Pepsi's Russian Investment: A Closer Look

$1 Billion Move Is Itself a Marketing Coup

By Published on .

Givi Topchishvili
Givi Topchishvili
The recent announcement regarding PepsiCo's $1 billion investment in Russia seems to have really stirred the pot worldwide. Political implications of President Barack Obama's visit to Russia may have influenced Pepsi's decision to release the news at this time -- in order to demonstrate the thawing and deepening of economic relations between the two countries.

However, because the U.S. and Russia are not exactly the closest of allies, one must consider the timing of the announcement, as it may have been part of an ongoing deal that would allow the Ukraine and Georgia to fully gain political independence, as the European Union has really been pushing to broker a deal between those countries and Russia.

We should also take into consideration Europe's reliance on Russia as its prime source of energy and U.S. attempts to justify its operations in the Middle East. This is politics and business coupled together, and we should applaud the Obama administration for playing it out so beautifully.

In the first quarter of 2009, Russia lost more than $40 billion in foreign investment, so from an economic perspective U.S. Pepsi's $1 billion investment over the next three years is not exactly a mind-blowing gesture. Russia's Ministry of Finance forecasts a further loss of Western investment to be at $70 billion -- and according to Obama, "U.S. Russia trade spend is only 1% of America's world trade capacity at $36 billion." (In comparison, this is the same trading activity the U.S. shares with Thailand, a country with half of the population of Russia.) However, we must all keep in mind that U.S. business investments bear little or no impact on political cooperation between our countries and its effect on policy regarding Europe and the Middle East, also major global players.

Politics aside, as market leaders we need to look at this investment more closely, and evaluate the political and economic significance it may have for not only Pepsi, but also for other brands wishing to enter this developing market in the near future.

From a shareholders' point of view, the timing of this announcement couldn't have been more fortuitous, as it coincided with the historical meeting of two newly appointed world leaders, Obama and Dmitry Medvedev, president of the Russian Federation. This was a real business blessing -- as within this developing, and emerging marketplace, the state and business elite are actively and closing monitoring the situation.

Thanks to the well thought-out strategy, PepsiCo's entry got the highest level of approval from both parties -- a true communications and marketing coup. In the long run, its investment in Russia will certainly help PepsiCo capitalize on its highly publicized manufacturing and distribution plans -- something that is only good for its investors and American business. As for Russia, this investment will create new jobs, and will promote an attractive investment climate for other leading global brands wishing to grow market share in the country.

Besides investing $180 million into a bottling plant in Domodedovo, PepsiCo also invests capital into a production plant in the Azov region, where they will produce its Frito Lay snack line. This also provides growth to the agricultural sector of Russia, as it needs large quantities of potatoes for its Lay chips, helping to further build confidence and loyalty in PepsiCo.

This investment also includes distribution and logistical solutions for its recently acquired Lebedyansky Company, a leading producer of juices in Russia. Overall Pepsi's investment will be $4 billion. By comparison, Coca-Cola plans to invest $1.2 billion toward building infrastructure in Russia over the next three to five years. To date Coca-Cola has invested around $1.8 billion. Both Coke and Pepsi sell 70% of their products outside of the U.S. and the soft drink and juice market in Russia is not as saturated as the American one, and has a lot of potential for global players.

Even in this economic climate, Russia, along with other emerging markets, continues to be attractive for many leading brands -- Panasonic's recent development plans also speak volumes. All of this demonstrates a rather positive trend and opportunity for global brand growth.

Lastly, whom we as marketers should take notice of, and be thanking, is former PepsiCo CEO Donald Kendall, who first gave Khrushchev a Pepsi more than 50 years ago, and who 35 years ago brought Pepsi's first plant to Russia in exchange for the right to import Stolichnaya vodka to the U.S. This really marked the start of the globalization of trade. A classic investment move that opened up gates worldwide. There he stood once again with Pepsi Chairman-CEO Indra Nooyi to announce their latest investment in Russia.

ABOUT THE AUTHOR
Givi Topchishvili, a native of the former Soviet state of Georgia, is president CEO of Global Advertising Strategies.
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