Review of Russian Tea Market
Research of the Company "Market Analitika (Analytics)"
Today about 98% of Russians are tea consumers, so it is getting increasingly hard for Russian companies to boost sales volume. During the recent three years growth of sales in volume was gradually slowing down as Russian tea market was approaching saturation. In this context competition accelerated, market operators started to improve their marketing strategies and search for expansion to other countries. Another way of sales volume increase is unique product portfolio; however, according to industry experts, expansion to foreign markets is more promising in this respect.
Despite sluggish growth of sales in volume Russian tea market keeps growing in value due to ongoing decline of economy segment and increase of expensive category.
Maximum possible market volume is estimated at 200-220 thousand tons, so in volume terms the market is close to saturation and its growth is insignificant.
Still, Russian tea market grows in value. In 2010 the market saw 14% year-to-year increase in value, by 11% less than in 2009. In 2011 tea sales in Russia increased by 11.4% in value to reach RUR 85.7 billion.
According to industry experts, Russian tea market will be growing in volume by 2-5% annually. Meanwhile prices for bulk tea on global market can change significantly which will certainly stimulate annual increase of unit prices - and respectively of sales value - by 25% and more.
Change of price for bulk tea on global market is determined by situation in tea growing countries. However growing share of cheap bulk tea does not result in reduction of unit prices for packed tea. Current retail prices for packed tea are quite affordable for consumers so manufacturers have no reason to reduce prices and to cut their profit.
Two major price forming factors on tea market are prices for bulk tea and product marketing (cost of packaging, promotion, etc.).
According to Rosstat, in March 2012 the average manufacturer price for tea constituted 206000 rubles/ton with 3.5% period-to-period growth.
In 2011 manufacturer prices for tea reached peak in July - 213400 rubles/ton - and then were declining down to about 182000 rubles/ton in October 2011; this decline was followed by growth so in January 2012 manufacturer prices stroke a new maximum of 214500 rubles/ton.
Package is another important constituent of price. In some companies package cost exceeds the cost of raw material. Tea manufacturers state increase of prices for all kinds of packaging materials - cardboard, plastic, tin.
Though manufacturers are talking about price increase the majority of retail chains want to keep prices fixed and are even ready to cancel agreements. Manufacturers apprehend that retailers will be reducing their product ranges like they were doing when recession started.
Today offer on Russian tea market is dominated by tea packed in Russia. Since 2007 import tariffs on bulk tea for Russian manufacturers were abolished. This measure allowed many companies renovate their production facilities, build new plants and install new packaging lines. Thus Russian tea market got up-to-date production facilities corresponding to the highest standards. So, currently Russian tea production implies packaging of imported bulk tea, including flavored tea and tea with additives.
Domestic production of raw tea in Russia is quite unimpressive. According to market analysts, domestically grown tea leaves provide less than 1% of bulk tea packed in Russia.
Russia is the largest tea importer in the world. Tea import to Russia is constituted both by bulk tea and packed product. According to Federal Customs Service of Russia, in 2011 Russia imported about 187 thousand tons of tea - plus 3.4% over 2010. About 170 thousand tons were meant for domestic consumption while the rest of tea was re-exported, mainly to CIS countries. It should be mentioned that about 85% of import volume was provided by bulk tea and just 15% - by packed product.
According to customs statistics, in 2011 import value constituted $ 625 million with 11% year-to-year increase.
The following trends most probably will determine further development of the review market:
* Increase of wholesale prices for bulk tea;
* Growth of sales in premium tea category;
* Accelerated competition between the brands observed during recent years;
* Active expansion to foreign markets of the largest manufacturers;
* Growing importance of civilized trade formats in tea sales;
* Increasing diversity of tea offerings on the market;
* Shift of consumer preferences from traditional to new kinds of tea in the context of growing interest to healthy living: green, herb and fruit teas; growing demand for flavored teas; development of new tea segments - white and red teas - which used to be far less popular;
* Growth of sales in tea bags segment driven by hectic lifestyles.
In the summary it should be mentioned that changes in market structure and distribution of sales between product categories will be the same as during the recent five years.
Head of Research Department