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. Last Updated: 07/27/2016

Regions Move Into Ice Cream Market

Foreign ice-cream makers fled the market after the 1998 financial crisis, but Moscow producers found themselves flooded almost immediately by a new contingent of competitors, most of them from the regions.

Falling demand in Moscow, the loss of a large number of their peripheral markets and a new sales tax have forced the capital's ice-cream makers to trim back on production at a time when overall domestic output is on the rise.

Igor Kot, deputy executive director of Capital Ice Cream, an association of some of Moscow's largest frozen-food makers, said his organization has witnessed an average 14 percent drop in production since the financial crisis. Last year, the group's members saw average sales volumes drop by 10 percent, he said.

Kot said his association accounts for nearly 60 percent of the Moscow market, and includes such big producers as Ais-Fili, Servis Kholod and Frozen Foods Plant No. 7.

In mid-March, Capital Ice Cream is preparing to contest in the Moscow arbitration court a new 4-percent municipal sales tax that was introduced Jan. 1.

"Ice cream is not a delicacy, it's a dairy product. And it's improper to assess a 4-percent tax to a dairy product's sales," Kot said.

He said the tax has done more harm to Moscow's producers than the influx of regional competitors, who have been experiencing impressive growth.

Some provincial producers say they felt almost no drop in production after the Aug. 17, 1998, financial crisis, while others reported actual increases in 1999.

Representatives from Novosibirsk's Sibtekhkom, maker of Umka ice cream, reported that sales volumes doubled in 1999.

"This has resulted from a re-orientation of Siberia's trading companies away from Moscow and onto local ice cream," Sibtekhkom marketing director Natalya Yakovleva said. "It's less expensive for regional distributors to buy local ice cream; they save on transport and storage costs."

Capital Ice Cream had planned to fight off the regional onslaught with a special advertising campaign this winter. However, financial difficulties have forced the association to put its plans on hold until the summer. "Right now, finances are preventing us from launching a large-scale campaign," Kot said.

There are precedents that give hope to the association's case. Acting President Vladimir Putin has already decreed that value-added tax on frozen foods be reduced from 20 percent to 10 percent beginning June 1, 2000.

An exhibit titled "Ice Cream and Industry 2000" is being held at the All Russian Exhibition Center and is running through Friday, 10 a.m. to 6 p.m., except Friday, when it will close at 3 p.m.