In total, 38% of all sausage manufacturers claim they will refuse discounts as they struggle for better profitability in 2017. Currently, nearly 18% of sausages in Russia are sold through various discount campaigns and almost all retail chains use such tactics to attract customers, VNIIMP claim.
According to consultancy GfK Rus, the rate of discounts on sausage production ranges between 13% and 50%. A VNIIMP study described the impact of price cuts on sausages as “extremely negative”, but expressed doubts that sausage manufacturers would be able to urge retailers to cancel discount campaigns.
‘Driving forces’
“Time will tell if sausage producers will find a way to reduce the depth of discounts,” said Olga Kaytyalidi, head of VNIIMP. “Still, retail chains remain the main driving force in this issue. At the same time, the retail segment is fighting for the consumer, whose income continues to fall, using the easiest and proven tool – discounts.”
The basic price of uncooked smoked sausage in Russia is currently RUB900 ($14.6) per kg, semi-smoked and ready-cooked smoked sausages are RUB440 ($7.14) and cooked sausages are RUB340 ($5.52), according to VNIIMP estimates.
Sales drop may deepen
Sausage sales in Russia have fallen for almost three years, showing the strongest decline in sales at the country’s meat markets.
According to information from the Russian State Statistical Service, 2.49 million tonnes of sausages were sold in Russia in 2014, while in 2015 this figure amounted to 2.46 million tonnes.
However, VNIIMP indicated a stronger decline, estimating that in the period from August 2015 to July 2016 sales of sausages in Russia’s largest federal retail chains dropped 11.1% year on year.
Daniil Kirikov, head of Russian consulting agency Kirikov Group, expressed doubts that retail chains would agree to cancel promotions on the request of manufacturers. Stopping discounts in the context of weak consumer demand could result in a serious worsening of the financial performance of retail chains, he explained.
A spokesperson for Russian retail chain X5 Retail Group told GlobalMeatNews that sausage manufacturers actively participated in discount campaigns.
“A slight cut in the discounts seems possible, but we are definitely not talking about stopping discounts,” he said. “Such a step may contribute to a further drop in demand and this is something neither retail chains, nor sausage producers desire.”
According to Russian State Statistical Service, real disposable household income in Russia has fallen throughout 2016. Incomes were down 6% in November compared to the same month in 2015 with people now spending, on average, 40% of their income on food, including 10% on meat.