Why this coffee giant is staying put in Russia

Amsterdam-based JDE Peet’s is one of the few large Western companies to openly discuss doing business in Russia. (File Photo: AFP)
Amsterdam-based JDE Peet’s is one of the few large Western companies to openly discuss doing business in Russia. (File Photo: AFP)

Summary

  • Owner of Peet’s Coffee is renaming a major brand, rejiggering supply chains and hitting back at those who say it should exit country

The owner of Peet’s Coffee is making a series of changes to its business to keep selling in Russia, offering a rare example of how some companies are charting a new normal as the Ukraine war rages on.

JDE Peet’s is renaming a major coffee brand in an effort to protect its global reputation, rejiggering supply chains and hitting back at those who say it should exit the country.

Many Western companies quit Russia after its full-scale invasion of Ukraine last year. Some cited moral concerns, while others pointed to the cost and complexity of dealing with international sanctions. The coffee giant’s moves show how some of those that have stayed are shifting from being in wait and see mode to working actively to shape a longer-term future in Russia.

“It’s most likely going to be an enduring war, which means we have to take a more enduring solution," said Fabien Simon, JDE Peet’s chief executive officer, in an interview.

Amsterdam-based JDE Peet’s is one of the few large Western companies to openly discuss doing business in Russia. Many companies are tight-lipped, limiting what they say to short, prewritten statements. Executives say they fear asset seizures or other retaliation by the Russian government, or a backlash from shoppers.

Russia has long been a key market for JDE Peet’s, the world’s second-largest packaged-coffee maker after Nestlé, generating some 5% of its revenue before the war. The company, whose other brands include Douwe Egberts, Senseo and Tassimo, sells coffee and tea in grocery stores in Russia but doesn’t operate cafes there.

Simon gave three reasons why the company has no intention of leaving Russia.

First, he said coffee and tea are essential products—similar to bread, eggs or milk—in that they are affordable and “sustain health or life." Second, JDE Peet’s has 900 employees in Russia who he says would be unfairly punished if it left. And third, Simon said that if the company were to leave Russia, its brands and intellectual property would likely be seized and given to a third party.

“We might not have said what people wanted to hear at the beginning, but we are taking a very authentic and honest approach," Simon said. The business complies with all sanctions imposed on Russia because of the invasion, he added.

JDE Peet’s position on Russia has drawn criticism from some of its own employees, particularly those in Ukraine. Consumers in Ukraine, Poland, Romania and other countries have also objected to its decision to stay in Russia, Simon said.

Dutch lawmakers earlier this year demanded to know why JDE Peet’s was still selling in Russia, asking Simon at a parliamentary hearing why the company hadn’t followed Starbucks in exiting from the country. Simon said at the time that the U.S. chain’s drinks were more of a luxury item, unlike his company’s everyday packaged coffee.

JDE Peet’s has maintained a working relationship with the Russian authorities, he said. “Because we have been very transparent, it has removed a lot of unnecessary tensions," said Simon.

Last month Russia seized the local operations of the Danish beer maker Carlsberg and the French dairy giant Danone after both had indicated their plans to leave, setting up new hurdles for foreign companies looking to exit from the country or scale down their businesses there.

The Russian government didn’t respond to a request for comment about asset seizures.

Several consumer products companies have continued to sell what they say are essential products in Russia. Nestlé, for instance, sells coffee including the flagship brand Nescafé, infant formula and pet food in the country.

Simon’s priority now is ringfencing JDE Peet’s Russia business, partly to limit any reputational damage to its coffee and tea brands elsewhere.

For example, the company plans to remove its Jacobs brand, which is sold across Europe, from shelves in Russia by the end of the year. Instead, consumers will see a brand called Monarch.

Monarch will use similar green and gold colors, fonts and other signals to help shoppers associate it with Jacobs. It will be made at the same factory in St. Petersburg as the existing Jacobs brand.

“It’s not a risk-free change, but it’s close enough to the existing brand to ease navigation on the shelf for consumers," said Simon, adding that consumers on average spend five seconds standing in front of a supermarket shelf before reaching for a product.

Simon said the company had lost market share in Russia since it stopped advertising its international brands in the wake of the invasion, and that its position would likely erode further with the switch to Monarch.

Product innovations for the global Jacobs brand won’t be sent to Russia for Monarch, and the company will also stop selling some other international brands including Tassimo and Moccona in Russia, he said.

The company didn’t respond to requests for comment on whether it would keep selling other international brands such as Maxwell House in Russia or whether it has advertised its local brands in Russia since the invasion.

JDE Peet’s earlier this month said it had logged a goodwill impairment charge of 185 million euros, equivalent to about $201 million, related to the Jacobs change in Russia, and cut its overall profit forecast for the full year.

For the first half of this year, JDE Peet’s reported overall revenue of about €4 billion. Sales climbed 3.5% on an organic basis, which strips out the impact of currency movements and mergers and acquisitions, driven by higher selling prices as volumes declined. JDE Peet’s stock is down about 14% over the past 12 months.

The company didn’t disclose financial figures for its business in Russia, though data from the country’s federal tax agency showed it reported a 22% rise in revenue last year to 42.7 billion rubles, equivalent to about $452 million. Profit rose 73%, the Russian data showed.

JDE Peet’s was created in 2015 by the combination of Mondelez’s coffee business with D.E. Master Blenders 1753. It went public in 2020.

The company’s largest shareholder is an arm of the investment group JAB Holding that has a 59% stake. JAB’s other investments include Krispy Kreme, Keurig Dr Pepper, Pret A Manger and Panera Bread.

JDE Peet’s now plans to run its business in Russia as “local for local" as possible, said Simon. That means local managers will make operational and commercial decisions, decide advertising plans for local brands and choose which suppliers to use.

Work previously coordinated by executives at JDE Peet’s Amsterdam headquarters such as buying spare factory parts or packaging materials for Russia will now be done by the local team.

The company has also changed the routes it uses to bring in coffee beans and altered the IT equipment it buys for its Russia unit in the midst of constraints on what can be imported.

“It’s a painful process, but I think it is the right thing to do," Simon said.

Write to Saabira Chaudhuri at Saabira.Chaudhuri@wsj.com

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