PepsiCo, Pepsi Bottling Invest in Russia

By EMILY FREDRIX

posted: 123 DAYS 15 HOURS AGO

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MILWAUKEE (July 6) - Soft drink and snack maker PepsiCo Inc. announced plans Monday to boost its investment in Russia, continuing a trend of consumer companies seeking growth in emerging markets as their U.S. sales soften.

With its largest bottler, Pepsi Bottling Group Inc., PepsiCo plans to invest another $1 billion in Russia over three years, taking the partnership's Russia stake above $4 billion just as President Barack Obama opens his first official visit to Moscow.

The announcement also nearly coincides with the 50th anniversary of the momentous "Kitchen Debate" between then-Vice President Richard Nixon and Soviet leader Nikita Khrushchev, who clashed over communism and capitalism and shared several rounds of Pepsi-Cola on July 24, 1959.

Pepsi in 1974 became the first Western consumer product to be made and sold in the U.S.S.R.

PepsiCo chairman and CEO Indra Nooyi, who will meet this week in Moscow with Obama and Russian President Dmitry Medvedev, said in a statement that the $1 billion investment is part of a long-term strategy.

"This investment reflects very clearly our great confidence in Russia and our long-term commitment to this very important market," Nooyi said.

PepsiCo, the Purchase, New York-based maker of Pepsi, Gatorade and Tropicana drinks and Frito-Lay snacks, and Pepsi Bottling plan to boost their manufacturing and distribution capacity in Russia. Pepsi Bottling Group Chief Executive Eric Foss called the country an "attractive growth market."

PepsiCo is also opening a new beverage facility this week in Domodedovo and a snacks plant in Azov later this year. The Domodedovo plant will produce Pepsi-Cola and other beverages and will be PepsiCo's largest bottling plant worldwide.

Other companies are boosting their presence in Russia too as the country grows. Dutch consumer products maker Unilever last week broke ground on a new ice cream plant in the Tula region of Russia, as part of an investment estimated to be worth about $140 million by the end of 2014.

PepsiCo has been announcing investments around the world in recent months.

Last November, it said it would invest $1 billion in China over four years to expand its manufacturing capability, research and development and sales force in the country. That marked its largest investment in China in nearly 30 years.

Also last fall, PepsiCo said it would invest up to $3 billion in Mexico in the next five years, including $2 billion on manufacturing, marketing and research and development for its food businesses and $1 billion on marketing and advertising for Pepsi's beverages. It also announced a deal to buy 20 percent of Japan's largest snack company, Calbee Foods, and earlier, another deal to buy a Jordanian dairy company, Teeba, through a joint venture with Saudi-based dairy company Almarai.

Beverage companies are focusing on emerging markets like Brazil, Russia, India and China — the so-called BRIC countries — since growing there is necessary for their overall growth over the long-term, said John Sicher, editor of the trade publication Beverage Digest.

"The future growth potential of those markets is significant and they have to have the brands, products and infrastructure to capitalize on that," he said.

PepsiCo is the world's second-biggest maker of soft drinks behind Coca-Cola Co., with sales in about 200 countries.

Pepsi Bottling Group, based in Somers, New York, is the world's largest manufacturer, seller and distributor of Pepsi-Cola beverages and has operations in the U.S., Canada, Greece, Mexico, Russia, Spain and Turkey.

The investment comes as PepsiCo is trying to buy out Pepsi Bottling Group and its other major bottler, PepsiAmericas. PepsiCo first offered $6 billion in April to buy out the two bottlers, saying owning them would help it operate more efficiently.

Both bottling companies rejected the deal, saying it undervalued them.

If PepsiCo does succeed with the buyout, that could help it save money in a domestic market that is increasingly spurning carbonated beverages in favor of healthier drinks like juices and teas.

Shares of PepsiCo rose 31 cents to $56.66 in midday trading Monday, while shares of Pepsi Bottling Group rose 9 cents to $33.89.

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AP Business Writer Betsy Vereckey contributed reporting from New York.

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2009-07-06 13:45:33