Coca-Cola and its bottlers are engaging in joint acquisitions in emerging markets, further enhancing the American giant’s acquisition led expansion strategy.
The Greek-based bottler, Coca-Cola Hellenic Bottling Company (CCHBC), is planning to acquire 100% of Aquavision, a newly constructed production facility in Russia, for a price of EUR192 million.
This is another significant acquisition following the takeover of the largest Russian juice player Multon in 2005.
The Coca-Cola Company(TCCC) only owns 23% of CCHBC, but the acquisition shows it is working in harmony with its bottlers in order to achieve its goal of expansion in emerging markets.
Acquisition to consolidate CCHBC’s position in Russia
The acquisition is set to enlarge CCHBC’s (The Coca-Cola Company’s largest bottler in Europe) production capacity in Russia and facilitate its penetration of the overall soft drinks market. The plant is located close to Moscow, the largest consumer market in the country, and thus the acquisition will enable CCHBC’s products to gain good consumer exposure.
The plant has the capability to manufacture the full spectrum of non-carbonated products including juices, water, RTD tea and functional drinks, which perfectly fit CCHBC’s ongoing diversification plan. Specifically, the acquisition provides CCHBC with immediate access to four modern production lines and a logistics operation in the local area, meaning CCHBC can start production and distribution straight away.
Currently, Aquavision does not hold any noticeable market share in the Russian soft drinks market. However, it has recently launched juice products under the botaniQ trademark, which is also included in the transaction. Euromonitor International believes that the acquisition will benefit the new launch, given that CCHBC’s business partner – The Coca-Cola Company – has a wealth of experience in marketing brands.
The Russian soft drinks market is set to post a volume CAGR of 6% over 2007-2011, in contrast to 2% in Western Europe, suggesting there is significant growth potential in this emerging market. The acquisition will help CCHBC to consolidate its leadership in the soft drinks industry in the country.
Bottlers’ increasing involvement
Elsewhere, CCHBC has been involved in a string of acquisitions including Vlasinka doo (mineral water) and Fresh & Co doo (leading juice maker) in Serbia, in addition to the Bulgarian Bankya Mineral Waters Bottling Company EOOD. These initiatives show CCHBC’s ambitions to speed up its operations in fast growing Eastern European markets.
TCCC and its largest bottler in Latin America, Coca-Cola FEMSA, (in which TCCC has a 31% stake) have also been working together to snap up Mexican fruit juice company Jugos del Valle, although the Comisión Federal de Competencia in Mexico (CFC) has objected to the planned acquisition.
These examples show that bottlers are increasingly participating in acquisition activity and playing a greater role in the world’s soft drinks industry than they did 10 years ago. However, increasing joint acquisitions and cross-equity ownership can potentially add some extra complexity to the already complicated KO and Pepsi systems.
Implications for American giants
The Coca-Cola Company’s minority stake in CCHBC means the joint acquisitions with CCHBC may not lead to a dramatic jump of TCCC’s market share instantly, but, in the long term, it will benefit the sales of TCCC’s global brands. Joint acquisitions could also mean greater commitment to such ventures from all parties involved in terms of point of sale execution and everybody plays a role in terms of brand building. Nevertheless, it at least reflects the happy working relationship between the two partners and Coca-Cola’s acquisition-led strategy for non-carbonates.
PepsiCo has also been involved in similar acquisition activity. In June 2007, PepsiCo and PepsiAmericas (PepsiCo’s largest bottler in the world and in which PepsiCo holds a 44% stake) jointly acquired an 80% stake in Ukrainian juice leader Sandora. PepsiAmericas will hold a 60% stake and manage the day-to-day operations of the business, while PepsiCo will take a 20% stake and will oversee brand development. The joint venture is expected to acquire the remaining 20% interest in Sandora in November 2007.
The cola giants are set to continue expansion through bottlers as they look to generate sales away from traditional and maturing markets.