Non-carbs offer growth for Russian soft drinks firms

By | 14 June 2006

Non-carbonated categories, such as waters, natural fruit juices and iced teas, are providing growth for Russian soft drinks manufacturers as consumer tastes evolve, and demand for healthier beverages grows. Catherine Mars reports.

New political stability, the improving economy and a rise in real incomes in Russia has boosted demand for soft drinks, with urban consumers in particular adopting Westernised lifestyles, becoming increasingly health conscious and looking to experiment with new products and brands. Moreover, because of the low per capita soft drinks consumption in comparison with Western countries, Russia has huge potential for dynamic growth.

While the health craze has left the carbonates market sluggish, manufacturers are responding to consumer demand by focusing on natural juices, ready-to-drink teas and water. However, some manufacturers are persevering by relaunching, repositioning and rebranding carbonates as 'health drinks' with no added sugar and increased juice or vitamin content.

As in so many other markets, bottled water has become a key category for soft drinks companies as the overall market has evolved. Off-trade sales of still bottled water - particularly brands from natural springs - are booming thanks to greater awareness of health issues and increased purchasing power among city-dwelling Russians. The poor quality tap water from old domestic water pipes has also been a contributing factor.

Despite its great potential, the market is already highly competitive with large multinationals leading the way. However, local manufacturers remain strong in their own regions because of the low prices of local produce and consumers' provincial loyalty. This situation results in a fragmented market, where only a few brands are represented across the country.

PepsiCo's Aqua Minerale is the leading brand, with a particularly strong franchise among young consumers. By brand, it is second only to Coke in soft drinks off-trade volume sales, increasing its share to 4.9% in 2004.

Coca-Cola Refreshments has distributed the Valser premium bottled water brand, which was acquired by The Coca-Cola Company in 2002, since April 2005. Coke's other water brand, Bonaqua, which is also distributed by Coca-Cola Refreshments, has increased its off-trade market share in volume terms to 2.5%, but is still well behind PepsiCo's Aqua Minerale.

To capitalise on the growing demand for healthier beverages, juice producer Wimm-Bill-Dann (WBD) has looked beyond its successful juice range, moving into bottled water in early-2003 with the launch of Zapovednik. The company followed this up a few months later by acquiring the Essentuki mineral water production facilities of Tselebny Istochnik and then, late last year, Novoessentukskaya. In addition to adding the Novoessentukskaya brand to its mineral water portfolio, WBD plans to increase its production of Essentuki in plastic bottles.

Nestlé made a move into the Russian water sector with its acquisition of Serebryany Istochnik in 2002. Serebryany Istochnik's core business is spring water bottling and the famous Svyatoy Istochnik water is its major brand, with
still, carbonated and particularly flavoured water sales in the off-trade accounting for 75% of its business, representing volumes in excess of 130m litres.

The Serebryany Istochnik brand was the second biggest selling bottled water after PepsiCo's Aqua Minerale in the off-trade in 2004, with an 8% volume share. In terms of total off-trade soft drink sales, the brand accounts for a 2.6% volume share.

Two other non-carbonated product sectors that have undoubtedly benefited from changing consumer preferences are natural juices and ready-to-drink teas.

In addition to focusing its efforts on distribution and advertising of bottled water, PepsiCo has also been developing its fruit/vegetable juices and teas, targeting affluent and health-conscious consumers. Unilever and PepsiCo International established Pepsi Lipton International in October 2003 to promote Lipton Iced Tea in selected international markets including Russia. While the brand only commands 0.1% of retail sales in both volume and value terms, it is well advertised and forecasts are promising.

WBD was an early pioneer in the iced tea market with the launch of its Ice Tea brand in 1998, but the market did not seem ready for the product, and the company discontinued production. Nice Tea was launched five years later and, while the sector is still small, Euromonitor International expects ready-to-drink teas to show the fastest growth rate of all soft drinks at over 300% in both retail volume and value terms between 2004 and 2009.

In 2005, Coca-Cola Refreshments and Greece's Coca-Cola Hellenic Bottling Company announced the US$650m joint acquisition of Multon to help Coca-Cola Refreshments expand its non-carbonated drinks operations. Multon is Russia's second largest fruit/vegetable juice producer after WBD, with an off-trade market share of 23.2% in volume terms in 2004.

The brewer Ochakovo's soft drinks arm has also had good success with new non-carb launches, such as Juice Team Orange, Bliss iced tea and the non-cola carbonate Ah!, which achieved a 0.5% volume share in 2004.

Nidan entered the Russian fruit/vegetable juice scene in 1998 and today is the country's fourth largest producer. Despite tough competition in this consolidated niche, Nidan has managed to increase its share while other leaders have fallen off the pace, thanks in part to an agreement with the Pepsi Bottling Group in 2003 to distribute Nidan's Champion, Moya Semya and Da! Juices, with Nidan taking on bottling of PepsiCo's Tropicana brand.

In terms of total off-trade soft drink sales, Nidan is sixth. Da! is the company's flagship juice brand and the 10th best-performing soft-drink, accounting for 1.8% off-trade sales in volume terms.

Nidan has also looked to tap into the growth in the iced tea market, launching Caprice Ice Tea in Moscow and St Petersburg in 2004, aiming for a 15% market share.

Meanwhile, other non-carb launches by PepsiCo, such as the vitamin-enriched energy and sports drinks Adrenaline Rush and Gatorade, fortified water Aqua Minerale Life and PepsiX - a brand extension with added taurine, have also been well received.

However in spite of the growth of non-carb categories, and in particular "healthier" alternatives, it is expected that carbonated and economy fruit drinks will soon regain some lost ground in terms of off-trade volume sales, as local manufacturers are now starting to launch inexpensive products to satisfy the 25% of Russians who live below the poverty line.

Source: Soft Drinks International
For further information on Soft Drinks International, go to
www.softdrinksjournal.com

Sectors: Soft drinks, Water

Companies: PepsiCo, Aqua, Coca-Cola Hellenic Bottling, Pepsi Bottling, Tropicana

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Soft Drinks in Russia

Non-carbonated categories, such as waters, natural fruit juices and iced teas, are providing growth for Russian soft drinks manufacturers as consumer tastes evolve, and demand for healthier beverages grows. Catherine Mars reports.

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