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Coca-Cola invades Russian juice sector

04-Apr-2005

Iconic soft drinks firm Coca-Cola, hit by slowing sales of its trademark fizzy cola, is set to buy up a leading fruit juice producer in Russia, handing the firm key access to an important emerging market, reports Chris Mercer.

Coca-Cola, alongside its subsidiary, Coca-Cola Hellenic Bottling Company, has agreed a deal for Russia's Multon juice company. Multon owns the Dobry brand, a market leader in non-carbonated soft drinks with a 20 per cent share, as well as local brands Rich and Nico.

The move is part of a long-term CCHBC strategy to focus on non-carbonated drinks and the firm says it will also be able to make efficiency savings by taking over Multon's production facilities in Moscow and St Petersburg.

"We are confident that our infrastructure, scale and local expertise position us uniquely to deliver optimal results from a wider Russian brand portfolio," said Doros Constantinou, CCHBC managing director.

Sources close to the deal were cited in Russian press reports as saying that Coca-Cola would pay around $600 million for 100 per cent of Multon, though this was not confirmed by either company.

Coca-Cola has been keen to expand its juice portfolio after what chief executive Neville Isdell called a disappointing performance in 2004, especially from the firm's flagship fizzy cola drink. "By most measures, we did not perform to our potential or the expectations of our shareowners," he said.

CCHBC too found its 2004 performance held up by emerging markets in Russia and Romania, with non-carbonated juice and water drinks leading the way. Soft drinks sales across Western Europe were fairly flat due to poor weather and a consumer backlash against sugary products.

Non-carbonated drinks, on the other hand, are on the up. A recent report by market analysts Euromonitor said that fruit juice sales in Eastern Europe rose by 64 per cent between 1998 and 2003, compared to just 18 per cent growth for carbonates. And fruit juice and water are expected to continue leading the sector up to 2008.

Euromonitor highlights the fact that Russia is by far the biggest fruit juice producer in eastern Europe, and as well as being the largest consumer, it also the leading exporter - which means that a company with such an international distribution network as Coca-Cola could really develop a strong local brand in a number of countries.

And Multon, the second largest juice producer on the Russian market, has a reputation as a strong marketer. Its Dobry brand, for example, looks somewhat old-fashioned but has played on this image to appeal to Russian consumers' sense of patriotism and nostalgia.

The company's management was up-beat about the benefits a deal with Coca-Cola could bring.

"The purchase of Multon by the world leader in the beverage industry provides assurance that Multon's business will have strong investment and future growth, to the benefit of our employees, customers and consumers," said general manager Alexander Kritsky.

In 2004, Multon had revenue of $336 million and a juice volume of approximately 500 million litres.

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