Russian brands strengthen thanks to food embargo

5 august 2016 | RIA Novosti

"In the time that the food embargo has been in pace, Russian brands have gained in market share and recognition and now enjoy more customer demand than before, and that can create obstacles for the return of old suppliers to the market if the embargo is lifted," Deputy Head of the Analytical Center Tatiana Radchenko told a RIA Novosti correspondent.

Tatiana Radchenko
Tatiana Radchenko
Deputy Head

"A number of trends can be noted that may create obstacles for old suppliers’ speedy return to Russia if the embargo is lifted. First of all, it is the Russian and Belorussian brands that have appeared and entrenched themselves in the end consumer grocery markets, and most Russian consumers have switched to them," Ms Radchenko said in the interview.

Ms Radchenko then named a number of challenges that US and EU producers may face if they decide to return to Russia. "Retail chains have found new suppliers and changing contracts with them will take some time," she summed up.

"Thirdly, the 51 % devaluation of the Russian ruble to the dollar between August 2014 and December 2015 in principle drives up the price for any import. So for Russian consumers to switch to imported groceries it would take their suppliers to lower their prices, which is hardly possible with the current high euro and US dollar exchange rates in Russia," Ms Radcheko commented.

In addition, according to her, currently there are no signs that any of the countries affected by the Russian food embargo are experiencing a glut of food production that would encourage producers to significantly cut their prices to try and return to the Russian market. "Though the risk is still there," the expert noted.

Despite an increase in the production of agricultural products in recent years, to which the food embargo contributed to a degree, there were some negative impacts on the Russian economy as well.

"Some problems emerged with the supply of imported seeds and genetic material at the start of the embargo. But on the whole, we have seen no significant negative impact of the food embargo," Ms Radchenko claimed.

According to her, the negative impact of the embargo on the groceries market in 2016 primarily manifests itself in the reduction of the real household income: by 4% in 2015 vs 2014, and in the six months of the current year the real household income fell by a further 5% vs the same period of 2015.

"Another effect is the reduction of consumer demand. Not only are people spending less in real terms, but they are also switching consumption towards cheaper groceries," the expert notes.

In addition, after Russia imposed a return food embargo in response to western sanctions, the inflation in the groceries market immediately soared up. In 2015, it picked up pace as the Russian currency’s value plummeted, but after that it slowed down significantly, Ms Radchenko added.

See more in Tatiana Radchenko’s interview to RIA Novosti