FDBusiness.com

AG Barr’s strong annual results confirm the resilience of the UK soft drinks market, which was highlighted by Britvic in its just published market report. Scotland-based AG Barr achieved double-digit growth in both sales and profit last year to again outperform the UK soft drinks market. According to Britvic, the second largest soft drinks producer after Coca-Cola Enterprises, the UK market reached £9.4 billion in value in 2010, with sales in the take-home channel up 6.6% to £6.6 billion and the on-premise category edging up 1% to reach £2.8 billion.

However, AG Barr chief executive Roger White has cautioned that “the soft drinks sector will face tough comparative trading across 2011, as well as further cost volatility and general economic uncertainty.”

Indeed, constantly increasing input cost rises are facing most sectors of the food and drink industry as clearly illustrated during the week by Dairy Crest’s decision to implement a further £20 million cost reduction programme on top of the one already completed during its last financial year.

The opening by Nestle of a Eur117 million factory in Germany dedicated to producing hypoallergenic infant formula is a reflection of the healthy growth within baby food. The global market (including infant formula, juices, cereals, baby snacks and soups) has remained largely immune to recession and is projected to reach sales of $37.6 billion by 2014, achieving an estimated CAGR of 5.0% from 2009 to 2014. Europe is the second largest market after North America and is expected to generate sales of $10.8 billion by 2014 with a CAGR of 4.4%, according to MarketsandMarkets. But the most rapid growth will be in emerging markets due to their higher birth rates and brighter economic prospects.

Nestle has opened a Eur117m factory in Germany dedicated to producing hypoallergenic infant formula.

In both developed and emerging markets, the leading baby food manufacturers have been investing heavily in new technology and capacity in order to keep adding value and to maintain brand share against intensifying competition from private label products.

Baby food is a sector where the distinction between food and drink manufacturers, such as Nestle and Danone, and pharmaceutical companies, like Abbott and Wyeth, is blurred. With the emphasis by the leading food, beverage and pharmaceutical companies on developing products to improve the ‘health and wellness’ of consumers, the two industries will increasingly overlap in the future as nutraceutical products are developed across different market sectors and new categories are created.

€205 Million Capital Investment by Nestle

The new Eur117 million baby food facility marks Nestle’s third major capital investment in new capacity in the past month. The world’s largest food manufacturer recently announced that it will spend Eur50 million on a new production line at its Nescafe factory at Girona in Spain to double production of Nescafe Dolce Gusto coffee capsules. Nestle is also investing about Eur38 million in a new breakfast cereals factory in Turkey.

Russian IPO

Investor interest in the Russian food and drink industry has revived with Rusagro’s initial public offering on the London Stock Exchange, designed to raise $300 million for expansion, being over subscribed. The Moscow-based Russian sugar, pork and agribusiness group had postponed its IPO last year but persevered this time despite market volatility.

The IPO, involving about 17% of the group’s equity, values Rusagro, which controls about a sixth of Russia’s sugar production and owns the country’s fifth largest pig farm, at about $2 billion. In its prospectus, Rusagro highlighted the importance of local knowledge of both markets and how government works in successfully doing business in Russia.