The just-drinks interview – PepsiCo International

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PepsiCo is aiming to become the largest beverage company in Russia and its recent acquisition of a majority stake in the juice company, JSC Lebedyansky, represents an important step towards achieving this aim. In this month's two-part just-drinks interview, Olly Wehring spoke with Mike White, chairman and CEO of PepsiCo International, about the company's plans for Russia.

Late last month, PepsiCo announced that it is to buy a majority stake in Russia's leading branded juice company JSC Lebedyansky. The deal will see PepsiCo's joint operation in Russia with Pepsi Bottling Group acquire just over 75% of Lebedyansky for US$1.4bn, with an option to acquire the remaining 25%.

While PepsiCo currently accounts for just 2% of the Russian juice market through its Tropicana brand, the move for Lebedyansky, which has 30% of the market, will see the US company leapfrog The Coca-Cola Co., which controls over a fifth of the Russian juice sector after its $530m purchase of Multon in 2005.

PepsiCo is now in a position to exploit a growing category in a growing market, a position that PepsiCo International chairman and CEO, Mike White, is naturally delighted to be in. "Lebedyansky is an absolute gem of a business," says White. "In any emerging market, to find a business with its scale that is profitable, audited financially, with a terrific management team and some great brands in a growing market where you can acquire 100% of the business, that's quite a rare phenomenon."

Like most international drinks companies, PepsiCo sees Russia as a priority market. The company has been present in the country since 1974, when it opened its first beverage plant there. "We've had a longstanding business in, and involvement with, Russia," White notes.

Today, the country is one of the world's largest juice markets, ranking fifth or sixth globally, depending on which statistics you use. "Like the other key emerging markets of Brazil, India and China, Russia is a rapidly-growing market, which still has low per capita consumption. From a consumer product company standpoint, it's a huge growth opportunity for us," White says. "Given the strength of the country's natural resources, there's certainly plenty of assets that will contribute to the continued economic growth of the country. You've also got a pretty highly educated and literate population. So, it's a pretty key country for us."

PepsiCo is aiming to become Russia's largest total beverage company. "With this acquisition, we're either there or equal to our competitor," White says. "Our goal is to continue to grow our business there."

Whilst Russia offers bountiful rewards for international companies like PepsiCo, many firms have been burnt by the somewhat unpredictable nature of its citizens and government. White is bullish about any possible issue for PepsiCo in this area.

Mike White, chairman and CEO of PepsiCo International

"Of all the emerging markets, I would say Russia is the one we know the best," he says. "We've been there longer than we've been in China and India. We've got big-scale operations on the ground, both with Frito-Lay and with PBG that are all staffed by local Russians. I don't even think we have a handful of ex-pats there. So, we're quite comfortable doing business there." PepsiCo also has good relations with the Russian government, with White holding a seat on the Prime Minister's foreign investment advisory council. "I have a fair amount of exposure to senior leaders in the Government," he adds.

Like any other emerging market, however, White concedes that there are always challenges, with a level of flexibility and adaptability to local approaches being a prerequisite for success. Again, White believes the company has suitable experience of this. "When we went in with our Frito business, for example, we knew we were going to have to transform the growing of potatoes - that was the single biggest thing, not brands or distribution," he says. "We worked with the farmers outside of Moscow, and we quadrupled the yields. So we're quite used to dealing in an emerging market environment where you have to be flexible and street-smart."

In Lebedyansky, however, White believes there are no worries about unpredictability. "This (Lebedyansky) has been a public company," he notes. "It's been audited externally, and we did extensive due diligence on the company. I couldn't be more pleased. I think we're getting a real quality, high integrity management team with this business."

Stripping out the Lebedyansky purchase, though, PepsiCo already has a healthy presence in Russia, White believes. "In terms of water, we have the number one water already in Aqua Minerale," he says. "Our Russian beverage business is 50% non-CSD already, even before we acquire Lebedyansky. We also have the number one ready-to-drink tea in Lipton, which is a huge and fast-growing business, with PBG. We also have the leading energy drink in Russia, Adrenaline Rush. So, we have a terrific portfolio of non-carbs in Russia already, and have a conscious strategy of broadening our portfolio."

Looking more specifically at Lebedyansky, White is particularly impressed by the Russian company's product stable. "They've done a really good job in positioning brands in each segment," he says. "They have a premium brand in Ya, there's a fortified range called Tonus, while their mainstream product is Fruktovy Sad, which does well. And then they've got a value offering like Privet and a nice juice drink in Frustyle. So, the company has a full range that has been very well-established with the Russian consumer."

Also drawing praise is Lebedyansky's infrastructure in the country. "They've got a large-scale plant in the apple-growing region of Lipetsk, and they've got a new plant opening later this year in Novosibirsk in Siberia, which will add production capabilities east of the Urals - that's where I see the biggest growth potential."

Finally, White believes the management team at Lebedyansky has a great deal in common with PepsiCo's. "They've done an outstanding job at building the business over the last several years. From our standpoint, getting a team of talented, entrepreneurial Russians will obviously add some value and synergies for us, and their culture is like ours - it's very entrepreneurial, very results-orientated and very focused on share leadership."

The second part of this interview will be published on Tuesday 15 April.

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