Atria’s near-term concerns in Finland and new products in Russia

Atria’s costs are rising and general economic conditions in Finland are worsening

Atria Finland’s near-term concerns are not small.  Producer prices are too low to cover the feed price increases that already have taken place. Prices should be raised immediately and after a while most likely even more because rise in feed prices threatens to continue. USA's poor soybean harvest due to record drought is one factor and Russia is expected to impose restrictions on grain exports for the similar reasons.  Moreover, all cost increases have not yet been added even to the feed prices, so they will rise in any case. 

Summer was bad, weather did not favor barbecuing but much worse can be expected in the future.   General economic uncertainty turns consumers sparing, the most valuable cuts do not sell.  A vitally important retail customer Kesko anticipates increasingly gloomy winter and is indeed preparing for it by extensive layoffs.  Atria's ever a poor negotiating position will hardly be now any better.  In fact, Kesko bluntly calls for innovation and better productization.  It just wants products that add value to the whole production chain.

The market shares are changing.  Many smaller food companies fare well and meat imports inevitably continues to expand.  Atria is strongly committed to domestic meat whose superiority is no longer recognized among consumers.  No wonder. 

Namely once again it was revealed that food is not anywhere near what it is said to be.  This time is was minced beef, which was made of lower-value cuts than stated on the label.  Business as usual was the explanation of all the companies, we just follow other companies’ practices, they said.  And to the question about its true content, Atria’s executive Matti Perälä said (in Maaseudun Tulevaisuus, Sep 21^st, printed version) only that it is our recipe and we don’t want to make it public.  The problem is that in this kind of cases consumers’ critique will be directed mainly to large companies, such as Atria.  It is clear that in Finland the rejection will not happen straight away en masse but there is a risk, that it takes place here and there, one by one. 

There is yet another thing that angers many: Atria is burning money in Russia.

New products and campaign in Russia - Time for yourself

Pit-Product’s new plant in Gorelovo, Lenoblast, company owned by Atria, is currently running at a 60% capacity utilization rate, CEO Atria Plc Juha Gröhn has noted in public last July.   Company's market share is high and perhaps it will be hard to get them higher.  So, under their KampoMos brand, Atria Russia has now launched a family of minced meat products in convenience food category:  ready-to-eat meatballs, steaks and kebabs.  They believe that chilled products, no thawing, suitable as snacks also, will displace frozen products in Russia, as they have done elsewhere in Europe. 

The products are targeted especially to Moscow market where Atria already has one popular product, pizza Royal Fresca.  It seems that these new products are marketed by using Fresca’s high awareness among consumers.

Atria’s ads are never soft and this campaign, “Time for yourself”, in June, planned by Leo Burnett Moscow, did not make an exception.  TV ad, the pizza version embedded above, is not exactly a happy family stuff.  Clearly it says and shows boldly, that cooking belongs only to some babushkas, but every young, independent woman instead will take time for herself.  

African swine fever (ASF) indeed has hit Atria’s farm in Krasnodar.  The case was speculated in this blog on Aug 31^st but as a matter of fact it has been reported widely in newspapers as early as mid-August although Atria itself has not officially informed about it.

But now I asked Hanne Kortesoja, Atria Corporate Communications and IR Manager, if the news, also covered on Aug 31^st, about abandoning primary production in Russia is true.  In her kind reply she first of all wrote that when announcing Atria’s Q2-report, they told that in Russia pig farming is not their core business and that their current plan is to abandon it.  About the reasons she mentioned Russia’s WTO membership and state’s investment subsidies for new pig farms.  She concluded that competition between farms will intensify, and Atria’s farms are too small to be competitive.  She further noted  that availability of pork improves and for Atria it is not essential to keep their own pig farms.  Lastly she reminded that concrete decisions are not yet done.  She didn’t mention the ASF incident at all.

This current plan of abandoning pig farming in Russia surely is totally unexpected, but thinking it over, perhaps it is not a terribly bad idea.  Total dependence on imported meat would not be wise but if the supply of domestic pork truly can be ensured, the plan looks little better.  If I get it right, the plan is also consistent with Atria Russia’s aim to narrow its product range.  Atria has of course done its homework.  Last December they presented a set of estimates which tell, that the domestic pork production in Russia grows steadily and nearly reaches the pork consumption by the year 2020, Ruohola’s 2011 presentation, page (3/8).

There are still two tables presented on Atria’s pages which I have been wondering quite a lot, Lindholm’s 2011presentation, pages (17/27) and (19/27). There are shown ratings of Russian meat product manufacturers by product categories, ratings based on consumers’ opinions.  In St. Petersburg, the table tells, Atria’s brand Pit-Product is on top position in most categories.   KampoMos fares quite well in St. Petersburg and in Moscow it is near the top in some categories.  Not bad at all.  But Atria Russia’s earnings have been in the red over and over again.  When will the popularity of its products be shown on the bottom line?  Interim report Q3 should show some signs of turnaround and the launch of new products should be reflected, if not otherwise, at least in Atria Russia's net sales.

We will delve into Atria’s businesses again later but on Friday, October 12^th we are going to explore HKScan Plc.  According to Vivaldi, there are four seasons at least.  Summer is the best and it will come soon.  Presto.

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