The overall investment in the project is said to be RUB3.5 billion ($65m). The plant occupies 1,400m2 and is capable of processing beef, pork, lamb and rabbit meat, purchased from local farmers, to manufacture a broad range of ready-to-cook and semi-finished meat products.
By running its own meat processing plant, the company said it would be able to provide customers with more affordable, better-quality products, Irina Rodionova, meat department director of Auchan Russia, said in a statement, published on the Tambov local government website. The aim of the project, added Rodionova, would be to establish and control a single production and supply chain, from animal breeding to packaging and delivering meat products to grocery shelves.
Quality was crucial for Auchan in Russia, said the firm. The retailer’s announcement that it would build its own meat processing plant has followed a major scandal in 2015, when Russian veterinary watchdog Rosselkhoznadzor revealed, during several inspections, that up to 90% of the meat in Auchan stores contained foreign DNA. In addition, some products were found to be contaminated with potentially harmful microorganisms.
This scandal is believed to have negatively affected Auchan’s reputation in Russia. The company said it was possible that some meat suppliers had provided the poor-quality products.
Profitability factor
However, Sergey Yushin, chairman of the Russian National Meat Association, questioned whether Auchan’s latest project would be profitable. The plant has been purchasing meat from smallholdings and small-scale meat producers, so their production costs would be higher than these agricultural holdings, he suggested.
Yushin added that many modern meat processing plants with a good supply base were being launched in Russia and it would be hard for retailers to compete with them in terms of production costs.
Speaking recently to local news outlet Meat Export, Auchan’s Rodionova admitted there was the risk of a shortage in raw materials for the plant. She added, however, that the company had been working with numerous suppliers and making efforts to diversify its supplier base.
Auchan’s meat processing plant currently manufactures 40,000t of various meat products per year, or 60% from overall sales in this segment, Rodionova estimated. The company has continued to obtain meat from other manufacturers, but this practice was expected to cease as soon as the plant reached its full production capacity.
In 2017, Auchan’s net profit in Russia dropped to RUB3.8 billion (US$60m) from RUB10.9bn ($170m) in the previous year. The company is the fourth-largest food retailer in the Russian market in terms of financial turnover.