Beverage manufacturers see strength in emerging markets

Posted by Daniel Palmer on 17th September 2009

Once touted as a unique combination of high growth markets, the “BRIC” nations of Brazil, Russia, India and China have enjoyed varying fortunes during the great economic downturn of 2009. Many global food and beverage manufacturers have placed their faith in these markets in the hope they will compensate for the limited growth in developed markets and have every reason to remain confident in their potential, according to a new report.

Projections after the first half of the year from Canadean’s new Quarterly Beverage Tracker, point to China and to a lesser extent India already shrugging off any financial woes with both countries set for healthy volume rises in 2009. Beverages in Brazil are set to rise by a more modest 2% this year but demand in Russia is set to contract by 2%.

In China, the leading soft drinks players have invested in new product launches and extensive marketing campaigns and this is expected to be rewarded with a 15% jump in soft drink sales by the end of the year. June has highlighted the willingness of the global soft drink giants to invest in China. During this month Coca-Cola and its bottling partner COFCO opened two new bottling plants in the Jiangxi and Xinjiang provinces. The two facilities are part of Coca-Cola’s US$2 bn investment plan in China. Meanwhile PepsiCo opened a new plant in Chongqing and plans to build another five beverage plants in China over the next two years.

In India, a long summer period in the north compared to 2008 boosted sales of soft drinks in the second quarter. Considerable investments by Coca-Cola and PepsiCo in their manufacturing operations have also contributed to the first quarter forecasts being revised upwards by Canadean. PepsiCo announced in June that it would double its investment in India in 2009. Local Indian companies such as Bisleri and Parle Agro are also strong players in the Indian market operating alongside the multinationals and all are looking to capitalise on a future Indian boom.

The performance in Russia contrasts with the two Asian markets and Canadean expects all commercial beverage categories to shrink this year with the exception of hot drinks. Traditionally in times of economic difficulty consumers have often turned to the low cost tea segment and 2009 is no exception. The 2% projected decline in commercial beverage includes a dramatic 11% drop in soft drinks. However, the figures have not been a deterrent for soft drinks investment: PepsiCo announced that together with its partner Pepsi Bottling Group, it is planning to invest US$1 bn in Russia over the next three years.

The more developed of the BRIC nations, Brazil, is riding the downturn well – Brazil was relatively well insulated from financial crisis and domestic demand has remained strong. As a result the South American market should see a 2% rise in beverage sales this year. With the exception of dairy drinks, which will remain stable, Brazil is predicted to see year on year volume growth of 2% for soft and alcoholic drinks while hot drinks and bulk water should grow by 4%.

Despite the deterioration in the global economic environment there is still plenty of optimism that the BRIC markets will realise their undoubted potential in the longer term, even the worst affected of the four – Russia. The evidence suggests that the downturn is seen by many as an opportunity and that the beverage industry is prepared to live with uncertainty in the shorter term, in order to reap the benefits in the long run.