Not enough space for local suppliers

RIGA - What can be more desirable and appetizing than ice cream in the summer? During these hot and sunny days not only children and teenagers, but also many adults, strike out to make a feast of this wonderful relish. However, as soon as one feels the first breath of the cold wind on his cheeks, he changes preferences towards something warmer. As a result, the ice cream business happens to be one of the most sensitive and ephemeral areas of commerce in Latvia.
Latvians eat an average of 8,000 - 8,500 tons of ice cream each year. However, as reports the daily Latvijas Avize, local companies produce only a half of this, while the other half comes from foreign suppliers, including from Lithuania and Estonia. 

The biggest share of the pie, approximately 40 percent, is sold by Rigas Piena Kombinats, the largest milk-processing enterprise in Latvia. Then come Premia FFL and other small companies, such as Ingman, Balbiino, Saltums, Rujiena and Druva Partika, reports the daily Telegraf.

The CEO of Rujiena, Igors Miezis, complains that the current division of the market is very disadvantageous for small companies. “It is difficult to advance in the given circumstances, when one enterprise reaps all the cream [sales] and the others just try to survive. Besides, no support is felt from the government’s side. On the contrary, frequently it goes against its own interests. For instance, sometimes Latvian manufacturers are prohibited from selling their products during state holidays, such as [the song festival] ‘Dziesmu svetki,’ because it was agreed that only one particular foreign company will put its product on sale,” he says.

Normunds Labrencis, the director of Ingman, also believes that the ice cream market is characterized by very intense competition. “One of the main factors which resulted in such a tough rivalry is a sharp sales slowdown, which was clearly felt during the last two years. Another influence was exerted by the glut of foreign products seen on the shelves of Latvian supermarkets. All in all, it leads us to the very unpleasant conclusion that someone has to quit the game,” says Labrencis. He believes that the number of competitors will decrease in the near future, leaving room for only 4 - 5 ice-cream companies.

According to Labrencis, the situation is complicated even more by the fact that some of the ice cream vendors run a dishonest business. “It is difficult to compete with the companies which keep double-entry [books] and avoid paying taxes. Here we definitely need to receive active help from state regulatory bodies to ensure a fair environment for all the participants and to add revenues to the state treasury,” he asserts.

In addition to this, there are also all kinds of verbal tricks, which often misinform the consumer. “There is a big difference if a product is called ‘milk ice cream,’ or ‘ice cream with milk,’ and one should be particularly attentive to such a swindle. You never know how much milk is put into a product. It could be only one spoonful of milk, and the rest would be water and sugar. Buying the cheapest is not always the best. Logically, one ice cream cannot cost less than a liter of milk,” comments Miezis.

However, as a matter of practice, paying a high price for good quality is rarely considered by Latvian consumers. Jelena Sutovica, director of Soprano, one of the few hand-made ice cream producers in Latvia, confesses that recently good ice cream has become a too costly affair. “Funny as it seems, but in the present times not everyone can afford such a delicacy. People put out money for bread and butter, and do not care about sweets. Besides, very few people choose to buy qualitative ice cream, at the price of 1 euro for a scoop, when there are plenty of cheaper offers in the supermarket. Home-made ice cream is produced out of natural products – cream, fruit, juice, nuts, etc., while simple ice-cream is often made of various nutrient additives and flavors. Due to the VAT increase, the prime cost of our products makes up 38 percent out of the overall price, while previously it was 20-25 percent,” she says.

Sutovica notes that Soprano has suffered losses already for two years. She says that “In September 2009, profits slumped by up to 40 percent. We started to feel the changes already in July 2009, which was followed by a chain of events of different flues and a very cold winter. It is true that in summer we usually have more customers. But this year even the heat has little effect on purchasing power. Summer boosted profits by 20 percent, but we are still out of pocket. During winter the average monthly turnover for all the shops was 14,000 – 17,000 euros. This summer it is about 20,000 euro. This is incomparable to what was going on previously.”

At the same time, Zane Enina, marketing and PR manager of Rimi supermarkets, notes that this year the situation on the ice cream market is improving, pointing out that “In comparison with 2009, ice cream sales increased by 20 percent. And, 70 percent of the sold product was produced locally.” However, the representative of the Maxima chain of supermarkets, Ivars Andins, reports that from the point of view of July 2009, this month profits fell by 72 percent.

The current situation is partially explained by the lack of a so-called “ice cream culture” in Latvia. “Seven years ago the ice cream business in Latvia flourished. Home-made ice cream production was something extraordinary, a fad, brought from Europe. Few people could travel at that time, and enjoying this ice cream was a small link with the inaccessible. In contrast, these days, people got used to many things which previously seemed exceptional and attractive. Our nation is not accustomed to pampering itself, while this is very characteristic of the citizens of other European countries.

The Latvian climate has a great influence on the ice cream business. It is difficult to ‘sell snow in winter,’ as the saying goes. The cold weather is tied closely together with flu outbreaks, which exclude ice cream from one’s daily ration, considers Sutovica.