Monday, July 6th, 2009
By Valerie Bauerlein
PepsiCo Inc. and its largest bottler, Pepsi Bottling Group Inc., plan to spend $1 billion in Russia over the next three years, extending an investment in a key international market as the economy crimps growth in the U.S.
PepsiCo Chairman and Chief Executive Indra Nooyi announced the investment on a visit to Russia, which coincides with her attendance at a business summit called by U.S. President Barack Obama and Russian President Dmitry Medvedev. She also led the opening of a new bottling plant in the town of Domodedovo, outside Moscow, in what Pepsi said will eventually be its largest bottling plant globally.
PepsiCo and Pepsi Bottling Group will use the investment to bulk up production and distribution of their products. Investments include a new snack manufacturing plant in the southern city of Azov and improving distribution of Lebedyansky juices.
The Purchase, N.Y., maker of Pepsi-Cola, Lay’s potato chips and other snacks and drinks, is pursuing an aggressive strategy to strengthen its presence in emerging markets around the world, where growth is faster than in the U.S. Ms. Nooyi just completed a 10-day immersion tour of China, where Pepsi is investing $1 billion in four years. She has also pledged to spend $500 million in India. Pepsi already spent about $2 billion last year to buy Russia’s largest juice company, OAO Lebedyansky, in partnership with Pepsi Bottling.
The investment steps up a heated competition between Pepsi and Coca-Cola Co. in Russia’s beverage market, an important and symbolic front in their global battle. Pepsi’s namesake cola was first introduced to the Soviet Union 50 years ago this month at the 1959 American National Exhibition, where Soviet leader Nikita Khrushchev and U.S. Vice President Richard Nixon engaged in their historic “kitchen debate,” and where Mr. Khrushchev sampled his first Pepsi.
That event, which will be commemorated during Ms. Nooyi’s visit, helped Pepsi to become the first Western consumer product widely sold in the Soviet Union. Coke’s soda overtook Pepsi in the 1990s, but Pepsi has fought its way back.
Coke holds a slight lead in carbonated soft-drink volume, with a 22% share to Pepsi’s 21%, according to Beverage Digest, a beverage industry data service. Pepsi dominates in juice and bottled water volume, and the two companies run neck and neck in the entire non-alcoholic beverage category, according to Euromonitor International.
Coke derives about 83% of its profits from outside North America, compared to about 33% for Pepsi, according to Consumer Edge research.
Coke is putting $2 billion in plants, research and distribution in China over three years.
