Nestlé to start coffee processing in Russia

Making the announcement, Nestle Russia CEO Hans Guldenberg said: "The Russian soluble coffee market is one of the largest in the world and currently one of the most dynamically developing. The new factory will meet growing demands in the Russian market for coffee. The Krasnodar Territory was chosen as the site for the new plant because of investment potential and strong relations with the regional administration."​

The plant, which will be located in the town of Timashevsk, is due to be completed in August 2005 when it will employ some 300 staff. The investment marks a major turning point for Nestle's operations in this sector, as up until now the company has only had coffee packaging operations in Russia. Indeed it was only in 2001 that the Swiss food giant opened its first coffee packing line, also in Timashevsk. In fact Timashevsk is turning into somewhat of a hub for the company as it already has a controlling stake in domestic ice cream producer JSC Khladoprodukt, which is also based in the town.

But Nestle's entry into the Russian coffee market has not always been a smooth one. In 2001 the company was investigated for possible monopolization of the Russian coffee market, at a time when it had a 36 per cent of the market. According to Russian laws all companies that hold between 35 and 65 per cent of a market must undergo tough procedures to insure that they do not defy anti-monopoly legislation.

However, with keen competition from US food giant Kraft, competition within the market has remained fierce, dispelling fears the Nestle might monopolise the market. Nestle remains the clear market leader though.

Overall growth in the hot drinks market in Russia has been solid in the course of the years after the market crash in 1998. The most recent figures are for 2002, which show that retail sales grew by 4.3 per cent in volume terms and 8.2 per cent in sales value terms. However growth for coffee was significantly higher during this period, with production volumes increasing by 15 per cent and sales value increasing by 16 per cent.

Nestle Russia​ has attributed the growth of the market to big marketing campaigns which have promoted the beverage as well as the general increase in coffee 'culture'. Coffee houses are becoming increasingly popular throughout Russia, particularly in the main metropolitan areas such as Moscow and St. Petersburg.

Analysts believe that there is still plenty of growth to come for the sector, particularly in view of the still relatively small coffee consumption per capita, which currently averages 500 grams per person each year. This pales when compared to the world's top consumers of coffee, the Scandinavians, who consume an average of 12 kgs of coffee per person each year.

Such figures indicate the enormous market potential for a major player like Nestle. Inevitably the construction of the company's first coffee processing facility will be backed up by a concerted sales and marketing campaign. Coupled with the fact that the new processing facility will eventually make coffee more affordable to the average Russian, consumption looks set to increase substantially providing economic stability is maintained.