War and economic crisis played into the hands of Roshen

Re-division began on the declining confectionery market. Taking advantage of the difficulties of confectionery producers located in the east of Ukraine (AVK and Konti) consumers are trying to squeeze out the products of these producers from the store shelves. Confectionery giant Roshen has the biggest chances of conquering a share of the domestic market. The company is implementing the strategy of market expansion through increasing the number of Roshen chain stores.

ATO without candies

Over the past year production of confectionery in Ukraine dropped by record 20% to 779,000 t. The market shrunk because of the war. «In previous years up to 180,000 t of confectionery, which accounted for around 18% of the total output in Ukraine, was produced in the ATO zone. In 2014 the production volumes in the Donetsk and Luhansk oblasts dropped three times and now there is no production of confectionery on the territory controlled by the insurgents,» Head of UkrKondProm Oleksandr Baldynyuk explains. As a reminder, two major producers — AVK (businessmen Volodymyr Avramenko and Valeriy Kravets) and Konti (main beneficiary — former vice premier, MP of the VII convocation Borys Kolesnikov) are located in the ATO zone, in close proximity to combat actions.

As Capital wrote earlier, operation of Luhansk production facilities of AVK was suspended in July last year due to the military conflict, while operation of its factory in Donetsk was suspended in the end of January. At the moment, the company’s factories in Dnipropetrovsk and Mukacheve (Zakarpattya oblast) continue operation.
Konti is also experiencing difficulties. Konti’s main production assets in Ukraine include Kostyantynivska, Donetsk and Horlivka confectionery factories. The latter two are located on the territory that is not controlled by Ukraine. The company refused to reply to Capital’s inquiry, but in July the main beneficiary of Konti’s sweet business said the company’s capacities were loaded only by 40%.

As a reminder, before the start of ATO Russia prohibited supplies of Ukrainian confectionery. Due to this factor the largest manufacturer of sweets in Ukraine Roshen Corporation (linked to Ukrainian President Petro Poroshenko) suspended operation of Mariupol Confectionery Factory in February 2014. According to assessments of Baldynyuk Russian embargo led to decrease of confectionery exports to Russia by half to 300 mn t. «Considering that Roshen accounted for nearly half of our export to Russia, specifically if we exported products for around USD 600 mn per year Roshen accounted for USD 300 mn Russia’s ban on Roshen imports cut Ukrainian import by half,» he said.

Survival strategy

Roshen is the only company that is developing on the domestic market. While AVK and Konti located in the combat action zone are trying to survive their competitors have a chance to take over a share of the market. According to the information on the website of Roshen the company opened 14 new chain stores since summer 2014 (when the ban on imports was introduced). There are five outlets in Kharkiv oblast, three in Vinnytsya oblast and 21 in Kyiv oblast. «The strategy of development of Roshen retail chain has been continuously implemented since 2008. At that time the conditions of retailers (unsubstantiated high price of the entry to the chain, necessity to provide discounts, etc.) were unbeneficial for producers and Roshen approved a decision to build its own retail chain,» says Leading Specialist of Market Analysis Department at ProConsulting Iryna Stepanyuk. Roshen did not respond to Capital’s official inquiry about the dynamics of production indicators. The company’s spokesperson Inna Petrenko did not respond to phone calls for several days.

Zhytomyr confectionery factor ZhL is placing its hopes on foreign markets: Europe and Asia. «We are focused on export, modernization of production and launch of new products,» Deputy Chief of Product Development Department Volodymyr Proshutya told Capital. ZhL also has a chain of retail stores, but it is small — all four outlets are located in Zhytomyr oblast.

Another large confectionery player Kharkiv-based Buscuit-Chocolate Corporation did not respond to Capital’s inquiry. «Nobody will be able to tell you anything today. Top management is on business trips,» responded the reception desk. Based on the information on the company’s website, the company also has its own retail outlets, but only in Khakiv. In other regions the company works with retail chains based on wholesale contracts.

Chances for expansion

Due to the production difficulties of such large players as Konti and AVK Roshen has good chances and possibilities (active marketing policy, production capacities, etc.) to conquer an even bigger share of the domestic market, believes Iryna Stepanyuk. Analyst of Eavex Capital Ivan Dzvinka says that despite that there are sufficient supplies of AVK and Konti products on the store shelves in Kyiv and in other regions the fact that consumers are more loyal to Petro Poroshenko than to the owners of the two companies, can play into the hands of Roshen. «It is surprising though, taking into account that Roshen products are not cheap, while in this difficult time consumers tend to switch to inexpensive goods,» says Dzvinka. He assures that Roshen’s development and sales growth indicates that consumers of competitors’ products have preferred their sweets.

Roshen is conducting rotation of its assortment well: it introduces to the market interesting new products replacing the old ones, tells General Director of Krai group of companies (Krayina and Krai chains) Vitaliy Koba. «Some new products became sales leaders within several weeks,» he explains. In addition to that the company regularly has special price offers and also advertises goods in the newspapers of the store and puts emphasis on the products on the store shelves.