Coca-Cola hit as soda sales fall for first time in four years

The production of soft drinks in the half to June dropped for the first time in four years in what look set to hurt the earnings of producers like Coca-Cola.

Data from Kenya National Bureau of Statistics (KNBS) shows that the production of soft drinks dropped from 189.7 million litres to 187.9 litres same period last year.

This is the first drop since 2008 when a weak economy and disruptions brought home by the bloody post-election violence hurt sales.

The flat market will usher in a vicious battle for control of market shares as PepsiCo prepares to cut the dominance of Coca Cola in Kenya’s soda market.

“We had hoped for better growth this year, so the flatness in the data is certainly below our expectations,” said Coca Cola in a statement to the Business Daily.

The beverage giant attributed the flat sales to the high inflation that gripped Kenya in the first half of the year and supply disruptions attributed to poor weather.

Expensive energy, transport and food kept inflation in the double digit zone in the first half of the year ranging from 18.3 per cent to 10.03 per cent in the six months.

This reduced household’s purchasing power as basic items like food consumed the bulk of workers income—leaving little money in their pockets to consume none—essential items like soda, airtime and beer.

But inflation has dropped to single digit zone in July and fell further in August to 6.09 per cent from the previous month’s 7.74 per cent.

“We are encouraged by the gradual reduction in inflation due to policy interventions by the monetary authorities,” says Coca Cola.

“This, coupled with the many initiatives that different industry players are implementing such as price reductions, consumer promotions, and innovation in new beverage products, make us optimistic about the outlook of the industry for the balance of the year.”

International soft drinks manufacturer Pepsi Cola has started recruiting middle level employees in readiness for the commissioning of its Sh2.4 billion Kenyan plant this year.

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.

Its comeback with a Sh2.4 billion factory to be located in Nairobi’s Ruaraka estate is expected to shake up the soft drinks industry, currently in the tight grip of global giant Coca-Cola.

Besides direct competition, Coca-Cola soda products is also facing stiff competition from the ready-to-drink juice market—where it’s also racing to cut the dominance of Del Monte with its Minute Maid brand.

Kenya’s growing middle-class provides a ready market for juice as it increasingly seeks alternative to carbonated soft drinks for health reasons.

Health risks

“With strong media campaigns promoting health awareness, consumers have become more health-conscious when selecting soft drinks,” says research firm Euromonitor International on its outlook of Kenya’s beverage market.

“Over time, this is forecast to impact volume sales of carbonates as more consumers become increasingly aware of the health risks of these products and their link with obesity.”

This outlook has prompted heavy investments in the juice market as operators led by Del Monte up production to capture this new demand.