The FINANCIAL — Across the world, many smaller regional soft drink manufacturers have been unable to withstand competition from global companies.
As manufacturers like Coca-Cola enter markets, smaller carbonate companies quickly fold, unable to compete with iconic brands. However, despite the world’s affinity for soda, other beverage categories can be just as profitable. Such is the case in Eastern Europe where regional companies in some countries are leading Coca-Cola in value share due to strong performance in bottled water and fruit/vegetable juice.
Local companies find value outside of carbonates — Across Eastern Europe, Coca-Cola is the off-trade value share leader with 22.3% of the overall soft drink market. The cola giant leads the region in carbonate sales with a 43.2% share, but also has strong performance in bottled water (first with 8.7%), fruit/vegetable juice (second with 18.5%), and sports and energy drinks (second, 17.2%). These categories also represent the four largest soft drink categories, in terms of value, for Eastern Europe. This strong performance demonstrates Coca-Cola’s commitment to the region as well as a diverse range of products. However, despite this expansion into other categories, none of Coca-Cola’s newest brands have the draw of their flagship carbonate brands.
Because of this, regional companies in some nations are successfully battling Coca-Cola in non-carbonate categories. Of the 18 Eastern European nations researched by Euromonitor International, five show regional companies beating Coca-Cola in terms of value share: Croatia, the Czech Republic, Estonia, Latvia, and Slovenia.
In these five nations, Coca-Cola is the number one carbonate manufacturer, often by a wide margin. However, while carbonates remain an important soft drink category (accounting for over 30% of all soft drink sales in Eastern Europe) bottled water and fruit/vegetable juice together represent 56% of soft drink off-trade value. Regional companies have found success in these categories, rather than carbonates, as ingredient sourcing and local branding are more effective than attempting to battle with Coca-Cola’s historic cola formula and global brand recognition.
Locally sourced bottled water remains key — Bottled water has traditionally been a high value category in Eastern Europe due to the popularity of mineral water. In fact, in the Czech Republic, bottled water has outperformed carbonates in terms of off-trade value sales for each of the past ten years. It is largely this reason that Karlovarske Mineralni Vody AS has been the country’s number one soft drink manufacturer.
Karlovarske Mineralni Vody’s production facilities are located in old spa areas of the country’s Kysilka region, which became world-renowned in the 19th century for mineral water with lower mineral content. Today, the company produces popular brands Mattoni, Aquila and Magnesia. Mattoni is a lightly carbonated, and sometimes flavoured, mineral water that consumers enjoy for its refreshing, natural taste. Aquila is a still mineral water positioned toward women, and Magnesia boasts of its natural magnesium content that is “essential for almost all the processes that take place in the human body.” These bottled waters give Karlovarske Mineralni a reputation for healthy products – an important aspect as consumers grow wary of the high sugar content of carbonates. Recently, Karlovarske Mineralni expanded the Aquila and Magnesia brands into new flavoured varieties to increase drinking occasions and attract health conscious consumers. These products are extremely popular in the Czech Republic as there is a sense of history with the brand. So, in a market where bottled water outsells carbonates by US$150 million, Karolvarske Mineralni’s rbands are unlikely to be unseated by the sheer muscle of Coca-Cola’s marketing.
Similarly, in Croatia, strong performance in the bottled water category drives the sales of national soft drink leader Jamnica. Many Croatians feel that Croatian water is the best water in the region, and they prefer it over imported alternatives. Knowing this, Jamnica promotes brands Jamnica and Janaby focusing on its local sourcing. Behind this marketing, as well as a joint distribution network with food conglomerate Agrokor, Jamnica accounted for 62.6% of all bottled water off-trade sales in 2012. With this strong performance, the company has been able to invest in other growth soft drink categories such as RTD teas and fruit/vegetable juices, where the company is also the number one brand owner.
Fruit/vegetable juice profits allows expansion — Although sales have not been as robust as bottled water, fruit/vegetable juice remains an important category for many Eastern European consumers and another area where regional companies can better compete with global brands. In Slovenia, Fructal dd was purchased by Serbian company Nectar doo in 2011. Nectar doo quickly became the country’s number one soft drink manufacturer, due largely to Fructal’s dominance of the juice category. Fructal rose to prominence due to successful market penetration into traditional retailing outlets such as kiosks and small independent grocers where it was often the only brand available. Using this success, the company expanded its product offerings to included premium not from concentrate 100% juices as well as juice drinks, RTD teas, smoothies and reconstituted 100% juices at a mid-level price range that undercuts many multinational brands. Similarly, A Le Coq AS in Estonia has invested profits from years of leading the nation in fruit/vegetable juice to launch new products across all soft drink categories as well as expand its production of juice drinks and nectars to 2-litre packaging.
The ties that bind — The key for all these regional players has been focusing on the strengths of their products as well as their ties to local consumers. The history of mineral water in the Czech Republic, the quality of spring water in Croatia, and the channel penetration and history of juice brands in Slovenia and Estonia have all translated into success for these companies. None are able to match the popularity of global carbonate brands – and none have extensive history in marketing and promoting that type of product. But, the ties between these companies’ brands and the local consumers – ties that are in soft drink categories such as bottled water and fruit/vegetable juice – give them advantages that can rarely be mimicked by multi-nationals.
The rise of these regional manufacturers in smaller Eastern European markets is instructive for local players in many developing markets. The presence of multi-national companies often present major threats to small players. With deep marketing pockets and the resources to distribute products across the country, many local brands cannot compete with global players. However, companies such as Karlovarske Mineralni Vody in the Czech Republic and Jamnica in Croatia have thrived by avoiding direct competition and cultivating brands that local consumers know and trust. Very few companies can claim to have a better cola carbonate than Coca-Cola or PepsiCo as the branding of these products carry much more weight due to their iconic status. But for soft drinks in the bottled water or juice categories, historic and local names have more weight than most global brands. Global manufacturers must therefore rely on innovative products rather than brand marketing to take share. It is in these categories that regional players can compete, and sometimes even beat, these global giants.
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