PVM steps up Russian expansion

- Last updated on GMT

Related tags: Confectionery, Russia, Moscow

Perfetti Van Melle (PVM), the Dutch-Italian confectionery producer,
is to open a new production facility in the Moscow region as it
seeks to exploit market growth and narrow the gap with rival
producers already established there, writes Angela
Drujinina.

An undisclosed source at the Ministry of International Economic Relations in Moscow told Cee-FoodIndustry.com​ that the first phase of construction at PVM's facility there would be completed this winter, with production of Fruitella, Mentos and Meller branded confectionery starting early in 2005.

According to the official, the Istrinsk town administration has given the company about 9 hectares of land for its facility, which will cost some $30 million to construct. The initial capacity of the plant will be 10,000 tons a year, rising to 22,000 tons once the second production line comes on stream.

That PVM has big plans for the Russian market is clear from the scale of this project. Once the plant is working at full capacity, PVM's output will account for around half the entire Russian market for sugar confectionery products, which includes caramels, mints, fruit sweets, according to Alexander Ovchinnikov, spokesman for another western company with a strong Russian presence, Dirol-Cadbury.

According to data from market analysts Business Analitika​, cited by Ovchinnikov, Russian confectioners produced 40,874 tons of sugar confectionery in 2003, with production expected to increase to 48,470 in 2004.

Until now, PVM has been content to target the Russian market with imported products, which it packaged at a plant in Krasnogorsk. That packaging operation will continue once the new plant is open, the company said, though it did not say whether it would be supplied solely by the new facility or would continue to package imported products as well.Products produced at the new plant in Moscow will be sold in Russia, in the former Soviet republics, in Poland and the Middle East, the PVM representative said.

If PVM is a relatively late arrival on the Russian market, at least in terms of local production, it still has high hopes of stealing a bigger share of a market showing excellent growth prospects. According to Natalia Philliposians, marketing manager of Finland's Leaf, interviewed in the Vedomosti​ newspaper, foreign confectionery manufacturers have been attracted to Russia by the fast growth rate and, in particular, by the opportunity to increase profit per item by producing locally.

Leaf is one of the leading sugar confectionery players in Russia, having sold its products there for some 10 years now (like PVM), but it only announced its own plans for local production in December 2003: a facility in St Petersburg will produce the company's Mython lollipops, part of the company's line of functional confectionery.

This is in an under-exploited niche in the Russian market, but another with great potential. Leaf estimates that the market for functional confectionery, which includes products such as cough sweets or breath mints, will grow by 40 per cent to $140 million this year, driven by increased marketing expenditure and a growing awareness of the benefits of such products.

But expansion has not always been easy. Wrigley, the world's biggest chewing gum producer and another leading light in the sugar confectionery market in Russia, found its plans blocked last year when Russian officials refused to give the go-ahead for the expansion of its St Petersburg plant. The Russian natural resources ministry claimed that the company had not carried out an environmental study.

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