Dive Brief:
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Coca-Cola said in a statement that it is suspending its business in Russia and will “continue to monitor and assess the situation as circumstances evolve.”
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PepsiCo is reportedly exploring options for its business in Russia, including writing off the value of the unit, according to The Wall Street Journal. CNBC said PepsiCo is suspending sales of its Pepsi-Cola, 7Up and Mirinda brands, along with capital investments and all advertising and promotional activities, but will keep selling some essential products, like milk, baby formula and baby food.
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As the fighting intensifies in Ukraine, food and beverage companies are under growing pressure to sell their operations in Russia or suspend activity there. Several businesses have already scaled back their activity.
Dive Insight:
For food and beverage companies desperate for growth, the Ukraine crisis has created challenges and potential headaches if they decide not to reduce their footprint.
In the case of PepsiCo, The Wall Street Journal noted that Russia, where the company has 20,000 employees and 24 plants and three R&D centers, is its third-largest market after the U.S. and Mexico with more than $3 billion in yearly sales. PepsiCo opened its first plant in the Soviet Union in 1974, the paper said, and further expanded its reach in subsequent years. Coca-Cola didn’t enter the country until more than a decade later, a major reason PepsiCo is a larger player in the country than its archrival.
A PepsiCo spokesperson did not respond to a request for comment. PepsiCo reportedly was reluctant to shut down its entire Russian unit because it employs thousands of people and many of its products, like milk and baby formula, are essential for consumers, The Wall Street Journal said.
“As a food and beverage company, now more than ever, we must stay true to the humanitarian aspect of our business,” Ramon Laguarta, PepsiCo’s CEO, wrote in a memo to employees viewed by CNBC.
Coca-Cola’s announcement that it was suspending its operations in Russia amounted to three short sentences in a press release. In a regulatory filing, Coca-Cola said Russia and Ukraine contributed approximately 1% to 2% of its consolidated net operating revenues and operating income.
U.S. companies that have continued to operate in Russia have drawn criticism, putting pressure on them to act. Last week, New York State Comptroller Thomas DiNapoli wrote PepsiCo, Mondelēz International and other corporations in the state pension fund’s portfolio, urging them to end or pause their business activity in Russia.
“Companies doing business in Russia need to seriously consider whether it’s worth the risk,” he said following the announcement by PepsiCo and other companies to suspend their operations. “As investors, we want assurances that our holdings are not in harm’s way. I commend the companies that are taking the right steps and suspending their operations in Russia.”
Corporations no doubt are struggling over assuming the loss of billions of dollars in sales if they pull out of Russia, or waiting it out but risk brand dilution or the permanent loss of sales going forward if they decide to maintain the status quo. The longer the war goes on, it appears more companies are making the decision to suspend operations.
Jeffrey Sonnenfeld, a professor at Yale, put together a list of public companies and organizations and what their status is in Russia. Kellogg and Kraft Heinz are among the companies that have suspended shipments and/or investments there. Starbucks and McDonald’s also announced Tuesday they are halting business activity following the country’s invasion of Ukraine.
Sonnenfeld’s table showed other food companies that remain include Mars, which has invested more than $2 billion in Russia; Mondelēz, which gets about 3.5% of its revenue, or about $1 billion, from the country; as well as Nestlé, which depends on it for 2.3% of its revenue, worth an estimated $1.7 billion.
