DyDo Drinco is the latest Japanese drinks company to take its M&A spend overseas

DyDo Drinco is the latest Japanese drinks company to take its M&A spend overseas

This month, Ray Rowlands follows the progress of the latest Japanese company to look beyond its domestic market: DyDo Drinco has high hopes for its entry into Turkey.

Japan’s international expansion drive took a further step forward in September when Osaka-based DyDo Drinco announced its intention to buy 90% of the shares in three beverage companies - Della Gida, Bahar Su and Ilk Mevsim Meyve Sulari - from Yildiz Holding in Turkey. The deal includes eight beverage brands; Camlica, Cola Turka, Maltana and Sunny carbonated drinks, Eskipazar, Flores and Saka bottled water, plus Link juice drink.

This follows in the wake of Suntory’s purchase of Lucozade and Ribena in early-2014 and European beverage producer Orangina Schweppes in 2009, plus Frucor Beverages of New Zealand, also in 2009. In 2011, domestic competitor Asahi Holdings snapped up P&N Beverages in Australia and the Charlie’s juice company in New Zealand having earlier bought Schweppes Australia. Meanwhile, Kirin Holdings acquired National Foods, including its Berri juices, also in Australia, in 2007.

Yildiz Holding, a consolidation of the Ulker group of companies, is Turkey’s largest food products manufacturer, with origins dating back to the 1940s when it commenced operations as a biscuit maker. It entered the beverage industry in 2001 with the Link still drink brand. Today, it is probably best-known for its Camlica lemon-lime soda, which it bought in 2002, Cola Turka, launched a year later, and Saka bottled water, which was acquired in 2010. However, the company’s overall share of the Turkish soft drinks market is pretty small. At the same time, Yildiz represents over 60 companies spanning foodstuffs, non-food, wholesale and retail operations. It has decided to concentrate on its main food activities, hence last month's sale to DyDo Drinco.

Founded in 1975, DyDo is primarily engaged in the development, manufacture and sale of beverages. It lays claim to being a pioneer of canned coffee and its flagship brand is DyDo Blend. While it remains heavily focused on coffee, which accounts for around half of its business, it also provides a supporting range of other soft drinks such as iced tea, bottled water, sports drinks and energy drinks. In total, the company has around 50 beverage SKUs. There are, however, gaps in its portfolio, the most obvious being soda. Dydo does not have a CSD brand to speak of, so Camlica and Cola Turka could prove useful additions. That said, it is questionable whether these brands would find acceptance in Japan. With demand flattening out in its home market (last year company net sales were down 3% in value terms), DyDo is more interested in establishing an actual business base in Turkey itself from where it can expand locally. The country boasts a population of 75m people and has a rapidly-growing audience of young consumers who present themselves as the ideal target market for soft drinks.

The company’s expertise lies in canned coffee, so it is inevitable that these drinks will form a focal point of its expansion policy. This could prove something of a challenge. Current Turkish demand for such products is fairly limited. Fortunately, a coffee house culture, which is especially pronounced amongst younger urban dwellers, is increasing awareness of coffee drinks in general. Yildiz doesn't have a canned coffee product of its own, so DyDo will need to establish its own local reputation as it comes up against the likes of Nestlé, which currently heads up this emerging market in Turkey.

Alongside the products that it is acquiring, DyDo has stated that it wants to produce tea and energy drinks locally. The Turkish iced tea market is already quite well advanced and it is probable that one or more of the company’s Japanese brands will be transferred here, though they will face strong established competition from the likes of Lipton.

The energy drinks category, meanwhile, is less developed. In Japan, DyDo offers several brands, including Energy Gym, but none seemingly with the sales credentials to justify a transfer to Turkey. It will be interesting to see whether the company does, in fact, attempt to cultivate its existing energy drink products or whether it will launch something new.

DyDo’s established sales route is via vending machines, which account for 85% of its drink sales domestically. In Japan, the use of such machines has become a way of life: They can be found everywhere. The country boasts a universe of around 2.5m vending units solely dedicated to dispensing beverages. Of these, DyCo Drinco alone owns 280,000, or just over 10%.

In Turkey, however, vending machines are not nearly as well represented. Indeed, the estimated number of units there is under 10,000. DyDo will have a big job on its hands, then, if it sticks to its Japanese sales approach.

The Turkish deal is not DyDo's first overseas venture. The company’s initial step outside Japan was in 2008, when it entered China. It also has joint ventures in Taiwan and Indonesia and, in December 2013, it established DyDo Drinco Rus, in Moscow. In August this year, the company also reported that it intended to invest JPY2.6bn (US$21.7m) in Malaysian food producer Mamee-Double Decker in order to penetrate the South-East Asian market.

This venture into Turkey, therefore, could be viewed as just another stepping stone for DyDo. In reality, it represents another major international leap forward for the Japanese beverage industry as a whole.