Romania: Soft drinks companies start brewing beer to reach higher profits

A decision by the Romaqua group, the largest domestic producer of mineral water, to expand its interests by building a brewery has not taken the soft drinks industry by surprise, as the industry is increasingly becoming familiar with companies producing both alcoholic and soft drinks, Ziarul Financiar commented on March 16.

"The soft drinks market is becoming ever more crowded and competitive, so expansion or a new beer business unit can hold the solution to this problem. Entering a new, yet relatively similar market is also a logical move: the economies of scale generate significant profits this way," explained Adinel Tudor, Senior Partner with Trout & Partners Consulting firm and a marketing specialist.

The European Food & Drinks group was the first domestic producer that branched out onto the beer market, after gaining a solid position on the segment of mineral water and other soft drinks segments. The company has invested over 200 million euros in the brewery of Draganesti, one of the group's main assets, to raise its present capacity to a level of 5 million hectolitres per year. The group entered the beer market in 2003, launching the Burger, Servus, Meister and Dracula brands, which are also distributed abroad.

The owners of the group say the brewery is worth 400 million euros, quoting an evaluation report drawn up by a financial institution.

In turn, Romaqua has announced investments exceeding 30 million euros over the next 2 years to build a brewery in Sebes. The production capacity will stand at 1 million hectolitres per year and the plant will hire around 220 people to begin with. After having gained the leading position on the mineral water market and launching the Giusto, Brifcor and Quick-Cola soft drinks brands in 2003, Romaqua's shareholders saw the company's entrance onto the beer market as a new challenge.

European Food&Drinks says it was the integrated production and the distribution network that enabled them to secure a solid position on the market, outrunning international companies operating in Romania in terms of turnover.

Large volumes of bottling and distribution capacities are vital when it comes to an efficient integration of new products, states Adinel Tudor.

As far as Romaqua is concerned, stakes are even higher, because, in parallel with the construction of the brewery, it also plans to develop its business on the segments of mineral water and juices, so that it will invest 5 million euros in its bottling facilities in Bucharest and Busteni this year.

The beer market, valued at over 1 billion euros, is dominated by 4 multinationals- Heineken, SAB Miller, Inbev, Carlsberg and 2 Romanian firms - European Drinks and Bere Mures. The other companies with mixed portfolios of beverages initially started in reverse, from producing beer or alcoholic drinks, to then developing soft drinks. The URBB group has entered the market with a niche product Orangina. Last year, Bere Mures finalised 3 million euros of investments in the retooling of a mineral water plant, while Murfatlar also made moves toward the soft drinks market.

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