The impact of the cost-of-living crisis on Russia's dairy sector has become increasingly apparent.

Acknowledging the decline in incomes among the Russian population, Petrova emphasized a heightened focus on the composition of the food basket. The competition for the allegiance and spending of Russian consumers is currently intense, with Petrova noting that, for some citizens, food has evolved into a form of entertainment, leading them to allocate more resources towards premium products. However, Petrova estimates that this segment comprises only about 20% of the consumer base. Private labels emerge as a significant trend in the Russian dairy market, constituting 25% of the industry's turnover, according to Petrova. Dairy companies find themselves at a crucial juncture—opting to enter the private label sector and manufacture goods for other brands or attempting to establish and develop their own brands. The competition with private labels is growing more challenging, and entering this segment often entails adhering to stringent economic constraints due to the relatively low margin. Petrova also observed a trend where companies in this sector are ultimately acquired by larger players. Ivan Fedyakov, the head of Infoline, a Moscow-based think tank, highlighted the surge in popularity of hard discounters—retail stores specializing in the sale of the most affordable products—in recent years in Russia. He projected that, in the next 3-5 years, discounters would feature nearly 50% of private labels on their shelves. The past few years witnessed a decline or stagnation in sales for Russian supermarkets and hypermarkets, leading to a deterioration in the financial performance of some food retailers. For example, Okay, one of Russia's major supermarket chains, reported a net loss of 3 billion roubles (US$30 million) in the second quarter of 2023. Conversely, discounters and online sales experienced a growth in turnover. Fedyakov emphasized the concerning dynamics of the current situation, requiring focused attention from management. He opined that discounters are poised for growth as they appeal to a popular format, particularly among the expanding poorer population.