Why this is important to Wisconsin businesses: As industrial bakeries decline in market share and smaller bakeries rise in number, there is a demand for machinery as well as franchise opportunities.
In 2017, the Russian bakery market increased by 4.3% and reached $9.8 billion USD (₽715.1 billion), equivalent to 11.3 million tons of baked goods. The average Russian citizen consumes about 260 pounds of baked goods per year.
In recent years, there has been a steady trend in the Russian bakery market—the share of micro, small and midsize enterprises is growing as the share of industrial bakeries is declining in both physical and money terms. The country has over 690 large bakeries, 4,800 midsize enterprises, and more than 7,000 small and micro-bakeries.
On average, 94% of bakery enterprises in Russia are small and midsize businesses. In Russia, there is one bakery business per 10,000 population, whereas in Europe there are three to four per 10,000. It shows that there is still a considerable potential for growth in the small bakery market. Small productions located near the end customer acquire an undeniable competitive advantage, complementing and sometimes replacing industrial manufacturers.
One of the most important trends is the gradual replacement of traditional bakery products with healthier foods, including products free from preservatives, synthetic flavors and colors, GMOs, trans fats, sugar and salt; products with reduced fat content; whole grain products; and products from natural ingredients.
The main problems in manufacturing bread and bakery products in Russia are:
- the annual decline in the production share of industrial bakeries;
- the low profitability of bakery production;
- the low competitiveness of bakery products in the domestic and foreign markets; and
- the high caloric value, low nutritional value, and deficiency of micronutrients and dietary fiber in bakery products.
Currently, Russia does not have large manufacturers of baking equipment. The largest Russian producer has only recently exceeded ₽1 billion ($13.74 million), while most other companies have revenues in the tens of millions of rubles (about $200,000 to $1.3 million). Such small companies are highly dependent on external factors such as loan rates, ingredient costs and exchange rates. They do not have the ability to carry out full-fledged research and design work, to assume the risks associated with the creation and promotion of new equipment, or to compensate for losses in the Russian market through exports. Their main performance indicators—sales revenue and profit—are subject to significant fluctuations depending on the volume of individual transactions. The activity of domestic machinery manufacturers was negatively affected by a sharp drop in the ruble exchange rate in 2014. Import substitution opportunities associated with an increase in the cost of imported equipment, with a marked increase in exports and domestic production, were also not fully used—the increase in ruble revenue did not exceed the inflation rate. An increase in wear and tear of machines and equipment indicates the need for their renewal, but investment resources in the baking industry are insufficient. For this reason, the Russian bakery industry remains highly dependent on imports.
Nevertheless, the bakery equipment market in Russia has high growth potential due to the need for modernization of the baking industry and introduction of innovative technologies. Thus, Wisconsin enterprises have an opportunity to supply equipment to large, small and midsize bakeries in Russia in order to meet their needs for the renewal of fixed assets and increased production efficiency. Besides equipment for traditional bakery products, there is demand for equipment suitable for baking gluten-free, whole grain, unleavened and other kinds of healthier bakery products.
Another opportunity is for Wisconsin bakery chains that operate on a franchise basis. Franchise business is a strong trend in Russia, especially in food service, therefore new brands could be of interest in the Russian market.
The most significant industry trade shows in Moscow are Modern Bakery Moscow, which is held annually in March and specializes in all types of bakery and confectionery equipment, and Agroprodmash, which is held annually in October and represents the full range of agricultural and food processing equipment, including equipment for the baking industry.
