Review of Broiler Poultry Market in Southern Federal District. May 2010
Poultry farming remains one of the most vibrant meat farming segments in Russia. All industry experts agree at this point, even despite the fact that in 2009 for the first time during the last 5 years market volume dynamics dropped down to unimpressive 0.3% though during the 2005-2008 it never went below 7%. According to "Intesco Research Group", in 2009 share of poultry in total volume of Russian meat market reached 37%.Exactly on poultry market domestic manufacturers successfully displace imported products: according to "RBC", share of import in market volume reduced from 49% in 2005 down to 28% in 2009 with domestic production growing during the 2005-2009 by 13-18% annually. Of course, import decline was going "with a little help" of Russian government reducing import quotas on quite a regular basis. Moreover, in February 2010 RF Agricultural Minister Elena Skrynnik mentioned a certain agreed plan on meat import quotas reduction during the next three years. In January 2010 Rospotrebnadzor joined the "import-reducing battle" with the introduction of the so-called "chlorine ban" announced a year ago new sanitary norms on chlorine content in the fluid used for poultry meat treatment. The "chlorine ban" should actually ban poultry import from the USA the country with softer regulations on chlorine; considering the fact that Russia provides really a small share in US poultry export American manufacturers would hardly find it reasonable to change the traditional technology. Well, small or large is the share of Russia, but USA is in no hurry to quit Russian poultry market a year passed since the new norms were announced but USA took no steps either to meet the new requirements or discuss the issue beforehand. Even now USA remains rather stiff on this point. Moreover, all this "chlorine fuss" has a negative impact upon political relations between Russia and USA. This is why Rospotrebnadzor and Rosselkhoznadzor have been negotiating with USA representatives since January 2010. No results of these negotiations have been announced yet, but RF First Deputy Prime Minister Viktor Zubkov supervising agro-industrial sector, made a comment that American party might claim for transition period for USA poultry suppliers.
According to RF Minselkhoz (Agricultural Ministry), South Federal District was the third large Russian meat manufacturer in 1Q09 after Central and Privolzhsky FDs with about 20% of total domestic production volume. And just like in Russia in general, exactly poultry farming is driving the industry in the region.
In May 2010 "Alliance Major" completed another wave of South Russian poultry meat market investigation project. Research method was store-check in 11 cities/towns of the review region, namely: Armavir, Astrakhan, Volgograd, Kamyshin, Kislovodsk, Krasnodar, Novorossiysk, Pyatigorsk, Rostov-on-Don, Stavropol and Taganrog. Key retail indices SKU, facings, and retail coverage were investigated for the product category "chilled and frozen chicken meat (whole, cuts, and variety meat/by-products)". Sample of retail outlets represented the regions retail structure by trade formats, and included hypermarkets, supermarkets, minimarkets, discounters, convenience stores (independent counter food stores), and also retail outlets at wholesale-and-retail sales depots and street markets. In this review the findings of the recent research wave are compared to the results of the previous wave held in October 2009.
In the 2010 sample split of retail outlets into civilized formats hypermarkets, supermarkets, minimarkets, discounters, convenience stores and markets/depots was 58% to 42%. Meanwhile in October 2009 this split was 51% to 49%. This significant change of sample structure was determined by certain retail trends. Since the end of 2008 and up to the middle of 2009 consumers except the premium group definitely tended to shift from civilized retail to street markets/depots being stimulated by the crisis. However since the middle of 2009 civilized retail has been recovering its share mainly in retail chains segment. This process is to a great extent driven by special measures taken by retailers like optimizing product range and pricing policy, and introduction of new purchase-stimulating programs. Besides, large retail chains were growing on acquisition of small retailers which started to go bankrupts during the crisis. According to "Discovery Research Group", share of retail chains in retail structure increased from 28.3% in December 2008 up to 30.5% in December 2009, and two thirds of retailers even managed to increase their cashflow in rubles last year. These all-country trends are also traced in food retail in the South of Russia. During the store-check, "Alliance Major" registered appearance of new large retail outlets in some cities/towns: for instance, hypermarkets "Carousel" and "Real" in Rostov-on-Don, hypermarket "Magnet" in Kamyshin. Change of retail structure in the review region was also stimulated by special measures taken to support civilized trade: in particular, on January 1, 2009 there were 128 street markets in Rostov Region including food markets; meanwhile currently there are only 123 street markets in the Region. According to the results of monitoring held by Administration of Rostov Region, total number of trade spots at the street markets reduced by 1167 in the period from April 2009 to April 2010.
