Finland's Chips group, which produces and distributes crisps and snacks for the Nordic and Baltic countries, is to expand its operations to Russia by acquiring the Russian Snack Company (RSC).
The company said that the acquisition made sense because it gave Chips its first production base in the potentially lucrative Russian market. Chips is buying 100 per cent of RSC for $12 million (€11.3m), and the deal is expected to close by the end of April 2003.
RSC has its own production facilities and concentrates its sales mainly in the Moscow region. Its potato chips are sold under the Nash-Champion brand, and have a market share of around 10 per cent of the crisps market and 6 per cent of the total crisps and snacks market in Russia.
Chips said that it would expand production at the Obushkovo plant, west of Moscow, and that it would extend distribution of RSC's products to the rest of Russia. At present, the RSC plant is operating at around 35 per cent capacity.
RSC's turnover is expected to be around €12 million for 2003, and Chips said that its objective was for this to at least double within the next two years.
Crisps and snacks consumption in Russia is currently estimated at approximately 40-45 million kg; with a population of 150 million this means per capita consumption of approximately 0.3 kg per annum. By way of comparison, consumption in Finland is approximately 12 million kg (per capita approximately 2.3 kg per annum) and that in Sweden approximately 34 million kg (per capita approximately 3.8 kg per annum).
This means that there is clearly huge growth potential in Russia if future per capita consumption is to come anywhere near that in other west European countries and the US. Growth greatly depends on other developments in the country, however, but Chips said that it expected to see the market expand by around 20 per cent a year over the next three years.
Russia is becoming an increasingly important snack market for a number of major players, and Chips will face competition from Frito-Lay (PepsiCo), Estrella and Pringles, all of whom import products into Russia. There are also some small domestic manufacturers. Frito-Lay, the market leader, has just started up its own factory south of Moscow, Chips said.
The Chips group's business is divided into two business areas: snacks and food. The snacks business represents approximately 73 per cent of the group's total turnover, and the company and its subsidiaries OLW and KiMs operate in Finland, Sweden, Norway and Denmark. The Chips group is the snacks and crisps market leader in the Nordic countries, but the company also operates in the Baltic countries through its subsidiary Latfood in Latvia.