Russia: Can Fruit Snacks Sales Recover from the Impact of the Embargo on Dried Fruits?
In August 2014, Russia introduced sanctions banning Western food imports, which immediately increased prices and decreased consumption of import-dependent categories, among them dried fruits, which accounts for all the sales of fruit snacks in Russia. Consumers who were becoming more interested in modern and convenient snacking habits, reflecting the high tempo of living in urban areas and a greater interest in healthy lifestyles, were forced to choose other, cheaper ways of snacking.
The successful association with health and wellness benefits which characterised dried fruits seems to be under threat, as manufacturers have reacted to the sanctions by cutting their expenses by simplifying packaging and choosing cheaper raw materials. However, state authorities have intervened, making statements expressing their solicitude concerning the current situation regarding food quality standards in Russia and their willingness to introduce a clearer labelling system with a view to improve quality and transparency in different food categories.
Heavily impacted by the sanctions, dried fruits are experiencing pressures as they are considered as healthy food but still lack a clear system of labelling certification which would reassure consumers about their quality. Domestic manufacturers facing the problems caused by higher inflation and decreased purchasing power also have to contend with a shrinking number of potential supplying countries and how to maintain high quality supply.
Role of state control: Restrictions or protection?
Dried fruits in Russia depend on imports. The Russian Federation’s import of dried fruits represents almost3%of global exports of this product, ranking the country 10th in the world. However, local manufacturers generate less than 10% of total volume sales.
Turkey has long been a key exporter of apricots to Russia, so the decision of Rosselkhoznadzor (Federal Service for Veterinary and Phytosanitary Surveillance) in December 2015 to ban agricultural production from this country not only increased the price of apricots, but changed the structure of the dried fruits market in Russia. Due to increased supplies from Iran and countries of Central Asia, raisins still lead. With imports of apricots from Turkey having been banned, this type of fruit lost its second position in the ranking of most popular dried fruits in Russia, as it was overtaken by prunes.
Moreover, in March 2016, the deputy head of Rospotrebnadzor (Russian Federal Service for Supervision of Customer Rights), Alexei Alekseenko, suggested introducing a clear system of distinguishing criteria for the quality of natural products, and the following discussion regarding the need of having state quality control systems received strong support from both manufacturers and consumers. The first attempt at such control over food quality was made by putting restrictions on retailers selling dried fruits in bulk. It was believed that this would lead to retailers paying more attention to quality, and the focus on packaged dried fruits would reduce the risk of possible non-compliance with phytosanitary standards.
Consumers’ dilemma: Price or quality?
With Russians becoming increasingly price-sensitive, legislation encouraging grocery retailers to offer private label packaged dried fruits became a helpful tool in reducing prices by 15-20% compared to branded equivalents, but this did not solve quality issues, as grocery stores typically offer a limited assortment, often of poor quality.
Due to excise duty imported products, such as dried fruit, are more expensive and are generally associated with the premium price segment. Although customers in the premium segment are less price sensitive and demonstrate higher levels of loyalty, double-digit inflation and rising retail prices have changed customer attitudes, and many are opting for cheaper alternatives. Products from international companies became too expensive for many Russian consumers in 2015 and early 2016, and they switched to premium products from Russian producers, which are not necessarily inferior in quality, but are cheaper than those from international companies. Moreover, according to several surveys, Russians are showing greater trust in local brands, and Western European goods, even those marked with labels indicating organic production seem to be less in demand.
Russia: Fruit Snacks Volume and Value Sales 2011-2021
Domestic manufacturers: Win or lose?
The leading international dried fruits manufacturer is Seeberger GmbH, which is now not able to compete effectively with domestic players. Seeberger GmbH saw the biggest decrease in value sales already in 2014, and faced the biggest fall again in 2015, as the German-based company was struggling due to the retaliatory sanctions against EU agricultural products introduced in August 2014.
According to data from the Russian Federal Customs Service, imports of Seeberger GmbH’s packaged dried fruits stood at just 10 tonnes in 2015, a 90% annual fall. In 2015, the company, which before the retaliatory sanctions was placed second in the Russian dried fruits category, was involved in court proceedings against retailers selling Seeberger GmbH products on the grounds that they should have been banned. Although the legal challenge was solved by highlighting the fact that the place of origin of the products was outside the EU, new challenges arose in 2016, due to a ban on imports of agricultural products from Turkey, where part of Seeberger GmbH’s products originates from, and decreasing consumer purchasing power in Russia almost stopped the activities of the company in 2016.
Cost savings were at the forefront of domestic manufacturers’ strategic activities in reaction to the economic crisis in Russia, and companies sought to reduce the negative impact of the current situation in the Russian economy by differentiating their products. For example, companies started producing not only natural snacks, such as dried fruits and nuts, but also offering other products from the competing categories of confectionery and snack bars.
In order to reduce risks, the main dried fruits players in Russia usually buy large amounts of product at once, process part of the raw material using their own production facilities and sell it under their own brands. Additionally, some companies have recently cooperated more closely with retailers as they have discovered opportunities in supplying dried fruits to grocery retailers. However, this has contributed to make competition between branded producers more intense. The focus is mainly on attracting middle class consumers with an average incomes of over RUB50,000, which accounted for 18% of the population in 2015. All companies are stressing quality as the main feature of their products, in line with the prevailing perception that dried fruits represent a healthy snacking option.
Health and wellness: Future or past?
The concept of dried fruits as a healthy snack has been around in Russia for many years, and it has become standard practice for manufacturers to highlight the benefits to health on product packaging. However, a unified certification programme and clearly distinguished criteria for labelling are still missing in Russia. On the one hand, the sanctions-based import policy aggravated economic recession in the country, while, on other hand, a focus on the domestic market brought quality issues into the spotlight.
Potential growth remains despite current challenges
Although state legislation aims at strengthening quality standards to protect consumers and encourage producers to be more concerned regarding quality, new regulations could also be used as a political tool to create additional barriers for foreign players aiming to enter the dried fruits category in Russia.
The climate conditions make domestic cultivation of raw materials for the most popular type of dried fruit, raisins, impossible. Russia remains the largest consumer of dried apricots in the world, and following the ban on Turkish agricultural products, the share of imports of dried fruits from countries in Latin America (Chile, Argentina), the Middle East (Iran, Syria, Israel), and China is expected to rise.