WBD merges beverage businesses to cut costs
announced it will merge its juice and water businesses as part of a
restructuring plan devised to stop rising transport and raw
materials costs from damaging profits, reports Chris Mercer.
The merger will take effect from 1 March this year and the company said this would help it to "significantly reduce administrative, selling and distribution expenses, as well as benefit from economies of scale in terms of transportation and negotiating power with distributors and supermarkets".
The problem for Wimm-Bill-Dann (WBD) is that its water business, which made up less than 0.5 per cent of sales in the first nine months of 2004, can no longer be tolerated as a separate enterprise even though it has more than doubled sales in the last year.
WBD suffered a 10 per cent drop in net profits to $18.8 million for the first nine months of 2004 after coming under pressure from rising raw milk prices as well as increased transport, personnel and marketing costs. Group sales remained healthy, posting a 27 per cent rise to $869 million.
Now, the company's juice/water merger allows WBD to offset these problems whilst also maintaining its interest in Russia's bottled water sector, the area of the Russian soft drinks market likely to show the most dynamic growth over the next few years, according to market research group Euromonitor.
Juice and water also fit together well in a Russian market moving increasingly towards non-carbonated soft drinks as more consumers become conscious of healthy living and begin to turn away from sweetened and artificially-flavoured carbonated drinks.
The fact that WBD has faith in its water business is shown by the fact that the new juice/water business will be led by the current head of the firm's water sector, Jay Yadegar.
Alexander Malutin, the present head of WBD's juice business will move on to lead the company's baby food segment, which has blossomed over the last 18 months to make up 13 per cent of WBD's overall dairy sales. Malutin has been charged with increasing the baby food product range.
Even WBD's dairy business, by far the biggest and making up around three-quarters of the group's total sales, has not escaped restructuring as a result of cost pressures.
The firm's Central Moscow division has been disbanded, bringing this area under direct control from WBD's dairy section head office. Six regional dairy offices remain: the North-West, the South, Ukraine, Siberia, Urals and Central Asia - each with their own management and marketing teams.
