The Coca-Cola Company
) have established their presence in Russia's beverage market. The
country offers growth opportunities due to low per capita
consumption of beverages and increasing consumer disposable
In the previous article
, we elaborated on the carbonated soft drinks (
) segment within the beverage market and how it might not benefit
from this growth potential due to rising health concerns over
consumption of fizzy drinks. Most of the growth in Russia's
beverage market is expected to come from other segments such as
fruit/vegetable juice, sports and energy drinks, ready-to-drink
(RTD) tea and bottled water.
We estimate a $87 price for PepsiCo
, which is around 5% above the current market price.
See Our Complete Analysis For PepsiCo
PepsiCo Still Strong In the Juice Market
The fruit/vegetable juice market in Russia stood at $5.1 billion
in 2012. PepsiCo has dominated this segment in the last few years,
and has a market share of over 40% presently. This is because the
company acquired local companies Lebedyansky in 2008 and
Wimm-Bill-Dann in 2011, which are the top two brands in this
category. On the other hand, Coca-Cola has a market share of ~25%,
bolstered by the acquisition of Multon and Nidan.
However, both PepsiCo and Coca-Cola have relinquished some of
their lead in the juice market in the last few years. From an
impressive combined market share of 82% in 2010, their shares
decreased to 64% in 2012. Rising local brands and retailers' labels
that offer lower prices compared to PepsiCo and Coca-Cola have
gathered more market share. For example, the Russian company Sady
Pridonia now accounts for almost 10% of the market, up from 6% in
Low per capita juice consumption (~20 liters per person) and low
levels of penetration in less developed cities are reasons why we
expect Russia's juice market to grow. Despite being the market
leader presently, PepsiCo will look to optimize operational costs
and reduce its product prices in order to compete with local
players on the pricing front.
Budding Segments Are Dominated By PepsiCo
In addition to the fruit/vegetable juice market, PepsiCo has a
stronghold in the sports and energy drinks, RTD tea and bottled
water markets. Although these categories have a small share in the
overall beverage market, they offer huge growth potential. This is
primarily due to growing health awareness among consumers, which
has targeted the consumption of fizzy drinks. In fact, even juices
are considered harmful owing to their high sugar content. Consumers
are now preferring natural and healthy drinks to meet their
beverage requirements. Thus, with growth of sports and energy
drinks, RTD tea and bottled water, Pepsi is in a good position to
increase its top line.
Sports and Energy Drinks Market
Sports and energy drinks is the fastest growing segment of
Russia's beverage market. Its volumes rose by 24% in 2011 and by
17% in 2012 year-on-year to reach ~140 million liters. As this
category is still relatively nascent, it is expected to grow at a
CAGR of 8% and reach over 208 million liters by 2017.
This market is presently led by PepsiCo with a share of 30%,
followed by Coca-Cola and Red Bull, which have a share of 17% and
14% respectively. PepsiCo's brand Adrenaline Rush is the best
selling energy drink in the country, with a market share of 36.2%.
However, the company's dominance in this segment could be
challenged by Coca-Cola's Burn, which was launched in 2011 and is
gaining popularity. The local beer brewing company Baltic also
launched "Flash Up", to compete in this category.
RTD Tea Market
As of December 2011, the RTD tea market constituted around 6% of
Russia's beverage market in terms of volumes. PepsiCo again
leads this segment with an impressive market share of 47%. The
company's brand Lipton Iced Tea is the best selling RTD tea in the
country, but is rivaled by Nestle's Nestea. In a bid to attract
more consumers and eat into Nestle's market share, PepsiCo launched
Lipton Nature Green in 2011, which claims to contain natural green
tea leaves. Owing to the healthier perception of tea, especially
green tea, the RTD tea market is expected to grow at a CAGR of 5%
in the next five years.
Bottled Water Market
In the bottled water market, both PepsiCo and Coca-Cola share
the top position with a market share of 8% each. However, PepsiCo's
Aqua Minerale is the market leader along with its flavored version
Aqua Minerale Active, beating Coca-Cola's BonAqua.
The bottled water segment is presently worth ~$3 billion. Given
the rising concerns over safety of tap water, low consumption rate
of bottled water (~33 liters per capita) and increasing disposable
incomes, this segment presents potential growth opportunities.
However, PepsiCo and Coca-Cola face the threat of local
manufacturers such as "Karachinsky Istochnik", which are
particularly active in the periphery of Russia. Thus, both these
companies will look to strengthen their distribution channels and
possibly acquire smaller bottling plants, in order to establish a
stronghold in this market.
PepsiCo's Top Line To Grow
According to our estimates, PepsiCo generates over $3.5 billion
in annual revenues from beverages in Russia. Thus, the company
constitutes a fourth of this $13.8 billion market. Even if we
assume no change in market share, PepsiCo could reach annual
revenues of ~$4.2 billion by 2017, as Russia's beverage market is
expected to grow by 3.5% annually.
a Company's Products Impact its Stock Price at Trefis