Falling consumer demand led soda manufacturers to cut back production in the first ten months of last year, latest economic data has showed.
The largest producer of soft drinks in the Kenyan market, Coca-Cola, attributed the drop in demand to consumer shift to fresh fruit juices and high inflation in the first half of 2012, which reduced disposable incomes.
The latest Kenya National Bureau of Statistics (KNBS) report shows production of soft drinks dropped to 472,005 metric tonnes in the first ten months of 2012 from 494,778 metric tonnes in the same period the previous year.
“This was (due to) high inflation in the first six months of 2012; many people were seriously affected by inflation forcing us to cut prices,” said Rocky Finley, country manager of Coca-Cola Sabco, the bottling company of Coca-Cola.
“There was also competition from juices and nectar which affected our sales, high inflation made us address consumer needs by rolling back prices,” added Mr Finley.
Key manufacturers of the ready-to-drink juices include Kevian Kenya which sells the Pick N Peel brand and Delmonte among other smaller players. Coca-Cola recently launched a local range of Minute Maid fruit juice to counter the rising competition for its turf.
KNBS does not currently capture the production trends for fruit juices.
The market leader also launched a sugar-less brand of soda called Coke Zero to counter the increasing consumer aversion to sugar-rich drinks.
The drop in soda production bucks the recent industry trend that had seen production grow consistently since 2006 from 230,750 tonnes to 472,005 tonnes in 2011, helping to attract new players into the sector.
Coca-Cola said its sales were hit by high inflation in the first six months of the year, hurting their overall ten months’ production.
Inflation in the first six months of the year remained in the double-digits ranging between 18 and 10 per cent as high food prices, electricity and transport reduced the appeal of consumers to secondary goods such as soft drinks.
Coca-Cola cut its prices from Sh25 for the 300ml soda to Sh23 in June 2012 to raise consumption of its soft drinks.
The bottler also said that growth in output had also been constrained in the first half of the year as their production capacity was limited due to an old facility and lack of enough water.
The company increased its production capacity in July 2012 with a Sh1.6 billion bottling plant that increased the Nairobi Bottler’s capacity from 24,000 bottles per hour to 52,000 bottles.
However, Mr Finley said Coca-Cola anticipates higher sales in the fourth quarter of 2012, which normally sees high demand caused by holiday celebrations.
The fall in the inflation rate in the second half of the year to less than five per cent is also expected to support sales in the sector.
Competition from new players also contributed to a reduction in output by local producers.
“Our imports, which have been increasing on shelves, are also forcing the established manufacturers to cut production,” said Butch Moldenhauer, the PepsiCo Kenya general manager.
Mr Moldenhauer had earlier said that un-authorised importers have been importing the brand, reducing the company’s sales and those of other manufacturers.
PepsiCo exited the Kenyan market in the 1970s for strategic reasons and made a re-entry in 2010, but has been relying on imports of its brands such as Pepsi Cola, Pepsi Diet, Mirinda, Evervess Soda Water and Seven Up.
The industry has received a boost from sustained economic growth in the last ten years that has increased consumers’ disposable incomes.