New Coke drinks roll out in Russia

Moscow —- While other companies hunker down to see where the world economy is headed, Coca-Cola Co. is rolling out 25 new product innovations this year —- in the Russian market alone.

There’s one called Rich, a pureed fruit drink that is squeezed out like toothpaste, that’s being marketed to mothers seeking healthy snacks for their children. A variety of new flavored waters, energy drinks and iced teas are also planned.

These come atop of a pile of Russian product launches over the past two years that included Sprite Ice, Fanta Apple and Vanilla Coca-Cola.

“There may be stronger head winds right now but, just as a sailboat does, we’re going to keep moving back and forth so that we get through it,” said Zoran Vucinic, president of Atlanta-based Coca-Cola’s Russia, Ukraine and Belarus business division.

Vucinic, who has a penchant for sailing metaphors, admits that the beverage industry in Russia is expected to contract by 5 percent to 7 percent this year.

But without giving specifics, he says that Coca-Cola will perform better than the rest of the industry.

“You still sail a ship the same way even in an economic storm, and the way we sail is to innovate and to get into new segments,” he said. “This is an emerging market here and a market in which people are still experimenting, so we need to get into all the segments.”

For example, Coca-Cola is entering the local lemonade market with its own line later in 2009, just a year after introducing its own brand of a traditional Russian beverage called kvass, a drink produced through fermentation.

“Our strategy is to build a broad-based offering rather than to build one category first and then another and then another and then another,” Vucinic said.

Analysts say Coca-Cola, with more than 70 percent of sales generated overseas, has little choice but to continue driving sales through the launch of products in foreign markets that appeal to local palates.

Russia plays a particularly vital role in bolstering the company’s overall growth as one of four fast-developing nations known as the BRICs —- Brazil, Russia, India and China.

“Smart marketers know that the best time to grow market share is when the economy is tough and your competitors are hunkering down,” said Jim Gregory, chief executive of CoreBrand, a brand consultancy in New York. “The Coca-Cola Company is always leveraging its brand and innovating when times are difficult. That’s why they stay on top.”

Coca-Cola’s global case volume was up 4 percent in the fourth quarter of 2008. But internationally, its gain was 6 percent. Volume was down 3 percent in North America.

In Russia, case volume declined 8 percent in the fourth quarter and was even for the year, reflecting the impact of a more challenging economic environment and poor weather over the summer.

In 2007, Coca-Cola’s case volume climbed at a double-digit rate in Russia.

The economic landscape in Russia likely will be even more challenging this year amid major signs of trouble. Government officials said last week that the economy likely would shrink by 2.2 percent this year. At the same time, the central bank recently set the official exchange rate at 36.4 rubles to the dollar, the lowest point for the ruble since January 1998.

“A large portion of our business is in rubles, so this is affecting us,” Vucinic said. “We are attempting to pass this on to the marketplace whenever we can.”

But he claims the business’s overall position in Russia is admirable, with “the fundamentals of our boat remaining strong.”

Highlighting one bright spot, Vucinic emphasized the consumption rate of Coke products in Russia —- 69 8-ounce drinks a year per person. It’s a particularly low one compared to other markets such as Britain, where per-capita consumption is 195, or the U.S., where it is 423.

“There’s still a lot of room to grow in this market,” he said.

Coca-Cola’s offices in Moscow, festooned with glass cases full of colorful Coke products, is located about a 15-minute drive west of the Kremlin.

Over the past 15 years, the company has invested more than $1.8 billion in Russia, and another $1.2 billion is planned in the next three to five years. Beverages are produced locally at 15 bottling plants across the country.

Coca-Cola was first produced in Russia in 1980 before and during the Summer Olympic Games in Moscow, but the company didn’t gain a real foothold until around the mid-1990s, when it completed its first plant.

In April 2005, the company expanded its reach by acquiring Multon, Russia’s second-biggest juice producer with 25 percent of the market. The move has enabled Coca-Cola to expand distribution of the industry’s fastest-growing beverages, which include juices.

Multon also has a hand in the snack market through the sale of apple chips, an alternative to potato chips.

“We are in an extremely good position. We want to build a total beverage company,” Vucinic said.

Coca-Cola employs 11,000 people in Russia, using locally sourced supplies for more than 70 percent of the mainstays of its operation.

“We are seen as a Russian company because our suppliers are local,” Vucinic said. “About 70 percent of our business is cash because we don’t have any middlemen. Products go straight from our trucks to the stores.”

A HOST OF FLAVORS

> Kvass: Coke’s take on a local Russian fermented beverage

> Rich: A pureed fruit drink that has proven wildly successful in trials

> BonAqua: A bottled water that comes in assorted flavors

A THIRSTIER NATION

Annual per-capita consumption of Coca-Cola beverage products (8-fluid oz. units)

…………1987 ..1997 ..2007

Russia ……..7 ….21 ….69

Worldwide ….37 ….62 ….83

U.S……….265….390….423

Source: Coca-Cola Co.