According to "Alliance Majors" findings, import accounts for insignificant part of SKU in the category of chilled and frozen chicken meat offered by retail in the South of Russia: a little more than 1%, and in comparison to October 2009 this index even declined almost by 2.5 times. Domestic products also dominate in terms of facings share in civilized retail 98.4%. Quite logically domestic products demonstrate 100% retail coverage in the South of Russia. In the segment of imported chicken meat the highest retail coverage was registered for products supplied by three countries: chicken meat imported from USA is offered by 5.2% of retail outlets included into store-check project, index of Brazil constituted 1.9%, and of France 1.6%. Store-check revealed that chicken meat is imported to the South of Russia from 6 countries.
In the segment of domestic products lions share of SKU offered by retail in the South of Russia 97.7% is provided by supplies from five regions: Stavropol and Krasnodar Territories, Belgorod, Rostov, and Volgograd Regions. In October 2009 these five regions aggregately provided 93.7% of SKU. During the review period two regions increased their SKU shares: Stavropol Territory from 23.4% to 27.2%, and Volgograd Region from 5.6% to 10.3%. SKU shares of other three regions leading in supplies declined a little by 1-2% each. Same five regions dominate facings in civilized retail of the South of Russia 96.8% in the segment of domestic products. Over 50% of shelf space in this segment is controlled by Stavropol Territory (32%) and Rostov Region (23.4%). Krasnodar territory and Belgorod Region provide respectively 20 and 18% of facings in the segment of domestic products, and Volgograd Region just 3.7% of facings. As we see, major part of SKU and facings of Russian chicken meat offered by retail in the South of Russia is provided by "southern" regions, with federal leader Belgorod Region being the only exclusion.
In May 2010 SKU share of frozen chicken meat increased over October 2009: from 67.7% to 70.8%. Respectively, SKU share of chilled products declined from 32.3% to 29.2%. It should be mentioned that in May 2010 SKU share of chilled chicken meat in some cities/towns exceeded the average index and constituted in Rostov-on-Don 45.9%, in Novorossiysk 45.6%, in Taganrog 41.6%, and in Krasnodar 32.8%. Meanwhile in Kislovodsk, Kamyshin, Armavir and Astrakhan SKU share of chilled chicken meat ranged from 15% to 16.6%.
Split of facings into chilled and frozen products in civilized retail changed the following way during the review period: facings share of frozen chicken meat declined from 65.5% to 61%, while facings share of chilled products increased from 34.5% to 39%. Growth of chilled meat was mainly driven by cuts. Facings share of cuts in chilled meat category increased from 55.9% to 64.7% during the review period. This dynamics reflects retailers response to the recent and important consumer trends: health concerns/wellness and choice of time-saving convenience. Exactly these reasons stimulate consumers increasingly buy chilled chicken cuts. Elena Shevyakova, Marketing Director in "Stavropolsky Broiler (Stavropol Broiler)" CJSC comments: "Paying attention to changing consumer demands is very important for any manufacturer. But what else is new? All large market players are very sensitive to every little change in consumer trends. Essential things of today are convenience, time-saving, concerns about health aspects of food. So poultry meat manufacturers us being no exclusion respond to these demands with offer of fresh chilled chicken meat in convenient cuts. But this is just a matter of survival, simple direct response to market needs. Production safety control, certification according to GOST, TU, SanPiN, ISO standards and HACCP requirements is also a matter of survival, but for the largest players. Without all these things on a mature market and Russian poultry market is very close to it there is no way even to hold the conquered market share, to say nothing of increasing it. Meanwhile responsible commitment, respect to consumer, staying in contact with consumers, investments into innovations, accent on long-term perspective instead of instant profit thats what we call social responsibility, and thats how we work though under current economical conditions it sometimes is quite a challenge". Meanwhile in terms of product categories of chicken meat offered by the retail in the South of Russia the largest SKU share is provided by cuts 59.9%. Whole chicken and half-carcass provide 17.4% of SKU, and variety meat/by-products 22.6%. Cuts have the larges SKU shares both in chilled and frozen chicken meat; however, during the review period SKU share of cuts in frozen meat declined from 62.3% to 56.8% while in chilled meat it increased from 66.8% to 67.6%. Distribution of facings in civilized retail looks quite similar to the described distribution of SKU: cuts provide 63.9% of facings, whole chicken and half-carcass 20.3%, variety meat/by-products 16.6%. And again analysis of facings share dynamics revealed decline of cuts in frozen chicken meat facings from 67% to 57.8%, and increase of cuts in chilled meat facings from 69.3% to 71.4%.
