Pepsi comeback stirs up battle of soft drink titans
A Coca-Cola processing plant. The market for soft drinks in Kenya is set for stiff competition following the re-entry of PepsiCo and SABMiller. Photo/REUTERS
Two international soft drinks manufacturing companies have set up local operations in a major shift tipped to shake up the industry currently in the tight grip of global giant Coca-Cola.
US multinational Pepsi Cola, and London based SABMiller are in the process of establishing a manufacturing presence in Nairobi even as market data points to a flattening market for soft drinks.
PepsiCo, which stopped bottling in Kenya under competitive pressure from Coca-Cola in the 1970s, is putting up a Sh2.4 billion plant off Thika and Baba Dogo roads while SABMiller has taken control of family owned Crown Foods, the bottlers of Keringet brand of drinking water.
PepsiCo has acquired 14 acres of land at Nairobi’s Ruaraka estate through SBC Kenya Ltd, a Franchise Bottler and Distributor of Pepsi products it bought in 2009, from where it will produce at least six of its brands.
“We have completed the excavation stage. We are now tendering after which we expect construction to start by April 15,” said Mr Butch Moldenhauer, the SBC Kenya general manager.
PepsiCo made a marketing re-entry into Kenya late last year relying on imports to serve the local market with its brands such as Pepsi Cola, Pepsi Diet, Mirinda, Evervess Soda Water and Seven Up. Importing the soft drinks is more expensive than having a local production unit.
“We have already recruited 120 Kenyans — engineers, architects and technicians — to handle the development phase. We expect to have about 300 employers on board once it is completed,” said Mr Moldenhauer.
SABMiller, mainly an alcoholic beverages maker whose Kenyan subsidiary Castle Brewing shut down in 2002, is reported to be targeting a re-launch of the upmarket Keringet bottled water besides going for a more mass market product.
PepsiCo will leverage on a market networking, including supply of coolers, it has been putting up since last year.
In the London and Johannesburg-listed SABMiller, Coke will be facing a familiar operator.
It has franchising deals with the Coca-Cola Company allowing it to bottle and distribute their brands like Fanta, Sprite, Coke and the Minute Maid range of juices.
The company also produces its own brands of Appletiser juices, sparkling mineral water, sport and energy drinks.
The Kenya toehold is seen as part of a process to revamp its newly acquired juice and bottled water arm whose current value is Sh934 million.
These revelations may further fuel speculation that the Molo-based Keringet plant may eventually diversify into other soft drinks and cheaper water products.
Kenya becomes the transnationals’ 12th African market, including its mother home of South Africa.
For Pepsi, the plant becomes the biggest statement by the firm - which used to be a major player in the Kenyan market before the 1970s where it lost its market share to Coca-Cola.
It also comes on the back of an emerging price war since December that has thrilled consumers.
A spot check by the Business Daily showed that a 500ml Coca-Cola plastic bottled soda was retailing at Sh45 down from Sh50 in quarter four of last year, a cut that may have been informed by a 25 per cent drop in Pepsi’s brand to Sh45.
The company has also dished out several fridges to retailers across the Nairobi city centre stocked with their products.
However, the company said it was not targeting Coca-Cola in its latest strategy arguing that the region’s rising middle class had created enough demand for its products and need for more choice.
“We have been testing the market since December last year with our range of brands where we have seen consumption grow eightfold in less than three months,” said Mr Moldenhauer. “It is the consumers who will decide who the winners or losers are after they taste our products”.
The company declined to divulge the volume of goods it has so far shipped into Kenya citing competition fears.
“We appreciate that there is a strong and well established competitor in the market but the response we have had so far is an indicator that the market is ready for our products,” said Mr Moldenhauer.
PepsiCo also has operations in Nigeria where it has operated for 50 years and has recently entered into Ghana and Tanzania from where most of the Kenyan market has been served.
The firm has also announced plans to build two plants in Zambia as it seeks to cut on logistics costs and gain space to wage a sustainable price war.
“We have been focusing mainly on the modern market that includes supermarket channels, some selected hotels, restaurants and clubs, as well as the petroleum outlets,” said Mr Moldenhauer. “But we intend to venture deep into the mass market in the course of the year.”
Coca-Cola has the largest variety of beverages, including Fanta, Sprite, and its flagship Coca-Cola.
The soft drinks business is capital intensive, a fact that has seen small challengers fail in their bid to wrest market share from the big players.
Kuguru Foods, which launched the Softa brand a few years ago to rival Coca-Cola’s Coke and Fanta drinks, has practically been overshadowed by the stiff competition from the cash-rich multinational.
Kevian Kenya Ltd that manufactures mainly juices is a new challenger that has introduced a cola brand in the market, priced at Sh38 in a move aimed at undercutting Coca-Cola and PepsiCo.
The beverage market has seen increased competition, drawing in beer manufacturer East African Breweries Ltd which launched several flavours of the non-alcoholic malt drink, Alvaro, in April 2008.
The entry of EABL rattled Coca-Cola, which saw the move as a threat to its share of the non-alcoholic drinks market.
In November 2008, the firm introduced its own malt-based drink, Novida, in a move industry watchers read as a reaction to EABL’s assault.
The soft drinks market is estimated at about 17 million litres annually and PepsiCo is upbeat that the sector has great potential for growth after shrugging off a heavy battering from the global economic crisis, high power costs and water rationing in most of 2009.
Though carbonated drinks dominate the market, the fastest growth is expected from malt drinks where only Coca Cola and EABL are present.
The renewed interest in the soft drinks market comes at a time when the manufacturing sector is experiencing lower margins due to increased competition and high operational costs, with players resorting to price wars to drive up sales.
