The world around us, the business environment and our lifestyles are changing at a rapid pace – setting new demands for companies across industries. The continuing trends of an aging and growing population, extended work life, urbanisation, technology and sustainability, among others, affect our operating environment.
While the economies in our key markets continued to develop favourably, the competitive landscape has become tougher for all our businesses.
Economic development: growth in all main markets
The Finnish economy saw growth, supported by private consumption and favourable development in employment as well as slow inflation. Employment has improved significantly, but the growth rate is expected to slow down in the coming months due to uncertainties in the global economy and to a gap between the supply and demand of workforce.
The Swedish economy witnessed steady growth in 2018. The labour market continued to be tight. Inflation (excluding food and energy prices) was at a normal level, setting modest cost pressures on the Swedish economy. The Swedish krona is likely to remain weak due to the expansionary monetary policy, uncertain housing markets and the effects of potential trade wars.
The Russian economy continues to face the threat of sanctions and challenges of internal reforms, although their effects are buffered by strong macroeconomic indicators and a cautious monetary policy. The country’s unemployment rate remains low, while the risk of inflation has increased due to a number of factors. With the currency highly dependent on political factors, the outlook remains uncertain.
Weakened currencies affect result
All of Fazer’s main currencies have weakened against the euro in 2018. Weaker currencies affect Fazer Group’s figures directly, when local currencies are recalculated to euros. They may also adversely influence local profits through, for example, higher material or product costs. Pound sterling, the main currency for cocoa purchases, has remained relatively stable during 2018, but was clearly weaker at the end of 2018 than before the Brexit vote in 2016. This affects Fazer’s raw material costs favourably.
Market development: Competition remains strong and demand for well-being offering continues
The demand for health and well-being products continues to be strong and the shop-in-shop business is gaining ground in Finland. However, with record competition, our bakery business lost market share in Sweden and Russia. In Finland, domestic rye and oats have sufficed to fill the needs of Fazer Bakery despite the exceptionally challenging crop year. The deficit in wheat may have to be replaced in part by imports.
Artisanal bread has maintained its popularity especially in Finland and Sweden. Bread consumption declined in value in value-added segments in Russia, although consumers moved from low-price segments to mid-price segments, increasing the market value in Moscow. The extraordinarily hot weather affected the consumption during the summer.
Despite sales challenges set by the hot weather in the summer, Fazer Confectionery’s net sales in 2018 grew from the previous year. Fazer Confectionery’s market share in tablets increased in Finland, but heavy competition continues to set challenges. The market share in biscuits remained unchanged.
The food service market saw positive contract sales in 2018, with some large contracts won. The retention of existing contracts was close to target level and some unprofitable contracts were exited. Actions to improve performance were carried out successfully to support profitability also in 2019.
Fazer Lifestyle Foods is seeing increasing competition from private label companies in the smoothie and non-dairy categories. The profitability of Fazer cereal business is being challenged by increasing raw material prices. Fazer Mills suffered from high grain prices after the weak crop in 2017 and an even worse crop in 2018 due to the hot summer.
Fazer Retail’s performance for the full year 2018 was affected by challenges with sales in the spring and summer while an improvement was visible later in the year, especially in Finland. The market situation in Stockholm continues to be particularly challenging.