Half of 2016 is already behind us and KOLORO team continues to summarize the results, analyze the problems of the consumer goods market and give recommendations. Today we will consider the situation in the main segments of the Ukrainian market of food products.
The year 2016 was not characterized by an upturn in production. Almost in all categories of consumer goods there was a decline in consumption. The exception was inexpensive goods – people switched to cookies and gingerbread instead of chocolate, and started buying domestic wine instead of wine from Italy and Chile.
Commodity market analysis: general trends that characterize the situation in all FMCG segments
- Boom Private Labels. Supermarkets have a full range of products from ear sticks to beer.
- Growth in sales of mid- and low-price segment goods .
- The profit growth of most producers exists by raising prices, not by increasing sales.
- Savings trend in consumers.
- Growth in sales of large packs.
- Reducing the weight of bagged goods by manufacturers, in an attempt to stem price increases.
Market analysis of milk and dairy products
Ukraine’s dairy sector accounts for a third of the country’s entire food market. The Ukrainian dairy market exists today within the framework of two factors. The first is the fall in raw material prices on the world market due to overproduction of milk. The second is the crisis in the country and the transformation of markets for milk and dairy products. Milk production in January-June 2016 amounted to 5.1 million tons, which is 1.3% less than in the same period of 2015. Exports of Ukrainian dairy products in 2016 fell by 50.7%.
Trends in the Ukrainian dairy market:
- reduction of exports (Russia, Kazakhstan and transit through these countries);
- reduction in the number of cows;
- low stocks of raw materials at processors at the beginning of 2016;
- insufficiently high quality milk from producers.
Today there is an acute problem with the quality of raw materials and low-quality dairy products that contain vegetable fats (but are not labeled).
Forecasts for the Ukrainian dairy industry
Asian vector
Ukrainian producers are looking for new markets and turning their eyes eastward. In Taiwan, Hong Kong and China, consumption of dairy products is growing rapidly. A trade mission of Ukrainian dairy processors to Taiwan lasted from March 28 to April 1. Representatives of Milkiland, Terra Food, Ukrproduct, Koropskyi Syrzavod and Dubrovitskyi Prodtovariv Plant negotiated the export of their goods . Цена на украинский продукт на тайванском рынке составляет 65-70 центов за литр. This is less than the price from local farms (75-80 cents per liter). At the same time, Taiwan’s own milk production covers only 20-21% of total consumption. You can start entering Eastern markets by cooperating with local supermarket chains and developing products for their private label.
European vector
January 10, 2016. 10 companies from Ukraine have received permission to export products to EU countries. So far, this is not a mass practice, as Ukrainian goods lack quality. All milk produced in Ukraine is divided into four grades: second, first, highest and extra. The first and second grades are low-quality milk. There is more than 70% of it in Ukraine . Наиболее качественный сорт – экстра составляет 10%. Нужно повышать долю производства молочного сырья товарно-промышленными фермами, а не отдельными предприятиями. Сегодня же 75% сырья поставляют молочным предприятиям индивидуальные хозяйства. Такой продукт будет более качественным, утверждает Ирина Кухтина, директор по закупкам «Данон Украина». Подписание Соглашения о свободной торговле не означает сиюминутное открытие европейских рынков для Украины. Over the next five to seven years, manufacturers will gradually move in this direction.
Today Ukraine can supply 36 commodity items to the EU within the agreed tariff volumes. Ukrainian quotas for exports of milk, yoghurt and sour-milk products amount to 8,000 tons per year, milk powder 1.5,000 tons, butter – the same amount.
Importantly, allowing exports to Europe automatically confirms the quality of Ukrainian products. China has also opened its market for Ukraine. However, the European market is now oversaturated with milk and it will be difficult to take its place on the shelves. The way out may be the sector of specific “niche” products. This includes the eco segment and goat milk products (yogurts, sour cream, soft cheeses, butter). Having analyzed this market segment, it is possible to reach your target audience and establish sales of Ukrainian products in the EU.
To develop corporate identity and advertising campaign for niche products go to COLORO. Let’s create quality products together!
Saving is the key to recovery from the crisis
The crisis is a reason to look for new opportunities. It stimulates to improve the quality of products and modernize production. For example, Danone Ukraine reports about the company’s efficiency improvement. They have focused on improving distribution, optimized energy consumption and are introducing modern technologies instead of using gas. The company emphasizes on reducing dependence on currency fluctuations. Danone Ukraine director says that they have been doing this since the crisis of 2008. If then the dependence on the currency component was 70%, now it is 35% and continues to decrease.
