Comment - Russia Squarely on PepsiCo's Map
Russia, along with other emerging markets, is beginning to experience rising purchasing power
With PepsiCo's Q3 profits benefiting from the purchase of Russian dairy and juice firm Wimm-Bill-Dann, the company will be keen to ensure its footprint is firmly cemented in the emerging market going forward.
For PepsiCo, this is not a new market. The company has had a presence in Russia since 1973. Since then, it has built a more than sturdy profile in the country, in particular with its Wimm-Bill-Dann buy earlier this year.
The acquisition gave PepsiCo the lead in Russia's juice and dairy market, making it twice as big as its nearest competitor in the country's food and soft drinks market. In the last five years, the contribution of emerging markets to PepsiCo's annual net sales has risen from 21% to 31%.
Coca-Cola has also sought to invest in the country with its acquisition of Russian juice producer Nidan last year, and its commitment of a US$3bn spend last month, has confirmed that it, too, has major plans for this developing market.
Russia, along with other emerging markets, is beginning to experience rising purchasing power, changing lifestyles and developing retail networks, which in turn are driving significant growth. According to Euromonitor, the country's dairy market is expected to outperform the Eastern European region as a whole with a 4% CAGR between 2010 and 2015. In absolute retail value terms, the country will account for some 60% of regional market growth over the period.
On PepsiCo's third-quarter earnings call earlier this week, CFO Hugh Johnston told analysts that Russia is one of the company's largest markets and that he believes in the "enormous long-term potential" of the country.
"The fundamentals in Russia are very strong, the country has a very robust set of economic indicators, low debt ratios, good foreign exchange reserves and a strong and continuous leadership," Johnston said.
"It has gone through some short-term challenges, as we have seen, commodity inflation and disposable incomes have challenged some of the consumer markets and it has also experienced some local inflation," he added. "But, against that backdrop, we are delighted with the performance of our business."
Johnston conceded that there will be "some challenging months ahead" in Russia, given the volatile conditions inherent in a developing market. However, he added: "Competitively, we are very strong ... and this is where the scale and strength of our operating business really counts."
Aside from PepsiCo's purchase of Wimm-Bill-Dann, the company has continued to spend in Russia. Last month, the company confirmed it is in discussions to build a soft drinks production facility and logistics centre in the city of Novosibirsk. We can expect this enthusiasm in the country to continue.
Competition in Russia is set to intensify, but PepsiCo's rapid expansion in the country is surely a big statement of confidence for both the region and the company itself.
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