The Food and Agriculture Organization of the United Nations reports that the European production of potatoes in 2014 amounted to about 123 million tonnes. Eastern European countries were responsible for more than 60% of this total, with Russia, Ukraine, Poland, Belarus and Romania on the list of top 10 European producers. Nevertheless, only about 0.2% of total production volumes actually ended up being processed, frozen and sold to consumers in Eastern Europe.
By Joana Sokolnik, Research Analyst at Euromonitor International
The Food and Agriculture Organization of the United Nations reports that the European production of potatoes in 2014 amounted to about 123 million tonnes. Eastern European countries were responsible for more than 60% of this total, with Russia, Ukraine, Poland, Belarus and Romania on the list of top 10 European producers. Nevertheless, only about 0.2% of total production volumes actually ended up being processed, frozen and sold to consumers in Eastern Europe.
According to Euromonitor International, global retail value sales of frozen processed potatoes reached more than EUR6.7 billion (current prices) in 2015, with 79% of this total accounted for by Western Europe and North America, while Eastern Europe was responsible only for a 3% share of total world sales. The disparity in sales of frozen potatoes is fairly well illustrated by the differences in per capita consumption indicators across the regions.
For example, in 2015, on average, an inhabitant of Western Europe and North America ate an annual 3.1kg and 1.7kg of frozen processed potatoes, respectively, compared to the 0.3kg consumed by an individual in Eastern Europe. Keeping in mind the general trend of westernisation, impacting not only culture as a whole, but also industries, technologies, people’s lifestyles and eating habits, it would be reasonable to foresee a strong positive development for the category in Eastern European markets in the future. However, is this really the case and what is the potential for growth for frozen processed potatoes?
Currently, the category in Eastern Europe is not developing as spectacularly as one might hope. There is no doubt that the Russia-Ukraine conflict had a very negative impact on the performance in both countries, as Russia and Ukraine registered retail volume sales declines of 16% and 23%, respectively, driving the overall 2% decline for frozen processed potatoes in Eastern Europe.
In addition to the negative retail volumes sales registered in the aforementioned economies, Romania, the Czech Republic, Bulgaria and Slovakia also showed a slightly negative trend. All other Eastern European countries recorded positive retail volume sales, although the dynamics in most of the markets was rather lackluster, with the fastest retail volume sales growth of 4% being posted by Georgia, Serbia and Bosnia-Herzegovina, meaning that geopolitical tensions are not the only factor constraining the category growth and other reasons also have to be taken into consideration.
Factors slowing down category growth
One of the main reasons for the still low popularity of frozen potatoes in Eastern Europe is the fact that consumers, especially those of the Central and Eastern part and not affected by Balkan cuisine, such as Poland, the Czech Republic, Slovakia, Hungary, Belarus and Russia, have a deeply rooted preference for fresh potatoes, often served boiled as a side dish. Other potato dishes, such as potato soup, potato salads and potato dumplings, are also considered as traditional in their cuisines.
On the other hand, French fries/chips are relatively unestablished in most of the cuisines, not surprisingly, as, in some countries, they were only introduced by McDonald’s around 20 years ago. The Czech Republic could be mentioned as an exception. Thanks to the influence of international cuisines, potatoes were also fried in the Czech Republic, so French fries or croquettes are also common food there. Interestingly, this can be illustrated by the per capita indicator. The Czech Republic has one of highest annual per capita consumption rates in Eastern Europe, at 1.5kg in 2015.
The other unfavourable factor is the rather unhealthy image of the category. Health awareness has become an important trend in Eastern Europe and consumers are increasingly paying attention to what they eat, insisting on healthier foods. Since French fries, which account for the biggest part of frozen processed potato products, are not deeply rooted in the eating culture, it is also easier to resist their consumption.
Last but not least, another difficulty the category is facing relates to the price. Not only are fresh potatoes healthier, but they also tend to be cheaper, significantly so in some countries, than their frozen counterparts. Eastern European consumers, especially those on the lowest incomes, are just not prepared to pay such premiums for potatoes.
Factors positively impacting development
However, in spite of the constraints in the way of dynamic category development in Eastern Europe, the category is still registering a positive performance in most Eastern European countries. Innovation and an expanding product portfolio have been among the main factors positively impacting the sales of frozen processed potatoes – and will also continue to be very important for the future appeal of the category.
Although French fries are still responsible for the largest share of frozen processed potatoes in Eastern Europe, the category has seen many alternative launches over the last five years. All the leading manufacturers have expanded their portfolios, not only with different types of French fries, but also adding products typical of Western countries, such as various types of spicy wedges, croquettes or mashed potatoes.
Moreover, manufacturers are increasingly trying to match their products and promotions to consumer trends, paying significant attention to health and wellness. Leading manufacturers have taken steps to improve the nutritional content of their products by reducing fat and salt content, for example. This has seen the use of palm oil for the production of frozen French fries being replaced with sunflower oil in most McCain and Aviko products available on Eastern European markets, thereby significantly helping to reduce saturated fat levels.
The goal of the companies’ latest main strategies is to convince Eastern Europeans to eat more frozen potatoes, which is not simply related to introducing new product developments, but also to increasing the frequency of eating the products. Marketing strategies concentrate on promotion of different occasions for consumption of frozen potatoes, not only limited to random dinners, but also snacking and/or sharing occasions or entertaining with friends.
Furthermore, the growing importance of modern retailing channels (particularly hypermarkets and supermarkets) in such countries as Belarus, Ukraine, Bulgaria, Georgia, Romania, Macedonia or even parts of Russia offers further opportunities for the development of the category, as it ensures the space for cold storage facilities.
Promising foodservice market
The consumer foodservice industry in Eastern Europe was estimated to be equivalent to more than EUR43 billion in 2014. While it is significantly smaller than its Western European counterpart, it still has not reached its full capacity, therefore offering both current and future opportunities for various manufacturers and exporters, including frozen processed potatoes agents. Indeed, foodservice channels play a very important role within frozen processed potatoes, as more than two thirds (72%) of total volume sales of frozen processed potatoes is generated through foodservice in Eastern Europe, which is a significantly higher share than in Western Europe, where foodservice accounts for slightly more than half (54%) of total sales.
Keeping in mind the generally positive performance of consumer foodservice and the excellent achievements of fast food – seeing double-digit growth and being the driver of the overall industry – this shows the potential for the development of frozen processed potatoes in the region. In order to understand the scope of the potential growth, it is worth checking the development of burger fast food outlets over the last 10 years – while there were 3,553 burger fast food outlets in 2004 in Eastern Europe, in 2014 the number had reached 4,987 outlets, representing an increase of 40%. The number of outlets is predicted to reach 6,129 in 2019, which indicates that there is further potential for increased sales of frozen processed potatoes through the foodservice channel.