Russian meat firms develop consumer packs to support sales

By Vladislav Vorotnikov

- Last updated on GMT

Sales of pork in consumer-friendly packs offer manufacturers around 10% more profits
Sales of pork in consumer-friendly packs offer manufacturers around 10% more profits

Related tags Meat processors Marketing Beef Lamb Packaging equipment & materials Pork Poultry

Top Russian meat producers are increasingly producing meat in so-called ‘consumer packs’, with the aim of gaining a bigger sales margin in this segment of the market.

In the first half of the year, for example, Miratorg produced 27,200 tonnes (t) of meat in consumer packs, a rise of 18% compared to the first half of 2015, according to a statement from Vasily Popov, general director of SK Korocha, Miratorg’s meat processing division.

At the moment our plant has reached its intended production capacity and is processing products in line with consumer tastes,” ​he said. “This month we are aiming to increase our range of products ​[in consumer packs], launching meat dumplings with marbled beef and pork.​” He added that, in total, the processing division produced 150 different types of products with an annual capacity of 70,000t.

As the operating performance of most meat producers was under pressure at the beginning of the year, amid low purchasing prices for unpacked meat cuts in the domestic market, particularly for pork, companies have aimed to diversify sales. Rusagro, for example, started its first deliveries of meat by-products in consumer packs to the market at the end of 2015.

Profit boost

These sales ​[of pork in consumer packs] offer manufacturers around 10% more profit and, with the right choice of brand, up to 20% more profit, compared to selling live pigs on the market,​” explained Rusagro CEO Maxim Basov.

In November 2015, Cherkizovo’s Dankovsky meat processing plant reached full capacity, resulting in an overall sales rise of 32% in the company’s [consumer package] sector to nearly 191,000t last year.

However, this increased [consumer package] activity by meat companies is believed to be causing some problems for so-called independent meat processors – those companies that have processing and packaging capacities, but don’t own any livestock farms. In the first quarter of 2016, the National Union of Meat Processors (NUMP) forecast a fall in meat processing volumes in Russia of nearly 7%-10% by the end of this year, partly due to rising competition.

Lack of price control

The government has instructed ​[relevant agencies] to monitor price increases in the market, but at the same time has completely omitted to control both the prices of raw materials and retail chains’ margins,” ​explained NUMP’s CEO Dmitry Shmelev. “As a result, meat processors were caught in the middle. The retailers are not allowing price increases, but the cost of raw materials is continuing to grow. Meat processors’ profits dropped to 1-3% and, in many cases to zero.”

Meanwhile, these problems do not affect agricultural holdings as, due to the fact they own a resource base, they have much bigger business margins and are able to successfully compete on price with independent processors. Market observers noted that, prior to 2014, most meat holding companies did not place as much attention on processing and manufacturing of by-products in consumer packs, as they do now.

Amid a negative market, in the first quarter, Cherkizovo saw its net profits fall 45%, while Rusagro experienced a drop of 11.6 times versus the same period last year. Most other market participants, excluding Miratorg which managed to increase net income, faced a similar situation. However, on average, processing businesses that sell packed products have seen those sectors exceed the overall profitability of the parent companies.

Related topics Meat

Related news

Show more

Follow us

Products

View more

Webinars