Chr Hansen moves in on Ukraine food market

The Danish food ingredients firm opened new offices in Kiev yesterday, citing strong business opportunities and the company's strategy to be the first player in a new market as a driving force behind the move.

"The food businesss here is consolidating with a growing trend towards more and more industrialised food products,"​ Lars Wodschow Larsen, manager of the new Ukraine office told Foodnavigator.com.​

Emerging from a post-1998 economic crisis, 2003 witnessed a shift in food consumption patterns towards more sophisticated processed food products as Ukraine's economic situation improved, underpinning rises in income and boosting purchasing power for consumers.

Present in Ukraine for the past five years through a distributor, Chr Hansen will use the dairy cultures business as springboard to move deeper into other food markets.

"We have to initially build our platform in the diary industry. From there we will dovetail to other food ingredients. The next step is likely to be natural colours for beverages and confectionery,"​ added Larsen.

The company will also use the dairy business to gauge the market for health ingredients. Through our probiotic dairy cultures we will get an idea straight away of how popular health products are, said Larsen.

Present on the ground, the Danish firm claims that it will gain a better understanding of local tastes, traditions and food products in Ukraine, the second largest country in Europe, after Russia, and larger than France and Switzerland put together.

"We want to be close to our customers so we can develop local flavours and meet local needs using local labour. That is why we are now setting up an independent company in Ukraine,"​ said Chr Hansen country manager Christian Rolf Jacobsen.

The move will also have been influenced by key customer accounts - international food and beverage manufacturers - laying down a stake in this country that between 2000 and 2001 achieved the highest GDP growth rates among East European countries.

Challenges for the Danish firm include building firm relationships with universities and research organisations for research and development purposes and most importantly gaining a deeper understanding of the local market - the key to success.

"We must get a real knowledge of the market that will enable our customers to successfully continue the development of food products,"​ added Larsen.

According to APK (Inform Information Agency), in 2000 market surveys showed that around 92 per cent of food sold in Ukrainian shops was produced in Ukraine. Such a small share of imports could be explained by a very fast growth of domestic food processing industry, which uses inexpensive raw materials, said the APK.

A former USSR territory Ukraine - referred to as the 'breadbasket of Europe' - has a strong agrarian tradition. Wheat is the country's major crop, in the 2001/02 marketing year Ukraine became the 7th largest world wheat exporter and the 8th largest wheat producer. But it also produces barley, rye, oats, peas, maize, sunflower seeds, sugar beets, milk, poultry meat, pork, and beef.

The growing and processing of sunflower seeds for vegetable oil is also big business. Sunflower oil constitutes about 95 per cent of all vegetable oil consumption in Ukraine. The country remains the third largest world producer of sunflower oil.

A report published last month by market analysts Euromonitor claims that in 2003 the average proportion of spending on food by households was quite high compared to western Europe, with the majority of the population spending between half and up to 80 per cent of their wages on food.

"Consumers have become more demanding of higher-quality, healthier and higher segment products as their real incomes have risen,"​ writes the report. Manufacturers have reacted to this trend by reviewing their brand portfolio and adding new types of products or flavours, according to the latest trends.

Chilled ready meals are too expensive for the majority of Ukrainian consumers but frozen ready meals are popular among consumers as they offer traditional dishes in a time-saving and quality format, said Euromonitor. Although the development of this sector is hindered by poor refrigerating logistics.

The number of supermarkets and hypermarkets in Ukraine have grown remarkably in recent years. According to Euromonitor, frozen bakery products, pizza and non-baked potato products are popular along with yoghurt, cheese, fromage frais and quark.

"The main reason for the supermarkets' success is the tendency among producers, particularly among the foreign ones, to sell their goods through supermarket chains. Supermarkets are considered to be the most reliable in terms of quality and hygiene,"​ said Euromonitor.

Both local and foreign manufacturers are present in the packaged food market, with domestic companies prevailing over the foreign ones. Meat products manufacturers held the largest shares of packaged food sales in volume terms, which was due to the past, when the largest meat processing plants supplied the whole population.

According to the report, despite the overall positive market developments, some sectors have faced falling sales as consumer preferences begin to shift towards more sophisticated and new products and away from the more traditional offerings.