American MNCs Record Significant Profits in Russia in 2022
Profits surge as US companies who stayed in Russia benefit from their competitors leaving
The revenues of the American companies remaining in Russia, including PepsiCo, Mars and Mondelez increased significantly in 2022, according to Bloomberg.
Examples include the revenue of the Russian division of Mondelez, which is most widely known by the Alpen Gold chocolate brand, Cadburys, and Jubilee biscuits which grew by 38% in 2022 to reach ₽92 billion (US$1.01 billion). As a result, the company’s net profit doubled compared to 2021.
At the Russian subsidiary of Mars, which sells Bounty chocolate and Pedigree dog food, revenues increased by 14% compared to 2021, and achieved revenues of ₽177 billion (US$1.95 billion) while net profit increased by 58% and amounted to ₽27 billion (US$300 million).
PepsiCo’s revenue in Russia increased by 16%, with their Russian net profit increasing four times. This meant that the Russian market as part of PepsiCo’s global net revenue amounted to 5%.
These American businesses stayed in Russia as they are not sanctioned businesses but all three said they would only sell “essential” products. PepsiCo CEO Ramon Laguarta said in September the company was suspending the sale of international brands like 7Up and Pepsi. However, it also sells chips, soda, milk, dairy and baby food as well as local products like its bottled Kvas, a popular non-alcoholic dark beverage made from bread.
Then there is Unilever. Their Russian products include cosmetics brands such as Dove, Camay, Black Pearl, Clean Line, Velvet Hands, One Hundred Beauty Recipes, Clear, Timotei, TIGI hair care products, Ax, Rexona deodorants and ” Clean Line “, oral care products” Forest Balm “and” 32 “, cleaning and disinfecting agents for the house Cif, Domestos and Glorix.
Unilever’s Russian revenue dipped 1% to ₽85 billion (US$960 million) but profit almost doubled to ₽9 billion (US$100 million) last year, according to their local tax filing. The company said the Russia unit is separated from the rest of the business and no profit leaves the country.
There are restrictions on the transfer of funds to and from Russia. Russian based MNCs are subject to a one-off windfall tax of a 10% on the difference in profits in 2021-2022 over 2018-2019. However, keeping the money in Russia avoids this and allows for profits accumulation to fund potential additional expansion plans.
Lilit Gevorgyan, Russia analyst at S&P Global Market Intelligence, stated that “Companies that stayed in Russia have benefited from rivals leaving the market. In any crisis, you will have winners. There has been no dramatic change in Russian consumer spending.”
Bloomberg cited changes in pricing policy, growth in sales volumes due to the departure of competitors, as well as a reduction in advertising costs in Russia as the main reasons for the growth.
Last month, Sky News correspondent Diana Magney noted that numerous Western business continues to operate in Russia, despite sanctions being imposed. She said the Russian economy is coping with the sanctions by opening outlets with Russian brand names that are likely to sell Russian-made goods.
Russian President Vladimir Putin said that Russia had never asked any business to leave the Russian market. According to him, a powerful incentive for businesses that left Russia was because they could not resist the pressure of their political elites.
Overall, Russian businesses reported a record year for revenues in 2022, while the real impact of Western sanctions upon Russia has caught out many analysts.
Foreign companies that did exit may well be asking why they followed pressure to do so, when all this has achieved are significant corporate losses in handling the withdrawal and the handing to their competitors considerable market share opportunities and profits at their expense.