Acquiring Wimm-Bill-Dann, which has grown in 18 years from a one room business into a company employing 16,000 people, will give PepsiCo a leading position in Russia and a significant presence in the dairy segment.
PepsiCo sees the Russian dairy market and dairy in general as one of the most promising segments of the food and drink industry.
Growth potential
Since 2006 the Russian dairy market has grown at a compound rate of 22 per cent as continued economic growth, creates a growing middle class and higher demand for packaged dairy. Over the next few years, CFO Hugh Johnston said at a conference call that low to mid double digit growth is expected.
Johnston said that globally Russia offers great growth prospects in both developed and developing markets. In emerging markets, branded and packaged dairy is growing in popularity as a ‘safer’ option and in the developed markets, dairy leans on health and wellness arguments.
Johnston said dairy with its calcium and protein content and functional benefits for gut and bone health is a key leaver for exploiting the potential of health and wellness in ageing, developed markets.
In addition, PepsiCo believes that dairy contains major opportunities for category defying product development.
In a statement, PepsiCo chairman and CEO Indra Nooyi said: “Dairy has a huge, untapped potential to bridge snacks and beverages. We see the emerging opportunity to ‘snackify’ beverages and ‘drinkify’ snacks as the next frontier in food and beverage convenience.” Examples of such “snack- and drink - ifyed” products already on the market include breakfast bars and dairy drinks.
Two stage acquisition
PepsiCo plans to complete the acquisition of Wimm-Bill-Dann in two stages. The first consists of buying a 66 per cent share in the company for $3.8bn and the second in acquiring the remaining shares once regulatory approval has been gained for the initial buy.
With $5bn in revenue in Russia, PepsiCo will also become twice as large as its nearest food and drink rival in the country. Its presence in key markets in Eastern Europe and Central Asia will increase as well.
In juice, Johnston confirmed that the Wimm-Bill-Dann tie-tip would give PepsiCo more than 50 per cent market share but he said that the company does not anticipate any regulatory problems as a result.