Investors made a mess – Newspaper Kommersant No. 217 (7418) of 11/23/2022

Put up for sale by the American Kraft Heinz, the Russian baby food business attracted the attention of several investors at once. According to Kommersant’s information, among those who are interested in the asset are Chernogolovka and Farmalakt Group of Companies, already operating in this segment, as well as AFK Sistema. Despite the current decline in baby food sales, the business is still highly profitable.

Chernogolovka, Farmalakt, and AFK Sistema are interested in buying the Russian business of Kraft Heinz for the production of baby food, a source in the market told Kommersant and confirmed an interlocutor in investment circles. Two sources of Kommersant specified that the search for a buyer is still ongoing. Kraft Heinz told Kommersant that they do not comment on “market speculation or rumors.” AFK Sistema declined to comment. In Chernogolovka and Farmalakt, Kommersant did not answer.

The intention of the American food manufacturer Kraft Heinz to sell the baby food business in Russia became known this summer. The deal should include the Heinz-Georgievsk plant in the Stavropol Territory and the Ivanovo baby food plant with a total capacity of over 30 thousand tons of cereals and mashed potatoes per year, as well as the Umnitsa and Sami with a mustache brands. According to Kommersant’s source, Kraft Heinz estimates the value of the business at 2.5-3 billion rubles, which is comparable to net revenue in 2021 of $43 million (2.6 billion rubles at the exchange rate of the Central Bank on Wednesday).

Farmalakt, which produces breast milk substitute under the Mamelle brand in the Moscow region, children’s biscuits and tea, may be familiar to Kraft Heinz. The local media called a businessman from Serbia, Goran Vukovic, the investor of this enterprise. He was also the owner of the Ivanovo Baby Food Plant when Kraft Heinz acquired the asset, Vedomosti wrote in 2015.

One of Kommersant’s interlocutors considers Chernogolovka Group, a manufacturer of soft drinks, snacks, and confectionery, to be the most likely candidate for Kraft Heinz’s assets in baby food. As a source told Kommersant earlier, the owners of Chernogolovka have long been looking for assets in the baby food market with a well-known brand and a significant share at an affordable price, but have not found suitable options. Now the group produces children’s canned meat under its own brand in the Novgorod region. And fruit purees, for example, are produced in Belarus, follows from the data on the product label.

Alexey Popovichev, Executive Director of Rusbrand, notes that investments in the production of baby food are complicated by increased requirements for the quality of products and raw materials, as well as high safety standards, which is why interest in quality assets already operating in the sector can be high. Marat Ibragimov, a senior analyst at Gazprombank, adds that the baby food business has historically been highly profitable – about 30% on EBITDA. With the departure of foreign investors, Russian companies have the opportunity to get a good asset at an attractive price, he points out.

According to NielsenIQ, in the offline segment, sales of baby food in general in January-September 2022 decreased by 12.1% in physical terms, while in money terms they increased by 8.3% year-on-year. Demand for prepared viscous meals in volume decreased by 19.4%, for children’s drinks – by 12.8%, for dairy foods – by 8.6% year-on-year. Growth – by 2.2% in physical terms year on year – offline was shown only by breast milk substitutes, follows from NielsenIQ data. In the online segment, according to analysts, sales of baby food over the same period decreased by 2.8% in volume and increased by 11.2% in money terms.

According to Marat Ibragimov, the current decline in demand for baby food may allow buyers to qualify for a larger discount during negotiations. But the situation can hardly be called unattractive. As Mr. Popovichev points out, so far major foreign players have not announced their intentions to leave the Russian baby food market. Danone, which plans to transfer control over the production of dairy products and plant-based drinks to Russia, indicated that the baby food business (Nutrilon, Malyutka and Malysh brands) would not be affected by the transaction.

Anatoly Kostyrev