Kazakhstan Food & Drink Report Q4 2010

Aug 16. Live-PR

Kazakhstan Food & Drink Report Q4 2010Kazakhstan is easily our favourite Central Asian consumer market. Its growth over the coming years will be supported by a positive economic outlook, with food and drinks values not nearly as affected by the 2009 global financial crisis as those of its regional counterparts. The considerable market potential, which has already been recognised by a number of foreign players – in both food and drinks and mass grocery retail (MGR) industries – will continue to ensure dynamism through foreign direct investment (FDI). The government’s drive to diversify the oil-dependent economy also bodes well for the market’s longer-term growth, with private consumption set to be a key driver of value increase.

Headline Industry Data

2010 per capita food consumption = +3.3%, forecast to 2014: +41.5%

2010 alcoholic drinks sales = +4.9%; forecast to 2014= +41.5%

2010 soft drinks sales = +4.6%; forecast to 2014= +51.1%

Key Company Trends

Consolidation of Fragmented Industries – In June 2010, the French and Russian dairy majors, Danone and Unimilk respectively, were poised to combine their operations in Russia and the Commonwealth of Independent States (CIS). Although the companies have direct manufacturing presence in Kazakhstan, the combination of their global branding and local expertise will considerably increase their competitive potential. Danone-Unimilk (in which the former will have a 57.5% share) is expected to capture over 20% of Russia’s large dairy market. While the dairy industry in Kazakhstan remains largely fragmented, further consolidation is likely in the coming years, especially as larger players explore the power of marketing and the development of modern retail channels.

Key Risks to Outlook

Shortcomings of Overall Operating Environment – While foreign investment into relatively nascent sectors of the economy will help shield Kazakhstan’s economy from future fluctuations in energy prices, the authorities will also need to address certain shortcomings of the current operating environment. For example, while Kazakhstan boasts one of the more investment-friendly regimes within the CIS, more efforts are required in terms of opening up of the non-resource sectors and of combating corruption.

Shift Towards Doing Business with Europe – Kazakhstan’s growing economic and political clout may allow it to expand export routes away from Russia further down the line. We therefore expect to see new trade relations emerging, with the EU likely to take a greater share of Kazakh exports and vice versa, impacting product mix, although this is more of a longer-term scenario.