Soft Drinks in Azerbaijan

Executive Summary

Price Increases, High Demand, New Brands and Dynamic Growth in Soft Drinks

The overall performance of soft drinks was characterised by strong total volume and value growth in 2008. Almost all categories received a strong inflow of new brands. Soft drinks experienced unit price increases, causing strong retail value growth. A huge price increase was recorded in fruit/vegetable juice, affecting imported and local brands, and creating the demand for the newly launched Jale brand by Qabala Meyva Emali Muessisasi, a subsidiary of the local giant, Gilan Holding MMC. The new brand has an economy positioning, though it is a high quality offering available in a variety of packaging. Carbonates and bottled water were driven by the constant inflow of brands and fierce competition. Energy drinks welcomed new brands, however Pfanner and Red Bull remained the biggest-selling brands, with the latter investing heavily in advertising campaigns. Pfanner Ice Tea, Lipton Ice Tea and Nestea Ice Tea remain the leading brands in RTD tea. Traditional kisel brands regained its popularity with brand names that are active in herbs and spices (Pripravich, Cykoria), helping to revive powder concentrates.

Substantial Price Increases in Fruit/vegetable Juice

At the end of the review period, fruit/vegetable juice experienced substantial price increases in terms of imported and local brands. Within this environment, the newly-launched local Jale brand turned out to be cheaper than other brands. Jale immediately adhered to the main trends in packaging, and won the consumers’ preference through taste, and heavy investment in advertising campaigns through TV, billboards and posters. In order to survive the high price increase environment, two local giants, SAF and Sonti brands, merged to create Azeri Fruit Co, aiming to enter the international market with the new Azeri Fruit brand.

Financially and Structurally Strong Players Create Competitive Environment

Local brands with high sales shares exist in the leading categories, such as cola carbonates, fruit/vegetable juice and bottled water. With continuous industry development, there has been a redistribution of shares among these local brands. Additionally, in these categories, locals compete with Russian, Turkish, Georgian, Ukrainian, German, Belarussian, and Moldovan brands. Throughout the year, the brands of small manufacturers appear and then quickly disappear, unable to sustain their offerings in the strong competitive environment, created by financially and structurally stronger competitors. RTD tea and coffee, concentrates and energy drinks lack the presence of local brands, and established imported brands dominate and new entries struggle to gain the acceptance of consumers.

Consolidation of Existing Distribution Channels

By the end of the review period, the main distribution channels remained supermarkets discounters and independent small grocers. (Hypermarkets are not yet present in Azerbaijan.) The Sevimli Dad chain (“other” grocery retailers) also developed gradually. “Other” grocery retailers also includes small mobile refrigerators, mainly in parks, squares and streets, kiosks selling only carbonates, bottled water and fruit/vegetable juice in small packages and bottles. The role of forecourt retailers has gradually increased, however, the concept of purchasing soft drinks from petrol/gas/service stations is underdeveloped. Some bakeries, particularly newly opened ones, sell bottled water, Coca-Cola, Fanta, and Sprite. Bottled water was also distributed by direct selling, mainly through office delivery. Although supermarkets recorded a large increase in sales in most categories, independent small grocers continued to lead in terms of retail volume sales in 2008.

Volume and Value Sales To Continue Strong Growth

Over the forecast period, soft drinks in Azerbaijan will continue to register strong total volume and value sales growth. Carbonates, concentrates, and energy drinks will record faster total volume growth compared to the review period. Carbonates will see faster volume growth, mainly due to non-cola carbonates, while energy drinks’ appeal will be driven by the concept of healthy living. The predicted growth of liquid concentrates is attributable to the influence of the Lipton brand. Powder concentrates will be influenced by the sales of kisel brands which have been popular at least since Soviet times. However, carbonates, bottled water, and fruit/vegetable juice will remain the leading categories and price sensitivity will continue to be essential in terms of brand choice.

Fountain Sales

Trends

·         In Azerbaijan, fountain sales, mainly carbonates and fruit/vegetable juice, are available through bars, pubs, fast food outlets such as McDonald’s, and the Chudo Pechka bakery chain. Fountain sales started to be widely available from 1999. Since there are no convenience stores in Azerbaijan, all fountain sales are concentrated in foodservice outlets.

·         In the context of the review period, overall on-trade volume growth was slower in 2008, largely due to price increases and higher sales of soft drinks from off-trade outlets. Carbonates (mainly Coca-Cola, Fanta, Sprite) is the largest category in terms of fountain sales.

·         In fountain sales, the leading soft drinks companies in Azerbaijan are Chudo Pechka, which has seven outlets, and McDonald’s Azerbaijan LLC. McDonald’s has four outlets in Baku and a fifth one is planned on the outskirts of Baku. No fast food players are as deeply established in the country as McDonald’s, although attempts have been made by American Fast Food and Turkish Mudurnu Chicken from 1999. However, they failed to withstand the competition and disappeared. Besides these outlets, small fountain sales exist in bazaars, however, they are less trustworthy in terms of hygiene and water source, although the authorities control their activity from time to time and uncover violations.

·         Since all fountain sales establishments are concentrated in the capital city, Baku, the key consumers are mainly drawn from this area. McDonald’s offers outlets where family and friends can socialise and is a popular foodservice option. However, during the hot summer months, eat-in bakeries are frequented by consumers looking for a glass of cola, or non-cola carbonates with fruit syrup, which retails at around AZN0.20.

·         Carbonates (Coca-Cola, Fanta, Sprite) is expected to register the fastest on-volume growth through fountain sales over the forecast period, while fruit/vegetable juice and bottled water are expected to register slower volume growth compared to the review period. Chudo Pechka and McDonald’s and small- or medium-sized bakeries are expected to drive fountain sales. Since McDonald’s and Chudo Pechka are expanding, no major threats to forecast growth are expected. However, at the end of the review period, McDonald’s announced through the mass media that it is going to raise product prices, as it is unable to make a profit without price increases due to the inflation rate environment in Azerbaijan. Meanwhile, energy drinks, concentrates, RTD tea, and RTD coffee are very unlikely to appear as fountain sales, since these categories are still not widely developed through the off-trade channel.