SAN MIGUEL : BEER VS POWER

There are two items of business strategy news this year that I have been unable to reconcile in my own mind. One was the linking of Canada's Cott Corporation to a bid for Cadbury Schweppes Americas Beverages. Retailer labels and brands do not normally mix, but here the geographic focus seemed to be in conflict as well. The second is San Miguel's drive to relinquish its core strength of food and drink, to invest in the uncharted territory of power generation and other infrastructure sectors. Most companies would seek to extend such influential national positions into broader related portfolios or regional expansion. Yet San Miguel has sold off its main soft drinks interests and now, despite accounting for a huge share of Philippine beer sales, it plans to bottle out of that too. If there were a clear path to the power strategy, I might at least acknowledge a well thought out plan, but there doesn't seem to be one. A reported investment programme of US $780 million is modest enough for food and drink these days, let alone energy provision. I'd be delighted if anyone could enlighten me.

UKRAINE : COUNTRY TO WATCH

The smartest investors have been looking beyond the large population emerging BRIC economies of Brazil, Russia, India and China towards the lower profile second tier. Ukraine has been high on Zenith's list and is swiftly moving up other people's rankings too.

The fundamental reasons are :

• Geography - between central Europe and Russia.
• Population - 46 million, bigger than Spain and Poland.
• Growth - over 7% a year increase in economic output since 2000.
• Democracy, independence and opening outlook.

The dairy sector has seen two recent acquisitions:

• September 2006 - Danone buys Rodich for $10 million.
• April 2007 - Bel takes over Shostka cheese producer for estimated $60 million.

In beverages, activity has accelerated this year:

• April 2007 - Russia's Wimm-Bill-Dann announces interest in Ukrainian juice market.
• June 2007 - PepsiCo and PepsiAmericas acquire 80% of Sandora juice business for $542 million.
• June 2007 - Orangina Group purchases Rosìnka mineral water producer with sales of 30 million euros.

Buy now, while stocks last ?

CADBURY SCHWEPPES : UNFINISHED BUSINESS

However Americas Beverages is sold or demerged, it will be unfinished business. Cadbury Schweppes will leave its American operations in stronger shape than before. But whoever takes them on will still be number three to Coke and Pepsi, with relative weakness in some of the higher margin and faster growth sectors. The gaps will need filling. Moreover, the bigger brands cannot avoid the question of international potential. Schweppes is already owned by other companies in most countries, as is 7 UP. Snapple may have the widest opportunity. Dr Pepper and others could be good candidates for expansion too. There will also be unfinished business for the new confectionery based Cadbury plc, mainly because its Australian beverage activities will remain a strategic anomaly. All this is confusing and ironic. Growing brands at some point need to explore new territories. They tend to need larger companies to sustain them. Cadbury Schweppes was once just such a worldwide player, but it has progressively retrenched in beverages towards narrower country based priorities. This is most evidently demonstrated by the Schweppes brand itself, which will be divided between four geographies.

• Cadbury - Australia
• Americas Beverages - US, Canada, Mexico
• Orangina Group - Benelux, France, Iberia, Italy
• Coca-Cola - Rest of world

So success for the new Americas Beverages will mean taking some beverages beyond the Americas. And success for the Orangina Group will mean taking more beverages beyond Europe. But Coca-Cola has the widest interests and Australia cannot remain isolated forever. There are also relationship complications for other brands such as Oasis and Orangina. So the outlook for these lemonades will become cloudier before it becomes clearer.