Coke mulling Multon takeover

- Last updated on GMT

Related tags: Fruit juice, Russia

Coca-Cola, whose sugary soft drinks have left it open to
accusations of contributing to the global obesity epidemic, has
made little secret of its desire to move into product sectors such
as juice and water, viewed as less 'high risk'. But the possible
acquisition of Russian juice maker Multon would also give the fizzy
drink maker a major foothold in a market with huge potential, a
move likely to satisfy the company's critics and shareholders
alike, writes Chris Jones.

According to various press reports in Russia - as yet unconfirmed by Coca-Cola itself but confirmed as true by the Russian state competition authority - the Atlanta-based company is interested in acquiring Multon, one of Russia's biggest fruit juice companies with a share of around 25 per cent. Sources close to the deal were cited as saying that Coke would pay around $600 million for 100 per cent of Multon, and that negotiations were already in the final stage.

Multon produces around 740 million litres a year, sold throughout Russia from its base in St Petersburg, and its sales in 2004 reached $330 million.

Its biggest rival is Wimm-Bill-Dann, the dairy, juice and water group in which France's Danone has a small stake. WBD's share of the juice market in Russia is an estimated 27.4 per cent.

Last year was disappointing for Coca-Cola, despite a 4 per cent increase in sales to nearly $22 billion and a 12 per cent increase in net profits to $4.8 billion, with a number of external factors, including asset writedowns and litigation settlements, taking real toll.

Moreover, sales in North America and Europe were flat as soft drinks sales were affected by poor weather, the backlash against sugary foods and poor performances from new products such as the C2 mid-carb soda brand.

"We are not satisfied with our performance in 2004,"​ said Coca-Cola's CEO Neville Isdell. "By most measures, we did not perform to our potential or the expectations of our shareowners."

In a bid to stimulate growth, Coca-Cola is therefore looking for new opportunities in markets such as Russia, and in segments where it is still a relatively minor player. Speaking late last month at an analysts' conference in New York, Isdell confirmed the company's desire to increase its presence in both fruit juice and bottled water, 'healthy' drinks whose popularity has increased significantly over the last few years on the back of rising obesity levels.

Although it has a number of bottled water brands in its portfolio already (including the US distribution rights to Evian, owned by France's Danone, and the 'purified' water brand Dasani), its presence in the fruit juice sector is limited mainly to Minute Maid, a brand positioned primarily in the premium segment in emerging markets such as Russia, giving it just a limited consumer presence.

A recent report from market analysts 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.

Euromonitor's report 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. CCHBC, the Greece-based Coke bottler with operations throughout eastern Europe, last month highlighted Russia and Romania, and non-carbonated products such as water and juice, as the main drivers of its sales growth in 2004.

Local players such as WBD are unlikely to be concerned by the arrival of Coca-Cola, at least in the immediate future, not least because the giant drinks group has little experience in developing juice brands outside its core western markets.

But Multon has a reputation as a strong marketer. Its Dobriy brand, for example, looks somewhat old-fashioned but has played on this image to appeal to Russian consumers' sense of patriotism and nostalgia - to great effect given that it has garnered a 20 per cent share of the Russian juice market in just six years.

Coca-Cola, no slouch at marketing itself, will no doubt seek to benefit from this local expertise to develop the brand in a wider market, using its own extensive distribution network. Such a move is much more likely to be a cause for concern for rivals, but should at least encourage the company's shareholders.

Related topics: Carlsberg

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