Bottler confronts plastic shortage and high inflation

Coca-Cola has been importing its Dasani water brand from Tanzania for the last three months to supplement its locally produced supply.

Its plastics production line capacity at Nairobi Bottlers—which supplies the entire country — had been stretched to capacity, failing to meet growing demand.

The Business Daily caught up with Patrick Pech, the country manager for Coca-Cola, after he announced investment in a new production line that more than doubled the firm’s capacity.

What is the size of the new plant you commissioned?

The new line started production two weeks ago and has a capacity of seven million cases annually.

This extra capacity now brings our total to 12 million cases annually. We initially could produce around five million cases.

The plant is already working but the official commissioning is expected on June 14.

What was the capital investment in the project?

It cost us approximately $15 million. But this is part of a larger $50 million capital investment that we are injecting into Nairobi Bottlers this financial year.

We intend to double that amount over the next three years to keep pace with the market which is demanding more plastic-bottled commodities—water, soda and juice.

You have been importing Dasani water from Tanzania. What is the reason behind this yet you have several bottling affiliates in the country?

Last year alone, our PET sales grew by around 30 per cent.

This led to constrains since we could not supply the market as intended for both plastic-bottled soda and water.

In Kenya, we are the only bottler that produces PET and then distributes to the other six bottling franchises under Coca-Cola in the country.

When the full effect of the supply constrains hit us, we dedicated the line to soda production and resorted to importing Dasani from Nyanza Bottling, a sister plant based in Mwanza, Tanzania.

How bad was the shortage?

The crisis started creeping in at the beginning of November last year when we were producing at maximum capacity and then it peaked in January this year.

The situation was so bad that we did not produce any water from our Nairobi plant for three months beginning the end of February. Despite the extra cost that comes with importation, we had to do it so as to maintain the product’s availability in the country.

We are still importing some of it but we will wean ourselves off once the plant is engaged fully next week.

With the new line, will you increase your supply to the region?

The main intention of this line is to supply Kenya which is Nairobi and the other six bottlers. This is a big task in itself and furthermore, there are capacity investments also taking place in Uganda, Tanzania and Ethiopia.

We have to find new synergies for these different investments but definitely we can play a temporary role in some of these countries if the need arises – just like Tanzania did.

A survey by the Kenya National Bureau of Statistics indicated last year that consumption of soda has more or less hit a plateau. Is this representative what is happening on the ground?

I started heading this company in November last year when inflation levels were quite high, severely affecting the purchasing power of our customers. This eroded the sales gains made in the first half of the year.

The situation remained this way well into the high season periods of Christmas and New Year.

When the market is performing, business managers will not give a long list of why it works, but when it is not working we have a long list of excuses.

There are many parameters that play a role in the consumption of soft drinks, but inflation has been our main problem.

Your top rival, Pepsi Cola, is expected to commission a Sh2.4 billion plant in Nairobi later in the year. SABMiller too are flexing their muscles in the region if the re-launch of their Keringet water brand is anything to go by. What is your immediate reaction to this?

I think the biggest commodity war in the world is still between Coca-Cola and Pepsi and somehow Kenya has managed to be the exception. Anything that brings competition and excitement in the sector especially in terms of quality of product is welcome.

Are we headed for a price war like that between telecom companies a couple of years back?

Bringing competition to the market is always good as it forces all the players to improve their way of doing business.

We are not interested in a price war and we will channel our energies into improving our efficiency in the production line and lower our costs.

Price wars destroy the market as happened with the telecoms where it ended up affecting the profitability of the entire sector.

Your consumers should therefore not expect any drop in pricing of your products in coming months?

Pricing is a question that can only be resolved between the consumer needs and raw material prices and should not be as a result of competition.

With the high inflation rates it has become increasingly difficult to maintain our prices especially for the half -litre bottle. In Kenya for instance, Sh50 is a key price point and we are determined to own it.

We will also not be going the direction of 330ml plastic bottles in the foreseeable future since we consider the 500ml plastic soda bottle more acceptable to consumers.

How are you faring in your soda and water business in terms of market share?

The bottled water sector is highly fragmented with over 100 players in it. While we are the market leader, we are not even close to claiming a dominant position with around 15 per cent and 20 per cent.

In the juice market, we are currently placed fourth which is not good enough. We hope that through the launch of new products such as Pulpy, we shall improve by around 10 per cent.

How is the market share spilt among the seven Coca-Cola franchise holders?

Nairobi Bottlers contributes roughly 50 per cent of Coca-Cola’s production volume in the country. There is a tough competition between Equator Bottlers, Coastal and Rift Valley Bottlers with each enjoying about 10 per cent each.