Our business environment and consumer lifestyles are changing at an increasingly rapid pace, and food players need to take action. Businesses around the globe are affected by population growth, aging and extended work life, tightening regulation and urbanisation, among other things. These phenomena need to be acknowledged and addressed to ensure success in today’s business world.
The global economy is showing continuing positive momentum. With solid GDP growth in all our operating countries, consumer outlooks are developing well. However, competition is fierce and holding on to and developing our market shares requires hard work.
Economic development: positive outlook in all main markets
The Finnish economy saw clear growth, with an estimated GDP increase of +3.1% in 2017. Unemployment decreased slightly in 2017 and is expected to continue decreasing in 2018. Inflation increased to +0.8% in 2017. The Russian economy is recovering, which decreases the risks to the Finnish economy.
Russia saw a positive step with GDP growth at 1.8% in 2017. The economic sanctions imposed on Russia by the EU were extended to July 2018, and Russia’s food import ban stands until the end of 2018. The rouble has continued to fluctuate in response to oil price changes, but it has stabilised somewhat in 2017. Inflation has continued to decrease, ending up at 2.5% at the end of December 2017.
The Swedish market is expected to remain strong and the economy is looking up with a GDP growth of approximately 3% in 2017. However, expectations for the coming years are somewhat lower. Inflation is on the rise but still quite moderate at around 2% in December 2017.
Currency fluctuations impact profitability
The Russian rouble was stronger than the year before. The Norwegian krona remained quite stable and the Swedish krona weakened from 2016. These changes had an impact on our result. Weaker currencies may also weigh down local profits due to higher costs for materials purchased in foreign currencies. The weakening of currencies may also create pressure on sales prices: Fazer Confectionery Russia and Sweden purchase their confectionery products from Finland and are therefore vulnerable to currency fluctuations, which are reflected on their costs.
Pound sterling, which is the main currency for cocoa purchases, has weakened against the euro ever since the Brexit vote in 2016. This development has lowered our raw material costs somewhat but not significantly as pound currency rates were fixed pre-Brexit for a long period to bring stability into pricing.
Market development: tight competition and strong demand for sustainable and health-enhancing products
The health and well-being trend continues strong, which is reflected in the success of the health-enhancing products of our bakery offering. However, the bakery market as a whole is stagnating or declining slightly in all our markets.
In Finland, the competition in chocolate tablets was tough and our market share declined slightly. The biscuit market, on the other hand, developed in a positive direction.
The food service market is also seeing tightening competition, especially in the University sector in Finland. Sales of new contracts take time, but the sales pipeline is showing improvement, giving 2018 a promising start.
Customer demand for non-dairy and plant-based products continued to grow in 2017, providing a good operating environment for Fazer Lifestyle Foods. Product development in this market is speedy and new products are introduced by competitors as well. Retailers are expanding their selections and open to introducing new products in this category.
Wheat and rye markets declined in Finland but remained stable in Sweden. The popularity of oats continues, with great promise in the oats derivatives market in particular. The demand for organic oats exceeded our supply capacity and raised considerably the price of organic oats. The cold summer and rainy autumn may impact grain availability and prices negatively.
The café sector was under pressure from tightening competition particularly in the Helsinki area.
In corporate responsibility, active dialogue is sought by consumers, with the anticipation on companies to take a stand on societal issues. We have seen steady development in our reputation in all markets.
Read more about our corporate responsibility work here.