PepsiCo, Mars see business boom in Russia after staying behind

LONDON – Mondelez, Mars and PepsiCo had roaring sales in Russia in 2022, underscoring the strength of the Russian consumer more than a year after

President Vladimir Putin invaded Ukraine.

Sales for Mondelez Rus, which sells Jubilee biscuits and Alpen Gold chocolate, rose 38 per cent in 2022 to 92 billion roubles (S$1.36 billion) under local accounting standards, according to a recent filing with Russia’s tax authority.

The Cadbury chocolate maker ended up more than doubling its overall profit compared with 2021. 

Profitability rose thanks to pricing, volume growth and the suspension of advertising, Mondelez said in its annual report, adding that Russia accounted for 4 per cent of its consolidated revenue in 2022.

Mars booked a 14 per cent increase in sales to 177 billion roubles in 2022 while profit rose 58 per cent to 27 billion roubles. PepsiCo’s revenue rose 16 per cent in Russia and profits quadrupled.

There are restrictions on the transfer of funds to and from Russia, Mondelez and Pepsi said.

Large Russian companies, including these consumer units, are also expected to be hit by a windfall tax of a 10 per cent on the difference in profits in 2021-2022 over 2018-2019. 

‘Essential’ products 

The US groups stayed in Russia as they are not sanctioned businesses, but all three said they would sell only “essential” products, even as some other businesses pulled out amid outrage at Mr Putin’s war in Ukraine.

PepsiCo chief executive Ramon Laguarta said in September

the company was suspending the sale of international brands like 7Up and Pepsi.

The US group’s arm in Russia sells crisps, soft drinks, milk, dairy and baby food as well as local products like kvass, a fermented drink made from rye bread.

Companies that stayed may have benefited from rivals leaving the market.

“In any crisis, you will have winners,” said S&P Global Market Intelligence Russia analyst Lilit Gevorgyan.  

“There’s no dramatic change in consumer spending. Yes, there’s a downturn, but we’re not seeing a Covid-19-style collapse,” she added. 

Consumer giants have said they are scaling back their businesses in Russia, but few large brands in the global food and drink sector actually disappeared.

Coca-Cola, for example, did leave, but its products can still be imported via third countries and copycat Russian branded soft drinks also sprang up to meet demand.

A tight labour market and moderating pace of inflation is supporting consumer demand, said senior economist Heli Simola at the Bank of Finland Institute for Emerging Economies.

The Bank of Russia sees the economy growing as much as 2 per cent in 2023 and to reach pre-war levels by the end of 2024 as the impact of sanctions fades. 

Still, Mondelez’s bumper sales surge is starting to recede.

The US food maker said it is now selling significantly fewer products in Russia in 2023 and volumes have declined double-digits since January.

In June, Mondelez said it had scaled down its activities, discontinued fresh capital investments, new product launches and advertising media spending in Russia. 

Mars is also minimising its operations in Russia, according to Mr Andrew Clarke, global president of Mars Wrigley, without giving further details. PepsiCo declined to comment.

Consumer goods companies that continue to operate in Russia are facing boycotts and campaigns in some western markets.

The longer the war continues and more civilians die, the greater the pressure from consumers on businesses to cease operations in Russia.

Pernod Ricard stopped all spirits exports to Russia only weeks after saying it would resume shipments after facing boycott calls in Sweden, the home of Absolut vodka.

British ice cream to soap conglomerate Unilever was targeted on Monday by campaign group Ukraine Solidarity Project, which says any taxes paid to the Russian government helps fund the war. 

Unilever’s Russia revenue dipped 1 per cent to 85 billion roubles, but profit almost doubled to nine billion roubles in 2022, according to a local filing.

The company said the Russia unit is separated from the rest of the business and no profit leaves the country.

A spokesman said actions Unilever took to reduce its business in Russia resulted in a volume decline of around 15 per cent in 2022. 

Companies with assets in Russia need local approval to sell them and face a mandatory contribution to the state budget, even if they offload them for free. BLOOMBERG