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Review of the Russian Coffee Market

The Russian coffee market on the whole can be characterised as rather capacious and competitive. It has systematically been demonstrating solvent demand and increasing consumption. In addition, during the past 10 years, a number of significant changes in consumer preferences have been observed, which, in turn, have a positive impact on the dynamics of the Russian domestic market. Said changes include: 
•        coffee being a basic product of the consumer basket;
•        shifts in the lifestyle and the culture of coffee consumption, which led to an increase in traffic in coffee shops and the number of establishments;
•        growing consumer expenditures on coffee;
•        changes in the structure of consumption, consumers switching from cheap instant coffee to alternatives of higher quality;
•        growing consumption of natural ground coffee and coffee beans.

During the past decade, the Russian market of coffee has been dynamically developing: from 2011 until 2016 its annual growth equalled 57.6% in physical terms. The increase in this indicator was contributed to by active development of retail chains and increased retail space – in addition, new trade formats such as coffee shops, vending machines, online stores and office coffee services have been actively strengthening their positions.

Intensive growth of the coffee market indicates an increase in per capita coffee consumption in the Russian Federation over the past 10 years. Whereas in 2001 the indicator equalled 400 grams per year per capita, in 2016 it reached 1.35 kilograms. Nevertheless, in this indicator Russia is lagging far behind developed European countries, where annual per capita coffee consumption varies from 6.2 to 12 kilograms.

Instant coffee is currently the main type of coffee preferred by Russian consumers. In the segment of instant coffee today, Russia is third in the world in terms of per capita consumption, following the USA and Great Britain. The instant coffee segment has almost reached its saturation point. However, the ratio of instant coffee consumption to consumption of roasted coffee (ground coffee or beans) has been shifting in favour of the latter in recent years.

In 2016, the structure of retail sales in physical terms was dominated by various coffee concentrates and coffee mixes with the share of 47.1%. The share of instant coffee equalled 38.7%, whereas the share of natural coffee was 14.2%. In monetary terms, said indicators equalled 41, 48.5 and 10.5% respectively. No substantial changes in the structure of coffee retail sales by types are expected in 2017.

Structure of retail sales of coffee by type in 2016 in physical terms, %

Structure of retail sales of coffee by type in 2016 in physical terms

Source: calculations NeoAnalytics

Coffee is not grown in Russia, and therefore the domestic market is fully dependent on global market development trends, including increasing prices, declines in supplies as a consequence of climatic conditions, and other factors.

According to the Russian Federal State Statistics Service (Rosstat), in 2016, Russia increased its coffee imports by 9.5% in physical terms compared with 2015. In 2016, the total volume of coffee imports into the Russian Federation reached 171.5 thousand tons in volume terms and $ 516.6 million in value terms. The total volume of coffee exports from the country amounted to 4.9 thousand tons, or $ 26.6 million, in 2016. According to preliminary data, coffee imports in physical terms in 2017 increased by 10.4% to 189.3 thousand tons.

Dynamics of the main indicators of the coffee market in 2011-2017, thousand tons

Dynamics of the main indicators of the coffee market in 2011-2017, thousand tons
Source: Rosstat, Federal customs service of the Russian Federation, calculations NeoAnalytics
 

In 2016, Vietnam was first among countries supplying coffee to Russia, occupying a share of 40.5% in physical terms. The top three leaders in coffee imports into the Russian Federation also included Brazil and Indonesia – their shares equalled 17.9 and 12.3% respectively. The structure of imports by countries did not change significantly in 2017.

Due to key players of the global coffee market having opened new coffee production factories in the Russian Federation, in recent years, growth in Russian exports of coffee beans to neighbouring countries has been observed. Russia mainly exports coffee to Belarus, Ukraine and Kazakhstan. According to “NeoAnalytics”, the volume of coffee exports in 2017 increased to 5.8 thousand tons.

According to Rosstat, 36.5 thousand tons of coffee were produced in Russia in 2016. In 2017, the volume of output is expected to increase by 3.6% and amount to 37.8 thousand tons.

The main market players today are “Nestlé Russia” LLC, “Kraft Foods Rus” LLC, and “Tchibo” LLC. They are the top three companies of the Russian market of instant coffee and occupy the share of more than 50% in value terms.

Regarding coffee beans, slightly more than 60% of the market is occupied by companies such as “Orimi Trade” Group, “Moskovskaya Kofeinya na Payakh (Moscow Tribute Coffee House)” CJSC, “Chayno-Kofeynaya Kompaniya (Tea and Coffee Company) “Grand” LLC, and “Paulig Group”.

In 2016, the volume of the Russian coffee market in physical terms amounted to 203.1 thousand tons, having grown by 7.9% compared with 2015. According to calculations by “NeoAnalytics”, the market volume will increase by 9% and reach 221.3 thousand tons in 2017.

The dynamics of the coffee market in 2011-2017 years, thousand tons.

The dynamics of the coffee market in 2011-2017 years, thousand tons
Source: Rosstat, Federal customs service of the Russian Federation, calculations NeoAnalytics

In monetary terms, the volume of the Russian coffee market amounted to approximately 160 billion rubles in 2016, whereas in 2017 it grew by 10.6%, reaching 177 billion rubles.

The Russian coffee market is import-dependent due to its geographical features; imports occupy around 85% in the structure of the market volume.

The structure of the volume of the coffee market in 2011-2016 years, in physical terms, %
The structure of the volume of the coffee market in 2011-2016 years, in physical terms
Source: Rosstat, Federal customs service of the Russian Federation, calculations NeoAnalytics

Today’s Russian coffee market is highly competitive. The rate of consolidation and acquisitions has been growing. For instance, the Israeli “Strauss Group Ltd” has been contributing to coffee market consolidation through absorbing Russian players – the trademarks it acquired include “Ambassador”, “Kaffa”, “Le Café” and “Chernaya Karta (Black Card)”.

According to forecasts by the association of Russian tea and coffee producers “Roschaykofe”, only 5–6 players will remain in the Russian coffee in the long term, most of which will be represented by transnational enterprises, whereas the number of brands will decrease by 2 to 3 times as a result of market consolidation. Leadership in the coffee market will be maintained by players actively holding advertising campaigns as well as players that increased their capitalization, in particular due to consolidation processes. New foreign market participants are expected to emerge in the segment of natural roasted coffee.

According to “NeoAnalytics”, the size of the Russian coffee market in physical terms will amount to 205.4 thousand tons in 2017, 212.2 thousand tons in 2018, and 220.5 thousand tons in 2019, with annual growth of 3–5%.

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