Russia’s largest manufacturer of baby food is still for sale

The owners of the largest Russian manufacturer of baby food “Progress” (brand “Frutonyanya”) resumed its search for a buyer for the business. In 2011, they wanted to sell it to Nestle, but were unable to agree on a price. Since that time, the cost of “Progress” could grow two times, exceeding $500 million.

Negotiations with strategic investors are going on for more than a month. Recently, the “Progress” attracted various investment consultants, says one of the officials of administration of the Lipetsk region where the plant of the company is located.

“Progress” produces more than 200 types of baby food under the brand “Frutonyanya”, “Malysham”, mineral water “Lipetsky Byuvet”. According to SPARK data, 35% of JSC “Progress capital” (head structure of the company) is owned by Olga Belyavtseva, who took  4th place in the ranking of the richest women of Russia by Forbes magazine this year’s with a fortune of $450 million.  Antoher 39.3% are with Svetlana Bortsova (18-th place in the Forbes ranking, wealth — $150 million), widow of co-founder of “Progress” Yury Bortsov. The revenue of “Progress” in 2016 amounted to RUB 24,09 billion, net profit of 3 billion rubles. According to Euromonitor International, in 2016 the market size of baby food in Russia amounted to RUB 264,8 billion.

Initially “Progress” was part of the juice producer “Lebedyansky”,which was owned by a Bortsov family, Mrs Belavtseva and Dmitry Fadeyev. In March 2008 75,53% of “Lebedyansky” was aqcuired by PepsiCo for $1.4 billion (later PepsiCo has consolidated 100% of the company). The production of baby food and mineral water was put into a separate company valued at $251 million (excluding debt of $75 million). “Progress” evaluates its business at more than $500 million, and one of the major market participants believes a fairer estimate is $300 million.

According to Nielsen, “Progress” is the leader on the Russian baby food market: in the period from August 2016 to July 2017 its share was about 34% in real terms. Such position Nielsen explained with brand “Frutonyanya”, the growth rate of sales of which surpasses the average in the segment: for example, if sales of dry baby food in the specified period grew by 2%,  – sales of the “Frutonyanya” grew by 32%. Owners of “Progress” would want to take advantage of the current good position of the brand’s flagmanship on the market and exit the business at a bargain price, assumes the Executive Director of the National Union of Milk producers Artem Belov.

Owners of “Progress” wanted to exit the business since 2011: Nestle was close to buyng the business (Nestle’s baby food brands Nan, Nestogen, Gerber). At the time “Progress” was estimated at $240-350. According to one of the investment consultants, the parties were unable to agree on a price. Another major manufacturers of baby food in Russia are Danone (baby food brands “Topic”, “Rastishka”) and PepsiCo (“Agusha”, “Miracle kids”) who have no interest in  “Progress”. Representatives of PepsiCo said they would not comment on market rumours, Danone confirmed that there are no such negotiations in place.”Progress” can become traget for a foreign manufacturer of baby food with a small share in Russian market.

The most likely candidate for “Progress” is German manufacturer Hipp Holding AG. In Russia they have a plant near Kaliningrad hat was launched in 2010. In 2016, the company “HIPP Rus” earned 1.04 billion RUB of revenue and 97.3 mln net loss. For foreign producers of baby food interested in Russian market, the purchase of “Progress” would be a more preferred option than building its own plant – the investor immediately gets the well developped distribution system too.

According to Nielsen rating, from August 2016 to July 2017 sales of baby food in Russia grew by 1% in volume and 4.9% in monetary terms.

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