Coke, Pepsi eye Eastern Europe for healthy acquisitions
Both Coca-Cola and PepsiCo have looked to capitalise on the rising popularity of healthier drinks, not least to compensate for slowing sales of carbonates. As the two soft drinks giants seek to increase their profile in healthier categories, Euromonitor International's Catherine Mars expects more acquisitions in the growing juice, nectars and juice drinks markets of Eastern Europe.
The buzz around health and wellness has presented many challenges for PepsiCo and Coca-Cola Co., but today both multinationals are staking their claim in high-growth sectors such as fruit and vegetable juice. And considerable acquisition activity from both majors in these sectors looks to be on the cards over the next few years - not least in developing Eastern European markets.
The new wave of interest in healthy products is a calculated attempt to compensate for dampened profits within the carbonates sector. Between 2000 and 2005, carbonates saw an 11% rise in total volume sales globally, compared with 24% for fruit/vegetable juice, according to Euromonitor International's research.
In fact, Pepsi responded to these consumer trends as early as 1998, when it purchased the Tropicana brand from Seagram for US$3.3m. In 2001, Coke entered the New Age soft drinks arena with the US$180m acquisition of US company Odwalla Inc. which markets products such as AntioxiDance and Berries GoMega. This had followed Pepsi's purchase the previous year of alternative drinks producer South Beach Beverage Company for US$370m, thwarting Coke's own attempt to acquire the company.
More recently, both companies have looked to accelerate their move into healthier products in Europe through the launch of low-calorie range extensions and acquisitions. Last year, Pepsi bought Punica Getränke GmbH, which owns Germany's leading nectar brand Punica, while Coke acquired Russia's Multon ZAO, which held a 24% off-trade volume share of the 100% juice market in Russia in 2004. In January 2006, Coke also bought the Serbian fruit juice company Fresh & Co.
However, despite the recent flurry of activity, the fruit/vegetable juice sector remains relatively unexploited by the global giants. In 2005, both Coke and Pepsi had negligible volume and value shares of nectars (25%-99% juice) and juice drinks (up to 24% juice) in many European countries, and an even less significant presence in 100% juice.
Among a number of growing European markets, Euromonitor has highlighted Russia and the Ukraine as the top two countries where exceptional growth in volume terms is forecast in 100% juice over the next three years, making both key development areas for Coke and Pepsi.
Euromonitor International predicts that volume sales of 100% juice in Russia, Poland and the Ukraine combined, will grow by 618m litres over the next five years. Multinationals could considerably boost their shares and revenues by acquiring smaller players in these countries where both Coke and Pepsi have a negligible presence.
However, Coke's foothold in Eastern Europe, through the acquisition of Multon ZAO in Russia and Fresh & Co in Serbia, could pay dividends. Eastern Europe's fruit/vegetable juice sector is expected to grow by nearly 26% in volume terms between 2004 and 2009.
An investment in Eastern Europe may therefore benefit Pepsi if it wants to keep one step ahead of its rival. Possible candidates for acquisition in Russia include Wimm-Bill-Dann and Lebandyansky, which enjoyed volume shares of 19% and 22%,respectively within the 100% juice market in 2004.
Meanwhile, in the Ukraine, leading juice manufacturer Sandora had a 37% stake of 100% juice in 2004, making it an attractive target, particularly given that a 258m-litre increase is forecast (117%) for 100% juices in that market between 2004 and 2009.
The growth potential for the nectars market in Eastern Europe is also significant, but for the most part, nectars remain unexplored territory, and various national brand owners continue to enjoy control in countries where a marked increase in growth is forecast.
In Russia's nectars market, a 253m-litre (24.4%) increase is forecast between 2004 and 2009. The same three players that control the 100% juice market also dominate this subcategory, namely, Multon ZAO, Lebandyansky and Wimm-Bill-Dann.
The nectars markets in Poland, Ukraine and Turkey are expected to grow by 64.6%, 114.2% and 33% respectively over the same period. There are three possible takeover targets in Poland: Maspex, which was the leading brand owner in 2004, with almost 36% of off-trade volume sales, Hortex, with a 17% share, and Agros, with a 16% share.
Sandora emerged as the leader within nectars in Ukraine in 2004, with a 38% volume share, with BKS-Soky and Erlan each claiming around 16%.
The endeavours of both Coke and Pepsi in juice drinks (up to 24% juice) have so far been less ambitious, with the exception of medium-sized markets like Romania and the Czech Republic. Coke held more than one third of the Romanian off-trade market in volume terms in 2004. In the Czech Republic, Pepsi ranked fifth in 2004 and held 6% of the market in terms of off-trade volume sales.
However, for juice drinks Euromonitor anticipates that the strongest growth will occur in Poland, Turkey and Italy, where both companies have negligible shares of the juice drinks sector.
A few companies evidently crop up again and again as possible acquisition targets in various categories of fruit/vegetable juice.
Wimm-Bill-Dann in Russia has a dynamic portfolio, with 170 types of 100% juice, nectars and juice drinks, and a high-powered advertising strategy. It is understood that Coke's acquisition of leading Russian player Multon, was both a strategic response to Wimm-Bill-Dann's growing prosperity, and an opportunity to acquire some of the company's most valued brands, such as Dobry and Nico. Acquiring a company such as Wimm-Bill-Dann would strengthen Pepsi's position in Russia, given current market conditions.
Equally, Sandora in the Ukraine could serve the needs of both multinationals.
In Germany, meanwhile, Eckes-Granini International offers a very effective distribution model.
In effect, Coke and Pepsi have barely scratched the surface of fruit/vegetable juice, and Eastern Europe is ripe with acquisition opportunities. The potential is enormous and Coke's recent purchase of Multon ZAO may be the first of a number of important acquisitions in the region.
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