Bidco prepares to fight Coca-Cola with Sh2bn plant

Businessman Vimal Shah has trained his guns on the lucrative soft drinks market with a Sh1.7 billion beverage plant that promises to upset the industry’s domination by multinationals such as Coca Cola and Del Monte.

Mr Shah says in regulatory filings that Bidco Oil, the family firm he runs, has secured a piece of land off the Thika-Garissa highway on which it plans to build a production and bottling facility for non-carbonated still drinks, carbonated soft drinks and water.

Bidco manufactures edible oils, cooking fats, soaps, baking powder, animal feeds and detergents.

Going into the soft drinks market means Mr Shah is ready to do battle with seasoned players such as Coca Cola, EABL, Pepsi, and Del Monte who have over the years cemented their positions locally with international backing.

Bidco’s entry into the soft drinks market also turns it into a competitor of local ready-to-drink juice makers such as Kevian Kenya (of Peek n’ Peel and Afia brands) and hundreds of water bottlers, including Crown Beverages (Keringet).

Mr Shah, who Forbes Africa magazine recently ranked as Africa’s 18th wealthiest man, said the decision to diversify into soft drinks market is informed by a “growing market demand.”

“The move is in line with our expansion plan to play in even more categories of fast-moving consumer goods other than those we are already in,” said Mr Shah.

“I will not comment in detail about the competition but let me just say that there are enough customers for all of us.”

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Bidco’s beverages factory will have two processing lines — each with a capacity to produce 24,000 bottles per hour. A separate plant will produce about 100 million plastic bottles per year.

The estimated annual production capacity of the soft drinks plant is 50 million litres to be split among the different product lines such as energy and sports drinks, smoothies (without and without milk), and non-carbonated soft drinks with fruit as well as carbonated soft drinks.

Other products are non-carbonated still drinks, iced tea and coffees as well as bottled water.

Coca-Cola is first on the list of several competitors that Bidco will come up against when its factory is up and running. Mr Shah says that will happen in two years upon receiving the necessary approvals.

Coca-Cola is Kenya’s biggest producer of carbonated drinks, followed by competitors such as PepsiCo, Mirinda Fruity and Mirinda Orange and Kuguru Foods (Softa).

Bidco will also do battle with Coca-Cola in the fresh juices market where the soft drinks giant is present with Minute Maid and in the bottled water market where it has Dasani.

Coca-Cola and its local shareholders have in the past three years made significant investments in the business, a pointer to the confidence they have in the market.

Data from the Kenya National Bureau of Statistics (KNBS) shows that production of soft drinks, including bottled water and carbonated drinks but excluding juices, hit 388,753 metric tonnes in the 11 months to November. This exceeded the 2012 full-year output by 8.1 per cent.

Euromonitor International, a US-based research firm, describes the outlook for the soft drinks market in Kenya as positive.

“The growing population, better economic prospects and rising disposable incomes will be the main drivers of growth,” it says.

These are the numbers that have enticed Bidco into joining an industry that is one of the oldest in Kenya.

The numbers have also prompted seasoned soft drinks makers such as Del Monte to increase their investments in the ready-to-drink juice market, resulting in a vicious price war on the retail front.

Del Monte is Wednesday expected to launch its search for investors to set up stand-alone branded shops through 10-year agreements.

The shops, to be built on half-acre pieces of land, will be located in Kitengela, Ngong, Ruiru by-pass, Maseno University, Nanyuki and Kilifi among other towns.

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The bottled water segment also has seasoned players such as Coca-Cola’s Dasani and Keringet, which is owned by international brewer SABMiller through its local subsidiary, Crown Beverages.

The brewer has in the past year invested Sh50 million in capacity enlargement to cope with rising demand.

Going into soft drinks takes Mr Shah into a territory where dominant players enjoy strong financial backing over and above global experience.

The market has proved a hard nut to crack for local entrepreneurs such as Peter Kuguru, who has more than 20 years’ experience in the soft drinks market battlefield.  

Mr Kuguru, through Kuguru Foods, a company he started in 1992, has, through soda, water and fruit juice tried to wrestle control of the industry away from multinationals with little success.

To start off, Bidco has secured a Sh1.7 billion loan for the beverage plant from local banks. The entry into the soft drinks market is part of a bigger plan to expand the company by 400 per cent in four years.

This growth is to be achieved through a Sh4 billion expansion that is supported by big lenders such as International Finance Corporation (IFC) which has agreed to lend Bidco another Sh2 billion.

Bidco, whose annual revenue stands at about Sh21 billion, is meant to receive a syndicated loan of up to Sh1.17 billion, according to disclosure notes released by the multilateral lender.

Mr Shah did not disclose whether the money is going into construction of the beverage plant.

Bidco has factories in neighbouring Uganda, Tanzania and Rwanda from where the firm exports its products to 14 African markets.

During last month’s Reuters Africa Investment Summit, Mr Shah revealed that Bidco plans to diversify into food and hygiene products like toothpaste.

This means the beverage plant is just the first of several factories in the pipeline.