Ferrero Sees Big Market in Russia's Sweet Tooth

Some sweet news for the country's chocolate lovers.

Ferrero, an Italian-based producer of premium confectionery, wants to swell the market with 25,000 tons of its Raffaello and Kinder Chocolate in the coming year.

The company said Tuesday that it planned to build a chocolate factory in the Vladimir region to capitalize on spiraling local demand for its brands.

When it goes into production late next year, the 200 million euro ($295 million) factory will produce 25,000 tons of its Raffaello and Kinder Chocolate brands annually, Kira Mironova, the company's financial director for Russia, said Tuesday in an interview.

Mironova said the figure was "a drop in the ocean" in the country's booming chocolate market, adding that output would later be expanded.

She said the company would continue to import other brands, such as Ferrero Roche and Nutella, from factories in Italy, Germany and Belgium.

"Russia's confectionary market has surged and has been trending upward for years now, and our sales have also surged steadily and exponentially for many years," Mironova said.

"Thanks to such upbeat market tendencies, the company's shareholders decided to invest a lump sum to underline our confidence in Russia's economic stability," she said.

Andrei Verkholantsev, consumer analyst with Antanta Capital, said Ferrero's decision to build the factory from scratch might also be due to a lack of acquisition targets. Two potential targets, the Ruzskaya Confectionery Factory and Odintsovskaya factory, which produces the Korkunov brand, were sold last year, he said.

"Building from scratch would allow the Italian company to have a factory that meets its production standards as well as to save on upgrades," Verkholantsev said.

Mironova said the country's confectionary market has been growing by 14 to 15 percent annually and that the company expected its market share to grow even faster.

Ferrero has production facilities all over the world and produces such brands as Ferrero Roche, Raffaello, Kinder Chocolate, Nutella and others.

The company has had a presence in Russia since 1995 but has been importing its popular brands through Ferrero Russia, a 100 percent-owned subsidiary.

Ferrero selected Vladimir, 180 kilometers south of Moscow, for its strategic and logistic advantages, Mironova said.

"The Vladimir region is on the Trans-Siberian Railroad, and it is also close to our key markets in Moscow and St. Petersburg."

Ferrero's move follows hard on the heels of similar steps by multinational food manufacturers to build factories to capitalize on the fast-growing market.

In September, Barry Callebaut, the world's leading maker of high-quality cocoa and chocolate products, opened a state-of-the-art factory in Chekhov, 60 kilometers south of Moscow. Switzerland-based Nestle, the world's largest food company, acquired Ruzskaya Confectionery Factory, a Moscow-based confectioner, in November.

The country's chocolate market is valued at 250 billion rubles ($10.2 billion) with a 16 percent annual growth rate, according to figures from Antanta Capital.