Market Reports

A new dawn for Ukraine

Ukrainians have had a hot and cold relationship with coffee in recent years, but this has little to do with peoples’ attitude towards the beverage itself. After a rocky few years for the local economy, brought about by the effects of the Global Financial Crisis, the population is now resuming its love affair with coffee. Over the past 10 years, coffee consumption in Ukraine has increased by 23 per cent, according to data from one of Ukraine’s leading coffee analysts, Research & Branding Group. This figure could have been even higher if not for a disastrous 2011, when the domestic coffee market fell by 20 per cent in volume terms. This was mainly due to rising prices and the lasting effects of the global economic slowdown. Research and Branding Group’s figures show that, in 2012, the Ukranian coffee market grew by 15 per cent on 2011. Overall the nation consumed about US$200 million worth of coffee, which translated to about 45,000 tonnes. Natalia Revika is the Head of Marketing for Kraft Foods Ukraine, one of the leading players in the local coffee market. She says that the recent growth is just the beginning. “The growth of the market is being driven by the development of the fledgling culture of coffee consumption in Ukraine,” Revika says. “The average per capita coffee consumption in Ukraine is estimated at about 1.5 kilograms per annum, which is five to six times lower than in the European Union. This makes the market extremely attractive for manufacturers and importers.” In addition to Kraft Foods, other leading players in the Ukranian coffee market include Nestlé, Strauss Group, and local producers including Galka, Videnska kava, Odessa Food Factory, Dnepropetrovsk Food Factory and Ukrkofe. As with neighbouring Russia, instant coffee accounts for the largest share of the local market. According to data from Kraft, instant coffee sales in 2012 represented 63.8 per cent of the value of the market. At the same time the share of ground coffee was 21.4 per cent, while pre-mixed coffee drinks were 14.4 per cent. About 70 per cent of the coffee in Ukraine is purchased through retailers for home consumption, while about 20 per cent of the market is accounted for by the hospitality, restaurant and catering (HoReCa) segment, with the remaining 10 per cent of coffee consumed in offices. Ground coffee is mostly consumed in the west of the country, while more than 90 per cent of citizens of southern and eastern parts of Ukraine prefer instant coffee, according to Nestlé Ukraine’s Senior Public Relations  Specialist, Lesy Ščihol.  “Citizens of Lviv [a central city in the western part of the country, where Nestle’s Ukraine headquarters is located] prefer more bitter, gound coffee, while preferences of eastern citizens are quite different,” Ščihol says. He adds that this is an important factor for Nestlé to consider when installing their vending machines. Alena Tyndyuk, a senior Purchasing Manager of one of Ukraine’s leading food retail chains, Metro Cash & Carry, says that while the industry is growing, it is still dominated by the major foreign players. “Rioba and Black Map are the most popular brands in the category of ground coffee, while the instant coffee segment is currently dominated by Jacobs and Nescafé,” Tyndyuk says. “Almost 90 per cent of the entire Ukrainian coffee market is accounted for by imports. Most of coffee is supplied from Russian and European coffee plants of leading players, which currently do not have their own full-cycle production within the country.” In recent years domestic production has increased, however, mainly through the launch of a new coffee plant in Odessa by the local company, Ukrkofe.
Both Nestlé and Kraft import their products to Ukraine from their Russian plants. But just last year Nestlé invested US$3 million to establish two new packaging lines at its factory in Lviv, expanding the range of its local production under the Nescafé brand.  One of the distinctive features of the Ukranian coffee market is the growing share of private label brands. According to analysts from Ukranian business paper, Kommentarii, private labels will be able to compete with Kraft and Nescafé’s instant coffee brands in the local market in the middle or long-term. In recent years, the role of the world’s leading coffee chains in the local market has also increased. However, there is still room for their further growth. Currently there are about 300 chain stores in the western part of the country and some 200 in the eastern and central regions. McDonald’s McCafé brandis one of the most prominent players in the Ukranian market. The company has been established in Ukraine since 2011 and now has more than 20 outlets. According to the President of McCafé Ukraine, Sergey Terpilo, instant coffee will continue to dominate in the local market during the next few years due to its affordability and ease of preparation. However, he says, while at present the ratio of instant and ground coffee in the local market is estimated at 70 per cent to 30 per cent, by 2015-16 it could be more like 60 per cent to 40 per cent. “The Ukranian coffee market will continue to develop rapidly in the coming years, with the consumer demand expected to shift to premium quality coffee blends,” Terpilo says. “The structure of the Ukrainain coffee market will change gradually, along with the local culture of consumption.” Maxim Belik, Head of Procurement for Furshet, one of Ukraine’s leading retail chains, says that instant coffee still shows potential for growth. “The biggest growth segment of the instant coffee market is freeze-dried coffee, which, in contrast to other segments of the instant coffee market grows by 3 per cent annually,” he says. However, many people predict stagnation in the domestic market of instant coffee in the coming years due to a gradual shift in the preferences of local consumers towards more quality products. “Consumers have become more picky in food and beverages,” says Svetlana Ivahova, a Senior Manager from illycaffé Ukraine. “According to our expectations, the local coffee market will develop towards the consumption of ground coffee.” She also predicts the start of price wars for consumers among the producers from different segments of the market. At the same time representatives of Nestlé  Ukraine predict significant growth in single-serve coffee capsules. So far, the major players in this segment are such companies as Nestlé, with its Dolce Gusto, Kraft Foods’ Tassimo, as well as Strauss’ Totti Caffe.   At present sales in this segment remain low. However, according to Ivahova, the annual growth rates of the Ukrainian coffee market will average between 15 to 20 per cent per annum over the next several years. While this will provide plenty of room for growth in the premium market, it is also likely to lead to and intensification of competition between domestic and foreign producers. 

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