Russian Natural & Organic Products Market: Illusion or Reality?

The market for natural and organic products in Russia is taking shape. In the opinion of analysts, this process will take a minimum of two years. Two journalists, and experts on the market for natural and organic products, held a seminar at BioFach in February 2006. Tatyana Zlodorewa is chief editor of the Supermarket Magazine Vitrina; Olga Kartamysheva is a specialist journalist.

Picture: Fushi Bar in Moscow

A year ago, the publishing house Vitrina launched the magazine “Bio Vitrina” as a B2B (business to business) magazine. However, experience showed that this type of magazine was probably ahead of its time. Comments from our readers and the trade persuaded the editors to change the format to B2C. Today the authors are writing for industry professionals and consumers.

The following is a summary of the talks they gave at BioFach. Several factors enable us to estimate that the market has big potential:

- First, there is a high level of consumer awareness and interest.

- Second, local companies are developing and introducing eco-products, or products with an eco-promise.

- Third, foreign producers are interested and are becoming active.

-  Fourth, as personal incomes have increased, similar consumer trends have reached Russia, based on the developoment of markets in Europe and the USA. This has been true in markets ranging from cars to hair care to pet food. Who could have imagined 10 years ago the prepared pet food market, supported by TV advertising, that we see in Moscow today.

As market segments mature and become more competitive in Russia today, producers and marketers are looking for new opportunities and competitive advantage. This, along with rising incomes fuelled by the oil riches of Russia, sets the stage for the development of the Russian eco-market. According to “CVS Consulting”, more than 30 % of producers are ready to invest in eco-products. In Russia, as elsewhere, rising incomes bring with them consumer interest in a healthy life style. As retailing has developed in Russia, new retail formats such as gastro-boutiques and specialized stores have appeared. This has increased competition between these retail formats and the chains. In this situation, the appearance of new and profitable natural and organic products and retail activity is to be expected.

As we consider conditions favourable to the development of this market in Russia, it is necessary to remember historical factors such as the following:

- Russian dietary habits included the consumption of mainly natural products that people purchased at agricultural fairs and farmers' markets. We were not familiar with such giants as Nestle and Coca-Cola until quite recently. Our tradition was to make our own juices and jams at home; to eat vegetables from own country gardens (dachas); milk came from grandmother’s cow in a nearby village, etc.

- In addition, due to the shortage of investment in agriculture, the land was not treated with chemical and artificial fertilizers. Many farms, even today, could get an eco-certificate without any change in their normal production activities.

Import & Export

Today, the market of eco-products in Russia can be divided into three segments:

- organic products, mainly imported.
- healthy food, natural food from local and foreign producers.
- functional products sold in our market by local and foreign producers.

The potential volume of this market is estimated at 4-5 million US-dollars. In spite of the fact that the Russian eco-market is only at the beginning of its development, with the names and numbers of big players are not yet determined, it is possible to identify some facts about import and export.

There are no big distributors working exclusively with organic products. Typically big distributors and wholesalers add organic items to their ranges to try to diversify their offer and extend their presence in the market. According to the annual survey conducted by our Publishing House, in 2004 there were only ten distributors and importers who had organic items in their ranges. In 2005 there were about 40 who handled organic goods. Three of them specialized in organic items.

Some specialized retail firms import directly, bypassing local distributors. Companies who use or used this business model are: 

- "Garderob”, with their store “Fushi”.
- The operator of a new chain of gastro-boutiques  “Globus Gourmet" , STK company.
- The eco-store  “Orange Pumpkin”, before closing.
- The supermarket “Grunwald” will operate this way.
 
In terms of supplier countries, it is too early to reach a conclusion about the leading producers in the Russian market, but the USA, Great Britain and Germany are the most active. 

Increased retail competition and a more sophisticated consumer have led to the appearance of new retail formats and structures. This has also led to an increasing number of organic items being sold in the existing retail outlets. In 2004, organic products were sold only in the specialized store “Orange Pumpkin” and three supermarkets of the western-oriented chain “Kalinka-Stockman”. Today the situation is very different, both in terms of quantity and quality. The number of retail chains with eco-products has increased to six. The policy on products ranges has been changed too. The following categories now sell eco-products:

Multi-level marketing activity

Each of these forms has its specific features in the presentation of products and working with eco-products.

Supermarkets: ranges mainly consists of organic grocery goods from western suppliers, as well as natural and functional items from both local and western suppliers. It’s interesting that  there are no fresh imported organic products in these supermarkets. They do sell fresh natural products from local producers (Belaya Dacha, Novikov, Moskovsky farmer). Organic products occupy 1 - 3 % of the total space. Depending on the supermarket, these products are displayed either in a special department such as “Health Food”, “Eco Products” or “Natural & Organic Products” or they are ‘highlighted” by stickers and flyers with POS material. Sometimes these items are presented as traditional products of premium class without any special sign. Suppliers are Russian importers and distributors.

Gastro-boutique: The range consists of almost all the categories of organic products including “fresh” and covers 8 to 10% of the total range. Moreover, natural products of premium class from local producers are sold too. Organic products are not displayed in a special department. They are displayed on the same shelves as traditional products.

Pharmacy chains: There are mostly natural and functional products although there are some organic items in the range too. There are diet, diabetic and low calorie products, baby food, juices and soft drinks and cosmetics from both western and local producers. The experience of the “Dr.Stoletov” pharmacy is very interesting. In one outlet, advertising for the programme “Pharmacy plus Diet” shows organic beer and wine. In pharmacy outlets, eco-food products are displayed in a separate department, but organic items are not separate. The geographical distribution of suppliers is very wide. The big advantage of pharmacy outlets is the educated personnel, who can answer consumer questions.

Specialized stores: There is only one specialized eco-store in Moscow today: Fushi. The stock is very wide, ranging from household care products to fresh vegetables. They also have a Fushi-bar. 90 % of the stock consists of imported organic products, mostly from the USA and Great Britain. The balance,10 %, are natural products from local producers. The store imports directly from foreign suppliers.

Fitness clubs: Their stock is fairly small and organic items include candies, cakes, cookies, juices and tea, all imported. It is interesting that visitors to these clubs buy these products for home.

Internet store: The range is 100 % organic items, mainly groceries. Suppliers are distributors and importers. The distribution area is very wide.