, 2010, needs some improvement, as after its adoption most problems have not diminished. Resolution of the Government of the Russian Federation on July 15, 2010 № 530 "On approval of rules of establishing maximum allowable retail prices for some kinds of socially important foodstuffs of prime necessity" also requires the completion. According to the Resolution, one may set the maximum allowable retail prices on certain types of socially significant food commodities. In addition, this Regulation specifies a list of certain types of socially important food products with the maximum allowable retail prices. All this has made the interaction between producers and commerce more complicated.
To our opinion, it is necessary to change the wording from "Rye bread, rye-wheat bread" (“rzhanoj hleb, rzhano-pshenichnyj hleb”) and "Bread and bakery products made from wheat flour"(“hleb i bulochnye izdelija iz pshenichnoj muki”) to "Bread and bakery products" (hleb i hlebobulochnye izdelija) in a list of certain types of socially important foodstuffs of prime necessity with the maximum allowable retail prices.
In general, 2010 was not different from previous years for the representatives of the bakery sector, including small and medium-sized businesses, except for changes in tax legislation in the area, where the Unified Social Tax (UST) is collected. These changes have undercut the solvency and financial stability of bakery producers.
It is worth noting that a permanent Commission on the development of baking and confectionery production was established within the business association “Reliance of Russia” (“Opora Rossii”). We hope that results of the work of the Commission will make a positive impact on the baking and confectionery sectors. In particular, the Commission plans to initiate changes in the tax law regarding collection of UST.
The all-Union State Standard’s abolition on some types of confectionery and bakery products had no effect on the assortment, since its forming depends not on regulations, but the skills of the bakers, and business discipline.
Primary commodity prices for production of confectionery and bakery products (sugar, flour, cocoa) will surely change within the inflation.
In any case, in 2011 bakers need to be prepared for hard work and defend their positions at all levels. In addition, it is necessary to pay attention to consumer preferences, which form the main trends of the industry.
Horeca: segment perspectives
Baking and confectionery industry have a lot of segments, each of them develops in a different way.
An integral part of the confectionery and bakery market is the tearoom. Its way of development differs from retail chains. Therefore, we’ll focus on them separately.
CEO of RestCon consulting company
Frankly, the last year wasn’t noticeable for bakeries and tearooms, I can’t remember any spectacular events.
Since the economic crisis is not over yet, it was a pretty tough year. You can still feel its influence virtually everywhere in the country, including Moscow. In this regard, the year 2011 is going to be more productive and, in fact, will lead to the real economic recovery in 2012.
I think coffee shops and confectionery shops will develop best of all.
I believe, the structure of consumer demand will not change, and the expenditures on various sweets and treats will almost certainly increase. A deferred demand will also affect the sector; it will motivate bakery and confectionery producers.
Last year we noticed that the businessmen are interested in investing in such a promising and interesting sector, as bakery and confectionery. And this interest is clearly manifested in virtually all regions of the country. It’s hardly possible to find more or less developed region without any bakery and confectionery business projects.
It means that the segment growth could be very significant in 2011. Considering the fact that it is still quite free, in relative terms it could easily reach more than 20-30%.
I can assume bakeries and confectioneries will have to reduce prices pretty soon (maybe not this year, though), as those prices don’t indicate the factual quality of the product.
So, what about Moscow? The cost of confectionery and bakery products is quite high. At the same time the pastry might be quite trite, a sandwich - rigid, and bread - sour. Although prices on them are almost like in a restaurant. It seems to me sometimes that the consumer doesn’t have any respect for himself, as he is ready to overpay for the dubious pleasure not to eat "Threaded bread" (“Nareznoj”). It will take a little time, but people will start thinking and pay for really good quality only. Since it is much harder to produce quality product than reduce prices, sooner or later goods will become cheaper. But again, this can hardly happen in 2011.