European Business News – Week ending February 25, 2011
The continuing rise in raw material costs was again highlighted during the past week when Britvic, the second biggest soft drinks manufacturer in the UK and Ireland, cautioned that its profitability would be impacted. Britvic had initially been projecting input cost inflation in the 5-6% range for its core Great Britain and Ireland markets and had negotiated its product prices on this basis. Following an unprecedented escalation in input costs, particularly for sugar, steel and PET, the company now expects inflation of 9-11% and will not be able to fully recoup this additional cost from customers, resulting in a squeeze on Britvic’s profit margins.
Muhtar Kent (left), chairman and chief executive of Coca-Cola, with William Johnson, chairman, president and chief executive of Heinz.
Packaging Partnership
PET is the reason for a landmark strategic partnership between Coca-Cola and HJ Heinz. Heinz will use Coca-Cola’s PlantBottle sustainable packaging technology to produce its ketchup bottles. PlantBottle packaging is like traditional PET plastic but up to 30% is made from plants. According to Coca-Cola and Heinz, the partnership serves as a model for further collaboration in the food and beverage industry. Both companies hope others will follow their lead to share smart technologies and to encourage sustainable packaging and manufacturing practices globally.
Turkish Delight
Diageo’s £1.3 billion swoop to acquire Mey Icki, the leading Turkish spirits producer, confirms Turkey’s status as a highly attractive emerging market. According to Diageo, Turkey is a substantial and fast expanding economy with a growing and increasingly affluent middle class, and consumer spending is forecast to be twice the rate of GDP growth. The £1 billion-plus price tag for a company with sales of £300 million and EBIT of £120 million illustrates Diageo’s confidence in the Turkey’s future prospects, and is in line with its strategy of investing in emerging markets with a rapidly growing middle class, such as China and Vietnam.
Russia's economy appears to be recovering far more quickly than initially anticipated.
Russian Recovery
Another emerging market in the spotlight last week was Russia as its economy appears to be recovering from recession far more quickly than initially anticipated. For instance, Carlsberg reported that Russia, its largest beer market, was stronger than envisaged during 2010 and consumer sentiment continues to improve. At the beginning of the year, Carlsberg expected a market decline of low double-digit percentages following the sharp rise in excise duty in January 2010, which effectively pushed up consumer prices by 25%. However, due to favourable weather conditions and the ongoing recovery of the Russian economy, the beer market picked up in the second half of 2010 leading to a decline of approximately 4% for the year. For 2011, Carlsberg is projecting growth of 2-4% in Russia.
Reflecting similar confidence in the future, Austrian group Agrana is planning to invest Eur27.6 million to expand its Russian fruit preparation plant at Serpuchov to capitalise on rapid growth in demand for fruit yoghurt in Russia and neighbouring states, due to rising consumer affluence and health consciousness.
Russian confectionery company CJSC Landrin has just announced investment of $20 million to upgrade and expand production capacity as part of its strategy to increase turnover to $100 million by 2012. Meanwhile, Norway-based Orkla Brands has decided to merge its Russian chocolate and confectionery companies – Krupskaya and SladCo – into a single business.
On the home front in confectionery, Tangerine Confectionery, the largest British manufacturer of sugar confectionery and branded popcorn, is reported to be seeking a new private equity investor to help fund further expansion. Tangerine has quadrupled in size since being formed following the buy-out of Danish company Toms in 2005. Current turnover is more than £150 million and Tangerine’s ambition is to become the largest independent manufacturer of confectionery in Europe within five years.
