28 February 2005 00:01 [Source: ICB]
Fast-paced action, modern technology and a touch of gloss might be considered the hallmarks of a James Bond movie, but they could equally apply to activities in the Russian paint sector, where the Finns, Germans and Turks have been busy shaking the paint market and stirring up competition.
Finland’s Tikkurila business, part of the Kemira Group, has exploded onto the Russian scene, scoring a massive 67% recognition or brand awareness in the consumer paint segment, more than twice that of its nearest rival and more than the trio of brands offered by Akzo Nobel, namely Sadolin, Marshall and Crown. Such high awareness is perhaps to be expected for each of Tikkurila, Akzo Nobel and Meffert. Each of these is well-established with Russian paint-making operations, further supported by imports where required. Hence Akzo Nobel is a prominent supplier from both Turkey and Sweden, while Meffert brings a German touch to the market. This is presumably a small part of the 70% volume increase in official German paint exports to Russia between 1997 and 2002, proving just how inexorable the progress of foreign paint in Russia has become.
This trading history has exploited vast gaps in the Russian industry where a combination of outdated technology, inflexible paint-making equipment, unimaginative packaging and a standardised rather than diversified cross-section of raw materials have left Russian defences wide open, with only limited market ammunition to fall back on.
But times are changing. Substantial investment has been channelled into the top tier of the Russian coatings sector in the past two or three years. Russian paint makers such as Teks, Nevskie Kraski, Russkie Kraski, Pigment, Empils and Lakokraska have been injecting cash into manufacturing. The last two have also strengthened their operations in other ways: Lakokraska acquired the Omsk-based Colorit in 2003, while Novoe Sodrushestvo (owner of Empils and Pigment) merged the Ukrainian operations of Empils and Elaks in 2004. Playing the west at its own game, Empils has recently hired a design agency to refresh its logo, designs and company typeface as it capitalises on its growing stature in Russia and the CIS states. Many of Russia’s top players have established themselves with organised dealer networks and developed their own brands in order to compete more effectively.
Such changes are probably arriving just in time to stop imports from gaining the majority of the market. Information Research (IRL), which specialises in business research for the coatings sector, placed the combined share of the domestic decorative paint manufacturers in Russia at 55% in its Profile of the Russian Paint Industry report, with all others, inclusive of imports, at 45%. Hence, allowing for some minor market shares, possibly 40% of the decorative paint market could now belong to foreign brands. Only the very top Russian paint makers are able to produce coatings with different finish characteristics and many are only able to produce ranges of 20-30 (occasionally 40) colours. This bodes well in the medium to long term for the introduction of tinting systems into the do-it-yourself (DIY) market.
The DIY paint market in Russia could be estimated at about 370 000 tonne in 2004. Growth is about 8%/year and stems mainly from affordability. The rise of the west is again steady; about 35% of the St Petersburg DIY market is supplied through specialist retailers, a further 35% by small independents such as Stoitel, but with 30% being supplied through large chains.
Superstores such as Starik Hotabich and Maxidom are typically clustered around the two key metropolitan markets of St Petersburg and Moscow, and in the future are likely to find increased competition from German entries such as Marktkauf and OBI. Last year the Finnish retailer Rautakesko bought a 55% stake in Stroymaster, which had previously been under the sole ownership of Teks.
Typical of the emerging markets, these sectors highlight both the consumer demand and the technology need. Opportunity can be found in the raw materials sector, where diversification can create more product distinction in the market. On the other hand, some formulation types are still not produced in Russia, as lower tiers of industry labour with the production of old-fashioned finishes. Although the golden finger of globalisation is not yet pointing to Russian shores, if more of the world’s major car makers could be enticed into investing in Russia instead of China, the technological and manufacturing potential could be huge. From automotive finishing a host of different technologies cascade into other industry sectors and, more importantly, the consumer goods markets too.
Terry Knowles is business manager at IRL, the London, UK-based paint and coatings consultancy. IRL’s Profile of the Russian Paint Industry was published in 2004. For more information visit www.informationresearch.co.uk
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