Exit of Western offers firms opportunity
Russian soft drinks producers see unexpected opening in $ 9b market
As the world’s biggest soft drinks makers cut their Russian ties, local producer Chernogolovka is aiming for a 50 percent share of the country’s near $9 billion market, its boss told Reuters.
A mass exodus of Western firms due to sanctions and restrictions over Russia’s actions in Ukraine has created an unexpected opportunity for Russian businesses and entrepreneurs.
Chernogolovka, named after the town outside Moscow where it was founded in 1998, makes snacks, bottled water, lemonades, energy drinks and, since May, Cola Chernogolovka.
The privately owned company is more than doubling its business this year, its CEO Natalia Sakhnina said in an interview, and expects to reach a 30 percent market share within two years, up from around 8.5 percent at the end of 2021.
“We were, are and will be the main Russian producer of drinks,” Sakhnina said. “We hope for and are working on gaining absolute leadership in the Russian market.”
Revenue in Russia’s nonalcoholic drinks market totals $8.8 billion, according to data provider Statista.
Although fizzy drinks made by Coca-Cola and Pepsi Co are still available in Russia, they are set to disappear over time as existing stocks are run down, leaving local manufacturers to step in.
Pepsi Co suspended soda production and sales in Russia in March, one of many Western consumer brands to curtail operations after Russia sent troops into Ukraine.
Coca-Cola also suspended operations in March. In June, it said bottler Coca-Cola HBC AG and its existing customers in Russia were depleting stock.
Chernogolovka has almost doubled volume in the southern city of Krasnodar and increased capacity by 50 percent in Siberia’s Novosibirsk so far in 2022 when compared to 2021, Sakhnina said.
New cola brands
Newly launched cola brands, including Chernogolovka’s and competitor Ochakovo’s CoolCola, jumped to a 5 percent share of sales in the category in the first half of 2022, NielsenIQ Russia said.
“Our company was not present in the cola segment,” Sakhnina said of an area that accounts for around 50 percent of the market.
“This year we entered this segment and this coincided with international players in this flavor leaving. So if we evaluate our prospects and ambitions, they are almost limitless.”
To meet the anticipated rise in demand, Chernogolovka is building a 40,000 square meter production plant in the town. The facility will cost over 3 billion roubles ($50 million) and its first stage is set for completion in March 2023.
Some additional demand has come from fast food outlets.
Chernogolovka started supplying soft drinks to the Russian outlets of Burger King and KFC in April. It is in talks to do the same for Vkusno & tochka, the renamed chain of McDonald’s restaurants that opened after the world’s largest fast-food chain sold to a local licensee, Sakhnina said.
Vkusno & tochka is looking for a new drinks provider, as Coca-Cola is depleting its Russia stock, Chief Executive Oleg Paroev told Reuters in June.
“We are currently considering options, choosing a supplier that according to taste will suit our guests the most,” a Vkusno & tochka spokesperson said on Wednesday, when asked about any talks with Chernogolovka.
Like all Russian companies, Chernogolovka faced supply headaches after Western governments and companies targeted Russia with sanctions and restrictions, Sakhnina said, adding that aluminum lids and adhesive labels were a particular issue.
However, the Moscow region’s government pushed for Chernogolovka’s inclusion in a list of firms producing crucial goods, allowing it to tap preferential lending in April and May.
Interest rates leaped to 20 percent in late February, and although they have since steadily decreased to 8 percent, Chernogolovka said it was at one point able to borrow money now being used to fund expansion at a discount of 10 percentage points.
While Sakhnina did not rule out the possibility of a stock market listing, she said growth was the priority. And while acquisitions are possible, including from departing Western firms, there have been no talks to date, she said.
“This is just the beginning,” Sakhnina said. “This market, if the competitive situation remains the same, will look completely different in a year.”
“They are trying to climb in there, behind the tweets,” said Kittila. “They are looking at emails and trying to divine the conversation that actually occurred and what drove his decision to suspend the deal.”