Author: Richard Woodard
October 8th 2007 - Date published
Not so many years ago, few people had even heard of the US-listed Central European Distribution Corporation (CEDC). But now, after a series of smart acquisitions in Poland, Hungary and Russia under president William Carey, the company with the least sexy name in the drinks industry is uniquely placed to exploit growth in eastern Europe and Russia.
Core market consolidation and V&S
Thanks to a spate of producer and distributor acquisitions – most famously Polmos Bialystok and Bols vodka in 2005 – CEDC is Poland's biggest spirits producer, distributor and importer. In Hungary, it is similarly the country's biggest distributor and importer, with owned brands Royal vodka and Bols ranked number one and three respectively in the market.
With growth in Hungary running at 21% in the second quarter of 2007, CEDC president William Carey is satisfied with the company's current trading position – but insists it can be improved in both markets.
“We continue to look for interesting takeover opportunities, both in distribution as well as in production,” he says of Poland. “As far as the latter is concerned, we will be looking at the possibility of acquiring V&S Luksusowa if it is offered for sale next year.”
While most of the drinks industry hungrily eyes the prize of Absolut, CEDC is keener to pick the bones likely to be left by the multi-nationals. Assuming, as seems likely, that Luksusowa is an unwanted part of the V&S empire, CEDC would be especially well-placed to pick it up. What is more, its distribution network across central and eastern Europe is likely to drive growth far faster than was ever likely when the brand languished in the shadow of Absolut.
Parliament opens door to Russia
The CEDC strategy entered a new phase earlier this year with the announcement of its planned acquisition of a controlling interest in Russia's Parliament vodka. Still to be completed, the deal would bring a brand with projected 2007 sales of 2.6m cases, plus a distribution network including 200-plus sales staff.
Carey is clear about the potential of Russia, with annual volumes of some 195 m cases on the official market alone in 2006 according to Euromonitor International. Its very fragmentation – Parliament has about 0.7% of the total vodka market in 2005, yet according to CEDC leads its sub-premium segment – affords great opportunities for those who enter it at the right stage.
“The Russian market will come through a very big consolidation within the next ten years,” predicts Carey, “so we find it important to be on this market at this time. The other reasons why the Russian market is so attractive are much lower excise tax rates and, as a consequence, higher margins.”
From here, Carey believes CEDC will benefit from its experience in Poland in particular. Similarly, all market segments in Russia, except economy, are experiencing growth. And, again as in Poland, using the Parliament distribution system as a platform to lure in third-party brands is a top priority for the company.
However, CEDC's ambitions are not confined to Russia; the company has indicated its interest in the Ukrainian market which, for vodka at least, is at a far more advanced stage of consolidation. So far, at least, Carey is coy about CEDC's intentions here. “We are still in the process of analyzing the market and looking for potential partners or companies to acquire,” he says. “However, it is too early at the moment to talk about any precise details.”
The future: vodka and vodka's heartlands
CEDC has a clear regional strategy, focused on ownership of vodka brands and a broader-based distribution network – and it's a strategy which is set to continue with expansion into Russia and Ukraine.
But one aspect of the company's long-term planning is global: vodka production. “In central and eastern Europe we are already the number one vodka producer,” says Carey. “We are also the fourth biggest vodka producer in the world. Our long-term goal is to be the number one vodka producer globally.
“The main areas of our expansion will remain Russia and Ukraine, as these are among the biggest vodka markets in the world. We also want to be the leading vodka producer in terms of production costs. Therefore we are finishing the construction of two rectification plants – one in Bialystok and one in Oborniki Wielkopolskie – which will have sufficient capacities to meet the whole CEDC Group demand for spirit.”
The company does look beyond the immediate confines of the central and eastern European regions, with Zubrówka vodka among the leading premium brands in Japan, France and the UK, and also recently launching in the US under new packaging.
But Carey gives a strong impression that the core strategy remains centred on Poland, Hungary, Russia and Ukraine, plus the surrounding markets. There its twin-track strategy of vodka ownership and third-party distribution has put it in an enviable position to exploit some of the fastest-growing drinks markets in the world.
Link to Euromonitor webpage: Alcoholic Drinks