Is PepsiCo's purchase of Russian dairy firm all it's cracked up to be?

Is PepsiCo's purchase of Russian dairy firm all it's cracked up to be?

Former Communist country a key global market but doing business there is not easy.

According to Nutrition Business Journal research, Russia is one of the fastest-growing markets in the global nutrition industry—hence, the rising number of companies swooping in to do business in the former Communist market.

PepsiCo, the world’s second-largest soft drink company, made its interest in Russia well known last week with its move to acquire a 66 percent stake in Wimm-Bill-Dann Dairy and Juice Co. for $3.8 billion. Wimm-Bill-Dann is a leading player in Russia’s rapidly growing dairy market, and PepsiCo is looking for the purchase to give it a leg up in the dairy snacks space.

A mafia state?

PepsiCo’s purchase represents the largest ever acquisition of a Russian company by a U.S. firm. Yet, as Decision News Media’s Guy Montague-Jones argues, the move does not come without risks.

“One particularly ominous concern is corruption,” Montague-Jones writes. “The WikiLeaks revelation last week that U.S. diplomatic cables labeled Russia a virtual 'mafia state' is hardly reassuring for international business. Transparency International gives an equally damming verdict, ranking Russia 154 out of 178 in the 2010 Corruption Perceptions Index.”

As NBJ noted in its 2010 Global Nutrition Industry Report, companies must go into Russia with both eyes open for the very reasons Montague-Jones outlines. “Although the market is clearly robust, and it is easier to do business there than ever before, barriers and many peculiarities that can be seen only as a hangover from the Communist days are still in existence,” NBJ writes.

One example is Russia's regulatory environment, which favors local companies at the expense of those trying to export to the country. Such an environment makes PepsiCo’s move to acquire a well-known and established Russian beverage player appear to be a smart move.

Still, some question whether PepsiCo paid too high a price for its stake in Wimm-Bill-Dann and whether the company will be able to really compete in the dairy snacks space.

Read Montague-Jones’ op-ed piece on the deal.

Check out NBJ’s 2010 Global Nutrition Industry Report for a look at other promising food and beverage markets. 

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