Manufacturers of chicken meat most often use trays to pack their products this package format covers 65.3% of SKU with 2% decline in comparison to October 2009. Tray is mainly used for frozen and chilled chicken cuts respectively 71.4% and 85.1% of SKU in each category, frozen and chilled variety meat/by-products respectively 62.9 and 70.2% of SKU, and chilled whole chicken and half-carcass 53.5% of SKU in each category. Second important package format is plastic bag 24.2% of SKU with 10.4% increase over October 2009. Plastic bag is used to pack frozen whole chicken and half-carcass 77% of SKU in the category. In the category of chilled whole chicken and half-carcass this package format is also relatively popular 35.3%.
Chicken meat sold by weight provided 6.4% of SKU registered during store-check in May 2010; in comparison to October 2009 share of this segment declined by 7.5%. Interestingly, sales of unpacked product are more typical for chilled chicken meat. In frozen chicken meat category unpacked products have 5.5% of SKU in cuts, 4.3% of SKU in variety meat/by-products, and 2.9% SKU in whole chicken and half-carcass. Meanwhile in chilled chicken meat category unpacked product provides 13% of SKU in variety meat/by-products, 10.7% of SKU in whole chicken and half-carcass, and 10% of SKU in cuts.
Other package formats registered in retail offer of the South of Russia were corrugated box, briquette, and bucket aggregately the named types of package provided 4.1% of SKU.
In May 2010 average prices per kg of chicken meat declined a little against October 2009 practically in all of the review product categories. In the category of frozen chicken meat average price per kg of whole chicken and half-carcass declined by 10%, of chicken cuts by 5%, and of variety meat/by-products by 23%. In the category of chilled chicken meat average price per kg of whole chicken and half-carcass declined by 8%, of chicken cuts and variety meat/by-products by 4 and 11% respectively. Decline of average prices for chicken meat should have been determined by combination of several factors, most important of which were general decline of consumers disposable incomes, accelerated competition between manufacturers underpinned by the economic slowdown, and increased share of retail chains with their discount policy in retail structure in the South of Russia. Interestingly, in the segment of frozen cuts average prices reduced in all basic types of cuts breast, drumsticks, thigh, and wings. However average price per kg of frozen chicken legs increased during the review period by 2% being driven by reduced quotas on import including supplies from USA, and reduced number of trade spots at street markets major distribution channel of inexpensive American chicken legs.
According to May 2010 store-check, chicken meat in South Russian retail is supplied by 72 manufacturers. In October 2009 this number was 91, which means that during the review period the number of manufacturers supplying chicken meat to the South of Russia reduced almost by one fifth. This situation was conditioned both by increased competition and desire of manufacturers to optimize their logistics: some regions of Russia distant from the South ceased supplies, or like Kaliningrad Region significantly reduced them.
According to "RBC", leaders of chicken meat sales in Russia in 2009 were "Prioskolye" CJSC (Belgorod), "Cherkizovo" GK" OJSC and "PRODO" Group (Moscow). Meanwhile store-check in the South of Russia revealed a different order of leaders.
The largest chicken meat SKU shares in South Russian retail are provided by "Stavropolsky Broiler" CJSC (Stavropol), "Prioskolye" CJSC (Belgorod), "Resurs" GAP (Moscow), and "Optifood" PK / "Kalitvensky MPK (Meat and Poultry Integrated Facility of Belaya Kalitva" LLC (Rostov Region). Leaders of facings share in civilized retail are "Stavropolsky Broiler", "PRODO" Group, and "Prioskolye". The highest retail coverage in the South of Russia was registered with "Stavropolsky Broiler", "Prioskolye", and "Resurs".
During the review period SKU share of non-branded products declined by 12.6%, and facings share of this category reduced by 5.2%. Currently both indices constitute some 3%.
Interestingly, federal leader "Cherkizovo" Group provides a very unimpressive SKU share of chicken meat retail offer in the South of Russia about 1%. Facings share of this manufacturer is also very small. During the review period "Cherkizovo" improved retail coverage a little, but still this index is far below 5%.
Store-check of food retail in the South of Russia revealed dominance of domestic manufacturers in such indices as SKU share, facings share in civilized retail, and retail coverage. Major part of chicken meat offer in terms of SKU and facings is provided by Stavropol and Krasnodar Territories, Belgorod, Rostov, and Volgograd Regions. The best retail indices in the South of Russia are demonstrated by "Stavropolsky Broiler" CJSC.
Nina Krympenko,
Senior Analyst
Alexandra Romashova,
President
The article was published in Russian Food&Drinks Market magazine in June 2010.