Multinationals look to bear fruit in Eastern Europe
Eastern Europeans are much bigger juice drinkers than their Asian Pacific and Latin American counterparts. While Eastern European juice markets have traditionally been dominated by local companies, according to global market analysts, Euromonitor, domestic producers are coming under increasing pressure from multinationals keen to gain a piece of the action.
With per capita consumption at 13 litres, Eastern Europe stands as a relatively developed juice market among the emerging markets. With a modest 2.4 litres and 5.5 litres respectively, Asia Pacific and Latin America lag far behind.
There are several factors influencing the pattern of juice consumption in Eastern Europe. The high consumption rate is closely related to the local climates of Eastern European countries. The long winter season leads to little availability of fresh fruit and vegetables and the price of fresh produce is high, particularly in cold weather. This contrasts to the ample, year-round supply of tropical fruits and vegetables in Asia Pacific and Latin America. For years, commercially produced juice has acted as a nutritious and economic substitute to fresh fruit and vegetables for Eastern European consumers.
The ongoing consumer health trend is another factor influencing the rise of juice consumption in the region. As juice is perceived as being healthier than carbonates, consumers have increasingly turned towards juice in their place. This migration has resulted in slower volume sales of carbonates, which increased by 18% between 1998 and 2003, compared to 64% growth in juice, with the Ukraine as star performer posting juice growth of 81% in the same period.
Health-conscious consumers have shown a strong interest in all products labelled as juice, pushing up sales across the whole spectrum of juice products, including 100% juice, nectars and juice drinks. Nectars, with total volume sales of 1,384m litres in 2003, showed the highest growth.
As is also the case in other major emerging markets, middle class Eastern European consumers are trading up to 100% juice, while low-income consumers are switching from carbonates to juice drinks and nectars.
Although 100% juice generates the largest volume sales, nectars are catching up quickly. Eastern European consumers are not well informed of the level of juice content and in Russia, for example, many consumers simply assume nectars are 100% reconstituted juice. The problems of confusing and often misleading wording is exacerbated by a lack of monitoring.
As it is less costly to produce nectars than 100% juice and the price of nectars is more receptive to middle and lower income consumers, juice manufacturers are pushing this segment hard. In the hope of attracting consumers with new tastes and flavours, manufacturers often combine popular flavours (such as apple) with more exotic flavours (such as banana). The whole approach makes nectars a more dynamic and fast moving category.
The overall improvement in the quality of juice also provides a catalyst for growth. New healthier products, such as low sugar juice and fortified juice enriched with vitamins A, C and E further stimulate consumption.
A key element to the ongoing development of juice demand is the aggressive marketing campaigns run by local players. In Eastern Europe, most of the leading juice players are established local institutions, with Western players taking a minor role in the marketplace. Consumers are familiar with local manufacturers and their product range, and the much-improved quality and lower prices of local products gives them an advantage over Western manufacturers.
Among regional juice producers, Russian players take the prominent position for essentially historical reasons. Russia has been always the largest consumer and major exporter in Eastern Europe. The market leader, Russian company Wimm Bill Dann OAO (WBD) accounted for over 15% off-trade volume sales in Eastern Europe in 2002, and has seen its share improve steadily over the last few years. Its flagship brand, J7, is one of the best sellers in Russia.
To defend its regional position, WBD has increased investments in international markets. The company started local production of juice in the Ukraine - its major export destination - in 2002. WBD is now partly owned (6.25%) by the world's largest water producer - Danone. With Danone's cash injection, WBD is expected to continue its regional expansion during the coming few years.
Russian players can expect to be increasingly threatened by competition from foreign multinationals, which, attracted by the great potential for growth and recovery from the financial crisis of the late 1990s, are slowly returning to Eastern Europe.
While multinationals may be able to leverage strong financial support that local players cannot compete with, the right strategy has to be adopted. In Russia, for example, most foreign brands are in the super premium price segment which has a more limited consumption, restricted to the higher income consumer group in major cities.
To provide affordable quality juice is the challenge for these multinationals, and consequently market entry in the region has been focused on acquiring local production capacity or setting up local plants. In the Ukraine, for instance, Coca-Cola started local production of Minute Maid in 2002, posting direct competition to WBD, making it a more price-competitive option.
In Russia, the company has added more flavours to its locally produced Minute Maid range in order to attract a wider range of consumers. In Hungary, the significant new market entry recently was that of PepsiCo whose Toma fruit juice brand was launched in 2001 and further expanded in 2002.
Other Western players extending their local operations, especially around metropolitan areas, include the Finnish company, Oy Marli AB, which began bottling its juice brand Marli at a plant in St Petersburg in 2001. Also, in 2002, the German company, Glocken Gold, started to produce its juice brand, Sio, in Friazino near Moscow. At the end of 2002, the Russian player Nidan-Ekofruct became the official distributor of Capri-Sonne juice drinks, bottled under licence from the German producer, Wild.
In 2002, Danone took a 4% shareholding in the Russian group, Wimm-Bill-Dann, at its initial public offering on the New York Stock Exchange through which WBD floated 25% of its equity. This move further underlines Danone's desire to participate in the booming juice market in Russia.
In light of the continuous health trend and the greater degree of participation of multinationals, Eastern Europe will continue to see solid growth in sales of juice in the next five years. Euromonitor anticipates volume growth of juice will be around 58% between 2003-2008.
The EU accession of Poland, the Czech Republic, Hungary, Slovakia, Slovenia, Latvia, Lithuania, and Estonia is expected to help raise levels of disposable income and living standard in the region as a whole. It is expected that more consumers will be able to purchase better quality juices in the medium term, and multinationals are well placed to meet this demand.
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