An interesting trend is the growth of the large pack segment of dairy products. This is due to the fact that it is cheaper to buy a family portion than a small glass. Also, there is a tendency of Ukrainian consumers to reorient to more traditional products: kefir, ryazhenka, sour cream, milk. They are cheaper than yogurts with additives like pineapple, which are more expensive due to their imported origin. Interestingly, the consumption of sourdough starter is growing, and some producers are abandoning the production of kefir in their favor.
Change is not scary
Some enterprises may choose to change their business vector. Marketing studies have shown that milk powder and butter are in great demand in Asia and Africa. Perhaps someone will follow this path. Another global trend in 2016 was the increase in sales of goods with high fat content, mainly butter and cheese.
A detailed analysis of the dairy market can be found here.
Meat market analysis
In 2016, Ukrainians increased their consumption of meat. The figure amounted to 21.6 kg per person per year. Meat production also increased slightly. In the period from January to June 2016, 1.5 million tons of meat were produced. This is by 1%, more compared to the same period of 2015. The increase in the amount of production was due to an increase in the volume of poultry production by 6, 3%. But beef and pork were produced less by 0.5% and 3.6%.
Imports and exports of Ukrainian meat products in 2016 are growing at the expense of poultry meat. Total exports amounted to 103 thousand tons, which is 11% more than the results for the first five months of 2015. But imports and exports of pork decreased strongly. If we talk about pork, its exports between January and June fell 11 times to 1.336 thousand (1.336 thousand in 2015). Profits also fell significantly: from 29.7 million dollars in 2015 to 1.958 million dollars in 2016.
Ukraine imports mainly poultry meat. The main countries that buy Ukrainian meat are Egypt, Iraq and the Netherlands. Imports amounted to 65 thousand tons, which is 14% more than in 2015. Ukraine imports mainly pork (30 thousand tons), poultry meat – 27 thousand tons, primarily from Germany and Poland. Imports account for 7% of all meat consumed by Ukrainians. Retail meat prices have been rising, peaking in June 2016. The price of pork and mutton increased especially strongly. The price of poultry meat grew steadily – every month by 10%.
Chicken meat producers will raise prices for products in the fall. They argue that this is due to an increase in the cost of chicken. This is also due to rising tariffs. According to the State Statistics Committee on June 10, the cost of a kilogram of chicken carcass meat amounted to 39.26 UAH. It should be noted that in Kiev prices are much higher – more than 44 UAH per 1 kg. In summer, the demand for pork falls slightly. This is due to the so-called “season of fruits and vegetables”.
Poultry sales are expected to continue their growth in the future. Things are not so good with sausage products. As in other areas, the cost of production has increased, and now good quality sausage is too expensive. Consumers prefer meat.
From the first of August 2016, new national standards in the meat industry come into force. They are regulated within the framework of international and European regulations. This will help consumers and protect them from brand manipulation. Producers now need to clearly indicate “meat products” or “meat-containing” in the product name.
Confectionery market analysis
The Ukrainian confectionery sector is one of the most modernized and highly competitive. It is quite diverse and develops differently in each segment. The first segment in terms of volume is flour confectionery. Flour confectionery products are going into negative territory – this segment is down 14.2% year-on-year.Chocolate products are in second place. Against the backdrop of the crisis, chocolate production decreased by 21.3% in 2015 compared to 2014 and continues to fall. On the contrary, the production of cocoa-free confectionery products is growing.
During the crisis, consumers prefer cheaper products: crackers, gingerbread, waffles, caramel and jelly candies. Like other industries, confectionery suffered from the ban on imports of products to Russia and other CU countries.
For the period From January to July 2016, Ukraine exported chocolate worth USD 50.6 million (23.3 thousand tons). Chocolate imports totaled $28.3 million, equivalent to 6,200 products. These figures are less than last year. The main countries to which Ukrainian chocolate is imported are Kazakhstan, Georgia and Belarus. Chocolate is imported from Poland, Germany and the Netherlands. Read more about the Ukrainian chocolate candy segment in our analysis.
In general, the sweet industry is characterized by unsweet forecasts. The purchasing power of the population is falling, prices are rising, and production is also decreasing. Demand is growing for inexpensive confectionery products, and production growth is typical for them. The way out for companies may be to increase exports and search for new markets. The most promising markets are Asian markets especially China. Yarych and Biskvit-Shokolad companies are developing in this direction. Kazakhstan was the number one importer of Ukrainian sweets in 2015.
Analysis of the soft drinks market
The soft drinks (BAN) market is one of those markets that are prone to seasonality. BANs are most in demand from mid-spring through early fall. The demand for sugary drinks is being served due to the increasing popularity of proper nutrition and healthy lifestyle. Manufacturers are looking for an alternative by creating vitaminized and juice drinks.
