Kuguru reveals why he threw in the towel on Softa

Business tycoon Peter Kuguru recently put his 20-year-old Softa beverages company up for sale, marking the end of an era in which a Kenyan firm took global giant Coca-Cola head-on.

Mr Kuguru announced his Softa Bottling Company was exiting the market due to financial difficulties occasioned by failure to secure a joint venture partner.

The bottler’s products, including Softa soda, predominantly found acceptance among low-income consumers during its two-decade existence.

In an interview with the Business Daily, Mr Kuguru on the decision gave a brutally honest assessment of his company’s downfall from an emerging power in the industry.

Why did you have to take this decision?

We have been manufacturing Softa in the past 20 years. We started Softa in 1997. We entered the market against Coca-Cola who were the only other player in the carbonated beverage market.

We were able to penetrate the market. By 2004 we had captured 10 per cent of the carbonated beverage market. By 2007 we commanded about 70 to 80 per cent market share in areas within 200km radius of Nairobi, including Embu, Meru, Muranga, Nyeri, Kajiado, Nyahururu, and Machakos.

We had over 10,000 workers, both in the factory and in the market. Just to demonstrate; we had about 1,000 container depots and each container depot was employing 12 people — that is 10 workers, one lifter and one manager. In the factory we had about 200 people.

When did the rain start beating you?

In the 2007/2008 post-election violence. Everything changed and our business faced a lot of wrath from political activists.

After that the government which took over started removing our containers from the roadside. So we lost a lot of the marketing channels which we had built. It became a struggle.

Our competitors now took advantage and increased attacks on us. They had been doing it from our inception through various means, causing us to incur heavy costs in distribution and marketing.

Which are some of the unfair trade practices you refer to?

Their strong establishment in the market is a challenge. If the other competitor is blocking another player from flourishing in the market through unfair means like breaking our bottles and paying off distributors not to stock our products it means that it is a serious crime.

Another unfair trade practice was breaking our billboards. We would set them up and the next day they would not be there. Distributors would also be coerced not to stock our products.

Have you ever launched complaints to the government on the unfair trade practices?

I launched them at every imaginable high level. I took them to former President Moi, former President Kibaki and other officials. I even provided proof to the former head of public service, Richard Leakey.

It is something we had done all along until we saw the government had turned a blind eye and deaf ear to this. Some of the players supporting multinationals are local and some are in government.

But did you really have a chance against a multinational?

The problem we faced is that the government did not wish to intervene to control the unfair trade practices. Local people are disadvantaged here in the competition against a multinational.

You are competing against investors with cheap foreign money. Investors in Europe or America can access loans with rates of up to two per cent.

Until the decision to cap rates, here you would get loans at rates of up to 20 per cent. We have been paying heavily for borrowing money for business. The government also did not support us with tax holidays. Cost of power, fuel, transport and inputs has been a challenge.

What next after the announcement to invite buyers or joint venture partners?

This is a local product; employing people, paying taxes, supporting Vision 2030. And the government wants more industries. We are in a position to export into the region, including Somalia, Sudan and Tanzania.

At maximum production we were exporting to the Middle East and even Britain, bringing in foreign exchange. So the government should not allow Softa to go down.

They should inject money to allow us to boost our marketing capacity, so that wananchi can enjoy a local product that is very good and also the pride of our industry instead of relying on these foreign industries.

We should also be supported to create jobs for our people in line with the Vision 2030. I want to challenge the government to bring us to a roundtable whether through the Treasury or the Ministry of Trade to look at ways to make this industry survive under the local people.

In India when the popular local drink called Thumbs Up was attacked heavily by multinationals India’s parliament passed a Bill that you cannot kill Thumbs Up.

The multinational was forced to stop destructive competition. As a result Thumbs Up is doing very well alongside the multinational. The same happened in France where parliament passed strong laws against unfair trade practices.

If Kenya had a strong anti-trust law similar to the one in such countries we would not be out of business. It is the same in the US where a business cannot unfairly put a competitor out of business.

If Softa goes out and it is bought by a multinational again it means there is no local participation in the carbonated drinks segment that is dominated by a multinational.

What are your options? How much are you seeking?

If the government can inject between Sh500 million and Sh1 billion we would be able to rebuild and basically support our marketing activities. We had advertised for a private player to inject that kind of money.

Such money should not be a grant but repayable. It should be a free loan. For a sellout, however, we are looking at bringing the business back. A serious player can come in and we consider their best proposal. We want a win-win situation. We have not set a figure for a sellout.

The government says it has done much to support local industry. Do you believe there is need for more to be done?

The government needs to encourage startups but protect growth so that you can get a lot of middle class in your industries.

If you start a small bank, a motor assembly industry you should not be killed by the bigger guys. What the government has done is reduce cost of business but we also need strong competition laws to protect that business.

How does it feel that you are contemplating closure even after a spirited bid to build the business?

It is painful to sell out but it is an option to give another person a chance to come in.

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