Nestle's acquisition of leading Russian chocolate maker Ruzskaya Confectionery Factory highlights its confidence in the buoyant Russian market. As a result of a booming economy and rising disposable incomes, Russian consumers are increasing their spend on premium chocolate, a fact which has led global players such as Nestle to seek out a bigger slice of the market.
Nestle has paid an undisclosed amount for the Moscow-based Ruzskaya Confectionery Factory, which specializes in premium chocolates under the brand names of Comilfo and Ruzanna. The confectioner generated a turnover of around US$51 million in 2006 and is estimated to achieve sales growth of 40% in 2007.
The acquisition will complement Nestle's solid Russian chocolate portfolio, cementing its position as the leading chocolate company in the country, with over 13 years of experience in Russia. Nestle's strong supply network in Russia will be used to enhance the distribution of Ruzskaya products, which currently have a Moscow and St Petersburg bias.
The $1.3 billion Russian chocolate market has one of the strongest growth rates in Europe, with a forecast CAGR of 8.0% by value in the 2006-2010 period. This compares to a CAGR of 2.3% for Europe as a whole over the same period. It is this strong growth potential that has encouraged global players such as Nestle to look to enhance their share in the market.
A key reason for the buoyant chocolate market in Russia is the rising disposable income in the country, led by the growing commodity price of oil - the main source of Russia's growing wealth. This rising affluence has led consumers to spend greater amounts on luxury goods, including everyday luxuries such as premium chocolate.
Nestle is not the only company to exploit this rising growth. Earlier in 2007, Wrigley bought an 80% stake in Russia's second leading premium chocolate maker, A. Korkunov, paying $300 million. This marked Wrigley's first foray in to chocolate; the fact that it made this entry in Russia highlights how the global players perceive the country as having strong growth potential.
With prior knowledge of both the Russian chocolate market and premium chocolate in general, Nestle has an advantage over Wrigley in the market and is expected to develop Ruzskaya into a strong local brand.