Local Flavours HEat Up Meal Solutions in Developing Markets

During the past decade developing markets have been an important source of growth in the global meal solutions marketplace. According to Euromonitor International data, the Eastern European market accounted for 31% of global sales growth (in US$ fixed exchange rate value terms) in the chilled processed food segment over 1998-2007. Meanwhile, the Asia-Pacific region accounted for 35% of growth in sales of dried processed food during the same period.

Much of this growth has been driven by indigenous firms which have exploited national and region variations in taste to build strong brands. Although the increasing westernisation of tastes and greater private label competition now pose significant threats to growth, these manufacturers are fighting back with value-added offerings and increasingly diversified product portfolios.

Pelmeni dominates frozen processed food segment in Russia

In Russia, for example, local players accounted for the largest share of total current value sales in frozen processed food, with no multinational company ranking in the top 10. This is partly because leading firms such as Kachestvennye Produkty and its rivals Ravioli and Darya have adapted their offerings to local culinary culture, producing products based on such traditional Russian dishes as pelmeni (dough or pasta 'pockets' filled with meat, vegetables and other ingredients). Trade sources estimate that pelmeni accounts for over half of frozen processed food sales in Russia's urban markets.

Numerous regional companies also play an important role in this market. For example, in Yekaterinburg (Russia's fifth largest city, with a population of 1.3 million), sales of pelmeni are dominated by a local producer, Yekaterinburgsky Myasokombinat, which offers 19 varieties positioned across the price spectrum, from economy to premium.

Congee is king in China

Similarly, in the Chinese market, mixed congee (a type of rice porridge that is eaten in many Asian countries at breakfast or supper) is the main product type in the canned/preserved ready meals segment. Unsurprisingly, sales of mixed congee in China are dominated by such indigenous firms as Hangzhou Wahaha Group, Xiamen Yinlu Food Co and Yangzhou Xinxin Food Co. All of these companies benefit from strong, extensive distribution networks stretching into China's vast rural hinterland, as well as strong brand familiarity.

Indigenous players fill local niches in Latin America

Elsewhere, many Latin American packaged food manufacturers have launched products to fill meal solution niches that have been overlooked by their larger multinational rivals. For example, Venezuelan firm Industrias Iberia has launched a new line of stock cubes in flavours that are associated with indigenous dishes and that are not offered by competing multinational brands like Maggi and Knorr. Launched during 2007, the Paella range of products is targeted at time-poor, lower-income consumers.

Also during 2007, Alimentos Kern de Guatemala launched DUCAL Frijoles Parados, the first processed version of a traditional Guatemalan dish. Targeted at time-poor housewives, as well as urban migrants who are separated from their families, this product fits in well with the changing lifestyles of consumers in a niche and is backed by the well-established DUCAL brand. Like its Venezuelan counterpart, this offering is well positioned in a niche that is largely under the radar of multinationals, which are more concerned with more high-margin and large-volume segments of the market.

Increased private label participation will put further downward pressure on margins

Despite all this activity, there are signs that the outlook for growth in indigenous meal solution products may be darkening. Firstly, private label competition is increasing. In China, French retail chains Carrefour and Auchan both offer private label mixed congee products. These are priced in the region of RMB2.60(US$0.37)/360g, while branded products are typically priced at around RMB3.60(US$0.51)/360g. In an environment where food price inflation has become an important political and socio-economic issue in China, this competition will inevitably further undermine margins in this segment.

Westernisation of tastes poses a long-term threat

Another, and perhaps more serious, threat, is that tastes in many developing markets are becoming more westernised, with such products as breakfast cereals and pizzas increasingly displacing indigenous products. The factors behind this change include increased urbanisation, greater affluence, strong growth in foodservice sales, and the fact that increasing integration of global economies has