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Russian Beverage Industry

Russian beverage industry has had a traditional predilection to alcoholic beverages in backdrop of
their extreme climatic conditions. Even the non-alcoholic segment is highly diversified and includes
bottled water, soda, fruit juices, carbonated soft drinks, fruit pulp, energy drinks and Ready to Drink
Teas. There has been presence of International giants like Pepsi and Coke and also prominent local
players like Wimm-Bill-Dann, Multan etc. Russian consumers have also gained significant awareness
on the health front and their health consciousness has opened a great scope for bottled water and fruit
juices. The per capita expenditure on food and beverages have been on an upward spiral and people
have also exhibited great fascination for foreign brands and westernised eating habits.
The attractiveness of the Russian Beverage Industry is analysed though Porters five force
framework below.
Bargaining Power of Buyers
1) Price sensitivity of Russian consumers
Russian consumers have been traditionally sensitive to price fluctuations and in an industry
like beverages where no clear cut product differentiation can be commanded, the
aforementioned aspect turns crucial
2) Absence of switching costs involved in switching to an equivalent competitor
Product discontent can easily lead to switching of consumer preferences to another alternative
local/international brand, that too at zero cost.
3) The customers turning more health conscious and their affinity to healthy products
The increasing health awareness is giving way to demand for healthy products and reducing
inclination to carbonated soft drinks.
4) Fascination of foreign goods
After being deprived of foreign products for long decades, Russians have shown an unleashed
affinity for foreign products that has particularly favoured brands like Coke
5) Adoption of westernised eating habits
Consumption of fast food, essentially hot dogs and burgers, is becoming prevalent that
facilitates an increased reliance on artificial beverages.
6) Global economic slow-down and reduction in disposable income
The ill effects of recession has made costly beverages unaffordable and people are moving to
low cost domestic variants.
In context of the above, bargaining power of buyers can be adjudged as high
Bargaining Power of Suppliers
1) Great amount of Coke sold through fountain machines
Along with retail outlets, a great amount of Coke is sold through kiosks and fountain machines
managed by Coke themselves.
2) Heavy reliance of vendors and distributors on the truck fleet of Coke
Due to credit scarcity, vendors & distributors are entirely reliant on Cokes truck fleet.
3) Local Bottlers only manufacturing a minimal fraction
Though Coke entered the Russian markets in partnership with beer bottlers and local
businessmen, they are no more part of the picture as Coke is handling majority of its operations
by itself.
4) No unique ingredient required

No unique ingredient is required for production and almost all constituents are commoditized.
5) Coke is capable of reverse consolidation
No supplier can exert excessive influence on Coke as it has the financial clout for reverse
consolidation.
In context of the above, bargaining power of suppliers can be adjudged as very low
Threat of New Entrants
1) Highly capital intensive industry
Requires millions of dollars of initial investment and credit availability is not an easy task in
Russian environment.
2) Unfavourable environment for starting new ventures
Red-tapism, corruption and friction in starting new businesses are characteristics of Russian
business environment.
3) High barriers to exit
The industry doesnt offer any exit potion other than selling the stakes to its own competitors.
4) Inaccessibility to distribution channels
Distribution channels have been entirely captured by giants like Coke and Pepsi who offer
sizeable incentives.
In context of the above, threat of new entrants can be adjudged as minimal
Threat of Substitutes
1) Cokes is ubiquitous in Russian beverage industry
Russian beverage industry has a wide portfolio but Coke is present in every segment possible
including bottled water, fruit pulp, juices, energy drinks, tea etc
2) Growing loyalty to particular brands
Switching to substitutes have slowed down as Coke has started to command brand loyalty
through quality products
3) Threat of alcoholic beverages
Alcoholic beverages, a bigger segment, has considerable presence in Russia and Cokes
presence is limited to kvas in this segment.
In context of the above, threat of substitutes can be adjudged as moderate
Rivalry among Existing Players
1) Market stagnation caused by Global slowdown
The total market has reduced after global slowdown and all the players are competing for the
smaller pie. High competition is guaranteed as exit options are infeasible.
2) Presence of local players
Lot of local players act as low cost variants of global brands and threats of them leveraging on
a national sentiment are high.
3) Presence of a global giants like Pepsi
Pepsi, as in any other part of the Globe, is offering tough competition and has equally good
connections with bureaucracy and distribution networks.
Rivalry among existing players is considerable.
In context of the aforementioned analysis, Russian beverage industry shall be considered as
highly attractive from Coca-Colas perspective with multiple factors aligned in its favour.

The growth and expansion of Coca-Cola in Russia


Transition economies were seen as the hotspots of business in the post globalisation era. Their
contribution to the world GDP had increased amply and the per capita expenditure on food and
beverage consumption was on an upward spiral. Soft drink market which had saturated in the US had
to expand their business to emerging economies to increase their business. In countries like Russia,
which were for long concealed by Soviet Rule, foreign brands were items of fancy and were received
with great fervour.
Challenges faced by Coca-Cola while entering Russia
1) Established inclination to alcoholic beverages- Russians had a great predilection to alcoholic
beverages , mainly on account of extreme climatic conditions
2) Tag of American imperialism- Coke was seen as the flag bearer of American imperialism and
was upright rejected by soviet government from forming counter trade agreements
3) Lack of Bottlers- Most of the bottlers were working for beer industry and Pepsi when coke
entered the market. Adverse climatic conditions added to the woes.
4) Red-tapism Coke found it really hard to acquire land or sign leases due to the stringent
dimensions of bureaucracy
5) Lack of infrastructure- As a foreign brand, it didnt receive infrastructural support for water,
power and sewers.
Strategies adopted by Coca-Cola
1) Counter Trade agreements- Coke entered Russia during Moscow Olympics through counter
trade agreements facilitated by Michel ONeill who worked on their behalf to develop
contacts in soviet government
2) Attracting Bottlers Coke offered lucrative incentives and roped in bottlers who had tied up
with beer companies and PepsiCo earlier
3) Independent operation to businessmen- Coke authorised independent businessmen to bottle
and sell coke products and thus established its distribution system
4) Presence in Key locations- Coke setup its office in cities like Moscow and St:Petersburg to
make its presence felt in Russia
5) Manufacturing and bottling plants- Coke established its own manufacturing and bottling
plants in all important cities in the second phase of expansion
6) Outdoor kiosks- To reduce dependency on local outlets, coke was sold extensively through
outdoor kiosks and fountain machines.
7) Television media- Advertisements on TV was quite new to Russians and the scope of the
same was extensively used by Coke. Launched Drink the Legend campaign in accordance
to the local customs and folklore of Russia.
8) Goodwill Generation Generated goodwill through youth events, funding of museum
restorations, establishment of Coca-Cola University and employment generation and
acquisition of raw materials locally.
9) Diversified product portfolio Acquired Multan and entered fruit juice segment. Also
launched tea brands and energy drinks. Prominence was established in bottled water as well.

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