Wrigley makes double breakthrough by acquiring Russian chocolate company
- January 23, 2007
||share purchase agreement signed, January 2007;
||A. Korkunov, no. 2 in Russiaâs premium-boxed chocolate market segment;
||Wm. Wrigley Jr. Company (USA), global no. 1 chewing gum producer;
||founders Andrey Korkunov and Sergey Lyapuntsov (Russia);
||brand value, growth rate, centre-of-store merchandising nationwide;
||timing, attractive valuation, upside of remaining 20% shareholding;
||this deal marks Wrigleyâs global entry into the chocolate confectionery market
Driven somewhat by Cadburyâs muscling into the chewing gum business, Wrigley began to diversify beyond chewing gum in the early 2000s, with its biggest milestone being the acquisition of most of Kraftâs sugar confectionery business in 2004. Itâs no surprise that Wrigley should go as far as chocolate confectionery, given its scale, but it is intriguing that they should choose a developing market, Russia, as their launch-pad.
This might mark a new trend for multinationals to choose fast-growing developing countries as âtest casesâ for brave new portfolio diversifications. The entry cost, in absolute terms, is after all relatively low in those markets, making potential failures less costly.
This seems quite a high valuation, for a niche one-country chocolate producer, even if the market is as exciting as Russiaâs. What are the drivers? Growth is one of them - with sales of $100 mln in 2006, A. Korkunov has doubled in size in under five years. Another might be the companyâs shelf-presence, which seems consistent with Wrigleyâs global concentration on improving marketplace execution.
It seems however that the main value is in the brand. In their press release Wrigley, citing external sources, says that A. Korkunov is a âtop tenâ brand in Russia, and the only native Russian brand with a consumer awareness level on a par with leading global consumer goods brands.
Glenboden, a believer in âlocal heroesâ, applauds major investments in local brands. We know that Russians donât like to be compared with their former satellites, but in assessing A. Korkunov, Wrigley might well been influenced by the story of the âWedelâ chocolate brand in Poland.
Owned by Wrigley's arch-rival Cadbury, Wedel is consistently ranked as the most valuable domestic food brand in Poland. That brand on its own was worth > âŹ 150 mln in 2006, according to the ranking of record in that country (Rzeczpospolita).
What is different here, perhaps surprising, is that the A. Korkunov brand value has been created in a relatively very short time. Although the logo and image are inspired by 19th century motifs, the A. Korkunov company was only established in 1999, a fact that never fails to impress people who visit Moscow and sample the companyâs fine chocolates.
If thatâs how fast things happen in Russia, then it must indeed be a very exciting place to work.
A niche focus on premium-boxed chocolates is surely not where Wrigley intends A. Korkunovâs mandate to end. Historically, Wrigley has never been positioned in gifts or âsharing at homeâ or anything like that. So, one can assume that this brand is the âplatformâ for a major portfolio development strategy for Wrigley in Russia.