By Ildiko Szalai, Packaged Food Analyst at Euromonitor International
On December 2, 2010 PepsiCo Inc. announced that it had reached an agreement to buy a 66% stake in Russian dairy, baby food and juice manufacturer Wimm-Bill-Dann for US$3.8bn.
Wimm-Bill-Dann is Russia’s number one packaged food and fourth largest soft drinks manufacturer, with well established presence in most CIS and Central Asian markets, its total retail value sales reached US$3.6 billion in 2009. With this acquisition PepsiCo fulfils more than one of its strategic objectives—it enhances its operations in «healthy» food and drink categories and also strengthen positions in emerging markets.
Enhanced operation in health related food and beverages categories
With PepsiCo’s core categories seriously affected by growing consumer concerns about health issues such as obesity, a growing focus on health and nutrition is central to PepsiCo’s development of its operations in both packaged food and soft drinks.
One of the company’s explicit objectives is to increase its nutrition businesses from around US$10 billion to US$30 billion by 2020. The integration of Wimm-Bill-Dann will mean an instant increase from US$10 billion to over US$13 billion. PepsiCo’s current presence in Russia and wider Eastern Europe is limited to sweet and savoury snacks but the ownership of the majority stake in Wimm-Bill-Dann will secure the top position in Russia for PepsiCo in strongly health associated categories, such as dairy, baby food and fourth position in fruit and vegetable juices.
The fact that four out of the top five dairy labels in Russia (Domik v Derevne, Vesely Molochnik, Chudo and Bio Max) belong to Wimm-Bill-Dann demonstrates the high brand equity in such a category over which PepsiCo gained instant control. Additionally, PepsiCo also the majority owner of 38 production plants and an established distribution network in Russia, which further strengthens its manufacturing capabilities in the region.
Expansion in emerging markets
The company has already established a global presence, and is focused on further expanding its coverage of emerging markets, which are seeing rising purchasing power, changing lifestyles and developing retail networks drive significant growth. While it is focused on the global development of major brands, PepsiCo is working to benefit from strong local/regional labels.
Battle of the multies in the Russian dairy market
Competition heats up in the Russian dairy market, just within the last few months Danone has merged its Fresh Dairy products operations with Unimilk and PepsiCo taking over the top position via acquisition.
Russia’s dairy market remains a focus for many expanding dairy players; for example, previously to the two most recent Danone and PepsiCo moves Lactalis also has acquired the Yefremovsky milk processing plant. The country’s dairy market is expected to outperform the Eastern European region as a whole with a 4% CAGR over 2010-2015, and in absolute retail value terms the country will account for some 60% of regional market growth over the period, although volume growth is expected to remain below value growth, at less than 3% CAGR, indicating an increase in unit price and stiff competition in the dairy market’s health and wellness categories.
Competition to achieve a health-focused positioning, both in emerging and developed markets, is becoming increasingly intense between major packaged food players. PepsiCo needs to refine its health-orientated innovation and marketing, targeting particular consumer groups and health requirements more precisely in order to successfully drive growth with its newly acquired assets and look for further expansion in this direction.
Source: Euromonitor International