The Russian confectionery market is undergoing a number of major changes at the moment, one of which could see the decline of one of the main players, Sladko Holding, according to Moscow-based consultancy, Market Advice.
Created at the beginning of 2001, Sladko Holding appears to be on the verge of collapse, the consultancy claims, after its plans for major expansion faltered due to a number of factors.
Sladko is controlled by United Confectioneries through its 62 per cent stake in the investment fund Baring Vostok Capital Partners (BVCP). The fund had originally planned to provide funding to upgrade the management, marketing and purchasing operations at the company, but the very different production from Sladko's three plants subsidiaries (Konfi, Volzhanka and Zarya) made achieving a consistent level of quality an extremely difficult task.
In addition, BVCP has been unable to take sufficiently large stakes in the three subsidiaries to directly control them - for example, it has 50 per cent Volzhanka, but has not been able to increase this further.
But Sladko has had some success, according to Market Advice. A nationwide advertising and promotional campaign in 2002 helped raise awareness of the company's products, as shown by a recent survey carried out by the consultancy.
The Sladko brand was recognised by up to 50 per cent of the consumers questioned by Market Advice in the more populous regions of central Russia, although in the further flung parts of the country, this level of recognition drops to 10 per cent.
With production of around 30,000 tons in the first four months of 2003, and an 8 per cent share of the Russian confectionery market as a whole, Sladko's business is likely to be of interest to buyers should the holding itself fail - although if the lessons have been learnt, prospective buyers are more likely to bid for the individual subsidiaries than the holding as a whole.
In fact, Sladko has already been forced to sell off one of the subsidiaries, Zarya, in June this year as a result of management problems and a failure to settle internal disputes. Now BVCP is in conflict with the other shareholders in Volzhanka over the restructuring of the business, and the venture capital fund could be prepared to sell its stake in the company over the next few years, Market Advice suggests.
For more information about Market Advice reports, contact Katrin Myagkova or visit the company's website.