Soft drinks market highly competitive. Big international brands are vying for the palm of superiority. The private label segment is growing in the soft drinks sector . In 2015, the price of soft drinks increased by 66%, one of the highest price growth rates among all products.
Sales of packaged juices and juice drinks are falling. This is mainly due to price increase due to hryvnia devaluation. Domestic producers have the highest sales of mineral drinks. Foreign brands are lagging behind.
The only category in the BAN segment in Ukraine that showed sales growth was iced tea. Firstly, due to the slowest growth in its price, and secondly, due to the production of large packs, on which it is possible to save money. This trend will continue in the future.
Also in the next five to ten years, the industry will be influenced by the revision of unhealthy food categories. In the first half of 2016, scientists announced what has long been on everyone’s lips: sugar is more harmful than fat. This recognition will clearly influence attitudes towards sugary drinks in the future. Already today, sugar-free juices , such as the products of the brand Galicia, are popular . There will be more such products in the future.
Consumption of carbonated beverages traditionally rises during times of global activity. Due to marketing actions of manufacturers during soccer championships, sports Olympics, various summer festivals, market giants (primarily Coca-Cola Ukraine and Pepsi Ukraine) have growing sales. They often act as sponsors of events, which guarantees a monopoly on the sale of their products at the event. For example, Atlas Weekend 2016 and Pepsi. Smaller companies (for smaller events) can also be sponsors.
Contact KOLORO to develop such a promotional campaign. Trust the professionals!
Alcohol market analysis
A peculiarity of the alcohol market in Ukraine is state regulation. Alcohol production plants are state-owned. This gives rise to two problems: corruption within the organization and inefficient management of enterprises that produce raw materials. Ukrspirt is a monopolist and single-handedly raises excise tax prices on a regular basis. In March 2016, the excise tax on spirits increased to UAH 105.8 per liter of 100% alcohol. This provoked an increase in the price of the final product. Most domestic producers of alcoholic beverages are in favor of privatization of Ukrspirt, as they consider its work inefficient.
In Ukraine, excise tax is an advance from producers to the state. Thus, the companies act as creditors of state structures. Due to the price increase, the market of illegal alcohol is growing. This is unprofitable for producers and dangerous for the health of consumers. The shadow alcohol market is characterized by two aspects – illegal alcohol production plants and smuggling. Due to the crisis, both indicators have increased significantly.
The Ukrainian alcohol market is experiencing a drop in production and sales of alcohol. However, this applies to licensed product. But the sales of surrogate in Ukraine in 2016 increased. The share of illegal alcohol in the Ukrainian market is 40% of the total production.
Domestic brands lead in retail sales, as imported alcohol is sold at a 300% markup. In 2016, there is a trend of consumers switching to low-cost brands. This applies to all types of alcohol – low-alcohol beverages, beer, wine and liquor.
Thus, privatization of Ukrspirt and tougher penalties for the production and sale of counterfeit products may help improve the situation . A good option for wine producers may be the transition to artificial corks – they are cheaper and of higher quality. This will help prevent wine cork disease, which affects 10% of all products produced. In the New World, most companies have long ago replaced corks with other materials – synthetic cork analogs, plastic and metal caps.
Analysis of the household chemicals market
The main market players are large multinational companies:Procter & Gamble, Henkel, Unilever and Reckitt Benckiser. The main trend in household chemicals can be called economy. Manufacturers are adapting their products and advertising campaigns to the new lifestyle of consumers.
The household chemicals market was also affected by Russia’s economic measures. Interestingly, Vinnitsapobutkhim (brands Ushasty Nanny and Lotus), which belongs to Nevskaya Kosmetika (Russia), fell under the import ban in Russia. Read more about the products and positioning of the Ushasty Nanny brand in the article on baby hygiene products.
The main demand is for detergents, dish detergents and cleaning products. Demand for other categories is falling, with some items falling by as much as 40%. The market for household chemicals is only growing because of price increases. Consumers are looking for benefits and savings, this is reflected, for example, in the 5-in-1 offer. For example, a powder with bleach, rinse aid and washing machine protector already included. And Persil has introduced a powder that promises to wash dirt at 20 degrees Celsius. Most likely, the future lies in multifunctional products.
A crisis always forces you to step up and look for new ways out. Companies that still want to stay afloat see new opportunities in it:
- to optimize the operation ofenterprises as much as possible;
- improve logistics;
- look for more effective marketing strategies;
- to develop new markets.
Contact KOLORO to analyze your company and find options for crisis management measures. Мы всегда на шаг впереди!
