The acquisition reflects the trend for food manufacturers moving into the Eastern European markets, which hold tremendous potential for any company's growth. The combined cereal markets of the area grew 12.1 per cent in 2006 to reach $3,889m, according to analysts Euromonitor. "Kellogg has been looking to move into markets it doesn't really have a presence in," company spokesperson Paul Fitzsimmons told BakeryAndSnacks.com. "Russia is a good fit for the company, where we have a less than one per cent share of the cereal market at the moment."
The United Bakers Group brands also fit well with Kellogg's portfolio, he added. The Russian company manufactures cracker, biscuit and breakfast cereals and markets them across the country under the Yantar and Lyubyatovo brands - which, according to Kellogg, hold the number one and two positions in the market respectively.
Under the terms of the agreement, Kellogg will acquire six manufacturing facilities throughout Russia and the corresponding sales network, although the terms of the transaction were not disclosed. The company plans to keep distribution within the country in the immediate future, although "we may start to look at surrounding European networks in a few years time," Fitzsimmons said.
Moving into Eastern Europe is not a new strategy for food companies, and the market is still relatively undeveloped, according to market analysts Euromonito. The combined sales of the top bakery manufacturers in Europe - Barilla, Danone, Kellogg, United Biscuits and Cereal Partners Worldwide - is less than ten per cent of the market, the analysts said.
Euromonitor also estimates that artisanal bakeries, which typically sell local, unpackaged products, account for the much larger market share of 45 per cent. Therefore the area holds great potential for food companies wishing to boost, and Russia is one of the most dynamic countries in the region for bakery products, experiencing 13.7 per cent compound annual growth rates since 2000.
Companies wishing to break into the market should focus on whole grain and brown bread products, as well as the additives honey, caraway and sunflower seeds, all of which are popular with the growing middle and upper urban class, Euromonitor said.