EXCLUSIVE-Russian soft drink maker targets 50% of market to fill void left by Coke and Pepsi

Jits content was produced in Russia where the law restricts coverage of Russian military operations in Ukraine

Add Vkusno & tochka comment to paragraph 19

MOSCOW, August 3 (Reuters)As the world’s biggest soft drink makers cut ties with Russia, local producer Chernogolovka is aiming for a 50% share of the country’s nearly $9 billion market, its boss told Reuters.

A mass exodus of Western businesses due to sanctions and restrictions on Russian actions in Ukraine has created an unexpected opportunity for Russian businesses and entrepreneurs.

Chernogolovka, named after the town outside Moscow where it was founded in 1998, makes snacks, bottled water, herbal lemonades, energy drinks and, since May, Cola Chernogolovka.

The private company has more than doubled its business this year, its CEO Natalia Sakhnina said in an interview, and expects to reach 30% market share within two years, up from around 8.5% at the end of 2021.

“We were, are and will be Russia’s leading beverage producer,” Sakhnina said. “We hope and work to gain absolute leadership in the Russian market.”

Revenue from the Russian soft drink market is $8.8 billion, according to data provider Statista.

Although soft drinks manufactured by Coca-Cola KO.N and PepsiCo PEP.O are still available in Russia, they are bound to disappear over time as existing stocks run out, leaving local manufacturers to step in.

PepsiCo suspended production and sales of sodas in Russia in March, one of several Western consumer brands to cut operations after Russia sent troops to Ukraine.

Coca-Cola also suspended operations in March. In June, he said Coca-Cola bottler HBC AG CCH.L and its existing customers in Russia were running out of stock.

Chernogolovka has nearly doubled volume in the southern city of Krasnodar and increased capacity by 50% in Novosibirsk in Siberia so far in 2022 compared to 2021, Sakhnina said.

COLA PUSH

Newly launched cola brands, including Chernogolovka’s CoolCola and rival Ochakovo, jumped to 5% of category sales in the first half of 2022, NielsenIQ Russia said.

“Our business was not in the cola segment,” Sakhnina said of an area that accounts for around 50% of the market.

“This year we entered this segment and it coincided with the departure of international players from this flavor. So if we assess our prospects and our ambitions, they are almost limitless.”

To meet the expected surge in demand, Chernogolovka is building a 40,000 square meter production facility in the city. The installation will cost more than 3 billion rubles ($50 million) and its first stage is expected to be completed in March 2023.

Additional demand came from fast food establishments.

Chernogolovka began supplying soft drinks to Russian Burger King and KFC outlets in April. It is in talks to do the same for Vkusno & tochka, the renowned McDonald’s chain. MCD.N restaurants that opened after the world’s largest fast food chain was sold to a local licensee, Sakhnina said.

Vkusno & tochka is looking for a new drinks supplier as Coca-Cola runs out of stock in Russia, chief executive Oleg Paroev told Reuters in June.

“We are currently looking at options, choosing a supplier who, according to taste, will best suit our customers,” a spokesman for Vkusno & tochka said on Wednesday when asked about possible talks with Chernogolovka.

Like all Russian businesses, Chernogolovka faced supply problems after Western governments and companies targeted Russia with sanctions and restrictions, Sakhnina said, adding that aluminum lids and adhesive labels were a particular problem.

However, the Moscow region government pushed for the inclusion of Chernogolovka in a list of companies producing crucial goods, allowing it to operate preferential loans in April and May.

Interest rates jumped to 20% at the end of February, and although they have since fallen steadily to 8%, Chernogolovka said he was at one point able to borrow money currently used to finance expansion at a discount of 10 percentage points.

Although Sakhnina did not rule out the possibility of an IPO, she said growth was the priority. And while acquisitions are possible, including from outgoing Western companies, there have been no talks so far, she said.

“This is just the beginning,” Sakhnina said. “This market, if the competitive situation remains the same, will be completely different in a year, unrecognizable.”

($1 = 60.1000 rubles)

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(Reporting by Reuters; Editing by Matt Scuffham and Alexander Smith)

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Virginia C. Taylor