Comment - CEDC Feels the Chill of its Outsider Status
CEDC is asking Russian Standard for help
It's never likely to be good news when you're begging for a helping hand, but that's exactly the spot Central European Distribution Corp (CEDC) has found itself in.
Yesterday, the US-owned, Poland-based vodka maker invited Russian Standard to take full control of CEDC as it continues to struggle with debts and management issues. It follows Russian Standard's US$310m injection into CEDC earlier this year in exchange for an eventual 28% stake.
This week's year-to-date results did little to assuage CEDC's fears, as a return to profit did little to hide some frightening underlying trends. Sales dropped by 4% in the first nine months of this year, while third-quarter vodka volumes in Russia plunged by 22% to 24.4m litres.
It has been a tough year for drinks companies operating in Russia, with a blanket advertising ban and tax hikes winnowing the consumer pool. One analyst even suggested that Anheuser-Busch InBev consider selling its Russian unit, and brewers such as A-B InBev and market leader Carlsberg feel that the best way to survive is to push for premiumisation.
This avenue, unfortunately, is not readily available to CEDC, which operates in a market that is being squeezed from both ends. Up top, consumers are moving to more premium labels, while down below, the vast, murky Russian market in illegal alcohol patiently sits and waits.
This is not how it was supposed to happen. A few years ago value companies like CEDC had hoped that Russia's vodka drinkers would trade up from their samogon - a high-strength moonshine with a kick like a Cossack - and enter the taxed, legal sector.
“That obviously hasn't quite happened,” Sanford Bernstein analyst Trevor Stirling told just-drinks. “No-one knows what is happening in the black market sector of the market, but the net impact on the value players means that life is tough.”
Business is further complicated by CEDC's outsider status roots. “Clearly this is a murky market and an American-owned, Poland-based company would appear to be at a disadvantage to the Russian-owned players,” Stirling said.
There has been no word yet whether Russian Standard will take CEDC up on its takeover offer. The question it must be asking itself is; is it worth the (t)rouble?
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