Juice plant adds fizz to Coca-Cola expansion plans

The battle for control of Kenya’s beverage market is set to intensify as Coca-Cola splurges Sh5 billion to protect its turf, which has come under renewed attack.

The soft drinks giant is faced with a fresh onslaught as top rival Pepsi Cola opens a Sh2.4 billion plant in Nairobi, setting the stage for a vicious price war between the companies.

Coca-Cola is also stepping up its diversification plan in Kenya with an upgrade of its juice making subsidiary, Beverage Services Kenya (BSK), putting it in a head to head battle with market leader Del Monte.

Mr Ahmet Bozer, the president of Coca-Cola’s EurAsia-Africa division, shared his thoughts with the Business Daily on the firm’s renewed interest in Africa, the expected price and market share wars and what Coca-Cola is doing to remain a market leader.

The following are excerpts from the interview:

Do you see this recent activity by new entrants in the market affecting your market share?

Our business is robust in Kenya and the region and we are focused on the long-term in every market we serve on the continent.

In 2010, we gained volume and value share globally in total Non Alcoholic Ready to Drink (NARTD) beverages, driven by share gains in both sparkling and still beverages.

We attribute this growth to targeted consumer marketing at the points of sale, and to our commitment to offer beverages tailored to specific markets and consumer needs around the world.

The future is unpredictable, and we may experience headwinds along the way. However, we believe there is no better consumer business to be in than the NARTD business.

What is your strategy in this increasingly competitive environment?

The non-alcoholic beverage space across the world, including East & Central Africa region is highly competitive and all markets are contested by both local as well as international players.

We continue to see increased competition across all categories, from sparkling beverages, to juice, energy and water, in all the markets in which we operate.

Competition is good for our business and we have many competitors but as long as we keep a deep engagement with consumers, a mutual respect and trust with our bottling partners, a great relationship with our retailers, a commitment – full system commitment – to sustainability; and a deep passion for what lies ahead our business will be in a very competitive position.
I can assure you that no one speaks the language of refreshment better than we do.

You have already lowered your prices for some of your key products. Do you see further cuts given that competitors look set to use prices as the key competitive strategy to get a share of the market?

Our pricing strategy aims at ensuring affordability of our brands. Several factors go into building a company’s competitive advantage – not just price cuts – and we believe that we are well placed to maintain our leadership role in the non-alcoholic beverage industry in this market.

The government is unlikely to review its taxation on the industry downwards and if the drop in exchequer revenue targets is anything to go by, then this will only go up. How does this look for your margins especially at this time when the costs of production are on the rise?

As I have noted, our pricing strategy has to ensure the affordability of our brands, and it is our intent to always offer value to our consumers, while at the same time, managing our business cost structures.

We have seen increased activity by multinationals such as Coca-Cola in emerging economies like Kenya. Is this linked to tough market conditions in developed markets?

We see tremendous growth potential for Africa and particularly Kenya.

Its steady rate of economic growth, well-educated population and efforts by the Government in reform and infrastructure upgrade over the last six years has given us confidence and optimism about doing business here.

Evidence of this view is supported by recent operational changes with the Nairobi regional headquarters now responsible for a total of 39 countries – an increase from the 27 countries it covered previously – adding Nigeria and French West Africa to its existing portfolio of East and Central Africa markets.

Is the region’s soaring population a factor for the rising multinational investments?

Absolutely, demographic and economic trends in the region are fuelling investment – both from Coca-Cola and other companies. According to the Ministry of Youth Affairs and Sports, approximately 70 per cent of the population in Kenya is under the age of 30.

This, coupled with other factors such as increasing discretionary income and a rising middle-class, has alerted international companies to the future and expansive growth potential of both the region and the continent, in general.

What is your investment plan for Kenya in the coming years? How much do you plan to spend, where and when?

Over the next three years, we plan to invest $62 million (Sh5.2 billion) in Kenya, and this is for the long-term.

The investments fall into several areas including the modernisation of equipment and expanding existing capacity in order to meet the ever-growing consumer need.

We also have a plan to increase our presence in juice and this investment will ensure that we are well-equipped to manage our growing business in this country.

Why is Coca-Cola making a big bet on the juice market where brands such as Del Monte and Kevian have built huge brand loyalty?

The Kenyan soft drinks market is currently experiencing a huge evolution, bringing increased focus on juices and malt-based soft drinks.

There is a steady increase in consumption of fruit and vegetable juices in Kenya with analysts estimating a volume growth of 3 per cent annually.

This is the reason we are revamping the Beverage Services Kenya (BSK) plant in Nairobi and turning it into the competitive hub for juice manufacturing. 

How do you expect to circumvent the challenge of getting fruits to sustain operation throughout the year in a market where supply of the commodity is cyclical?

As part of its commitment towards developing the juice manufacturing sector in East Africa, Coca-Cola has announced an $11 million (Sh924 million) partnership with the Bill and Melinda Gates Foundation.

The partnership will give more than 35,000 mango and fruit farmers from the Rift Valley, Central and Mount Kenya, and Eastern Provinces, access to the Coca-Cola local supply chain for the first time. As a result, these farmers have the potential to see their farm incomes double by 2014.

You have recently diversified into bottled water which is already experiencing competition and is set for more as sugar companies enter this market segment. What is your strategy for this market?

Our consumers remain at the centre of everything we do. From research, we are aware that our consumers are looking for innovation through diverse and occasion-based product offerings.

We offer a wide variety of beverages in different pack sizes, to meet consumer needs and desires. With this variety, consumers can make sensible beverage choices compatible with their lifestyle.

Do you have plans to further diversify into any other product lines? If so which ones and by when?

For competitive reasons, we cannot discuss specifics of our strategy, consumers can rest assured that we will continue to provide an incredibly broad portfolio of brands.

We have developed a pipeline of innovative products and packaging, and we constantly aim at enhancing our company-wide capabilities of Consumer Marketing and commercial leadership.

We are positive about our business in Kenya in the long term, and we know that being in a competitive market such as this, we must always address these future priorities in what we would term as the spirit of “constructive discontentment”.

We are confident that we are well placed to maintain our leadership in this market.

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