IW 50 Best: Food Producers are Hungry for Russia

Pepsico, Campbell among food and beverage companies targeting Russia for growth.

Pepsico Inc.'s Dec. 3 announcement that it will acquire a Russian-based dairy and juice company is one of the latest attempts by a food and beverage manufacturer to expand in the region.

Purchase, N.Y.-based Pepsico bought 66% of Russia's Wimm-Bill-Dann Dairy and Juice Co. for $3.8 billion pending government approvals.

The purchase gives Pepsico a leadership position in Russia's food and beverage market, said Pepsico Chairman and CEO Indra Nooyi in a Dec. 3 statement. She referred to Russia as "a fast-growing, strategically important market offering abundant opportunity."

Wimm-Bill-Dann Foods is considered Russia's top-branded food and beverage company, according to Pepsico. Pepsico expects the deal will raise annual global revenues from nutritious and functional foods to approximately $13 billion from $10 billion. The company's goal is to build a $30 billion nutrition business by 2020.

Why Russia? Russia is the 12th-largest economy in the world and the seventh-largest by purchasing-power parity, Pepsico notes. By 2013 the Russian economy is expected to become the second-largest in Europe behind Germany. The nation has outpaced global GDP growth with a 7% compound rate since 1998 and is showing strong signs of recovery from the recent global crisis with GDP up 4% this year, the company says. It also has a rapidly growing middle class.

In 2007 Campbell Soup Co. announced a plan to expand its global focus to Russia and China. Together, Russia and China account for about 50% of world's soup consumption, says Campbell Executive Vice President and COO Denise Morrison.

The company partnered with Coca-Cola Hellenic Bottling Co. in Russia and expanded its Domashnaya Klassika (Home Classics) line in Russia. Domashnaya Klassika is designed to save cooking time for Russian consumers who take pride in their homemade soups, says Morrison, who will replace current CEO Douglas Conant when he retires on July 31, 2011.

"Soup is emotional in Russia," Morrison says. "They put their soul into the soup. So commercializing the product is about helping them make soup easier but not lose that emotion that's attached to it."

In Russia consumers make soup several times a week and they start from scratch, so making the broth is time consuming, says Campbell spokesman Anthony Sanzio. Campbell offers Russian consumers a concentrated prepackaged broth that reduces the time it takes to make soup.

"So they can still make their family recipe, but they can start up with a commercial broth," Sanzio says.

Campbell developed its marketing plan in Russia by visiting consumers' homes and talking to them about their homemade soups, Morrison says. "We went right to consumers kitchens to find out what it would take to reduce the time it takes to make soup," she says.

With the addition of Wimm-Bill-Dann, PepsiCo will be approximately twice the size of its nearest food and beverage competitor in Russia, Pepsico says. The combined companies will employ approximately 31,000 people in Russia, Ukraine and Central Asia and have 49 manufacturing facilities.

Wimm-Bill-Dann has 38 manufacturing facilities in Russia, Ukraine and Central Asia with more than 16,000 employees. In 2005, Wimm-Bill-Dann became the first Russian dairy producer to receive approval from the European Commission to export its products into the European Union, Pepsico says.


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