× Business BUSINESS MOTORING SHIPPING & LOGISTICS DR PESA FINANCIAL STANDARD Digital News Videos Health & Science Lifestyle Opinion Education Columnists Moi Cabinets Arts & Culture Fact Check Podcasts E-Paper Lifestyle & Entertainment Nairobian Entertainment Eve Woman Travelog TV Stations KTN Home KTN News BTV KTN Farmers TV Radio Stations Radio Maisha Spice FM Vybez Radio Enterprise VAS E-Learning Digger Classified Jobs Games Crosswords Sudoku The Standard Group Corporate Contact Us Rate Card Vacancies DCX O.M Portal Corporate Email RMS
×

Hard market for frizzy drinks

FINANCIAL STANDARD
By | April 17th 2012

By Kenneth Kwama

The region’s largest soft drink manufacturer Coca-Cola has accelerated its market activities, employing a twin-pronged strategy of taming overhead costs and widening its product choices as it seeks to ward off an unsavoury assault on its forte by bitter rival — Pepsi Cola.

Coca-Cola has revamped and expanded Equator Bottlers in

Kisumu and Coastal Bottlers — key regional manufacturing hubs that serve Western and Coast as part of Sh5 billion investments that the firm plans to inject in its Kenyan operation over the next two years that began in April last year.

The move could make it difficult for Pepsi whose Sh2.4 billion manufacturing plant is scheduled to be built in Ruaraka to reach out to the mass market whose presence is mainly concentrated in remote parts of the country because of its current model of business.

While Coca-Cola manufactures locally through regional plants, Pepsi has mainly relied on imports whose distributorship is still limited to super markets, select stores and up market outlets whose main target are the middle class. Pepsi was a bit cagey when asked about its business strategy.

"While I understand your interest in our company’s investment and entry into the Kenya market, I feel it is still premature for us to make any announcements or give away strategic information that could be used by our opposition to counter our moves," wrote Butch Moldenhauer, Country General Manager for Pepsi’s subsidiary SBC Kenya Ltd in an email response to our enquiry.

soda bottle

Generally, the biggest capital cost in the manufacture of soft drinks is the brittle soda bottle that is not only bulky, but also heavy and difficult to transport over long distances.

This means that even if Pepsi was to construct its manufacturing plant in Ruaraka, it would still find it difficult to reach far flung areas like Moyale, Migori and other remote parts of the countries.

But even if it did, it will be delivering its products at exorbitant costs, which might not help its pricing.

"This will be a disadvantage, especially if you consider Coca-Cola’s decentralised manufacturing model and its wide distributorship," says a Kenya Association of Manufacturers (KAM) official who declined to be named because he is not authorised to speak on behalf of the association.

Coca-Cola is the dominant market player in the soft drink category and controls close to 99 per cent market share.

Elsewhere, it would be classified as a monopoly and its decision to fortify its investments in regional capacities in the face of Pepsi’s challenge would look like anti-competitive behaviour.

But the company says its intensified market activities have nothing to do with Pepsi’s presence in Kenya.

"The market will always be competitive. We always welcome competition because it works in favour of consumers. It enables choice and grows the category," says Peter Njonjo, Coca Cola General Manager for East Africa.

big enough

"This can only be good for everyone. Our contention is that in the non-alcoholic ready-to-drink beverages category, the pie is big enough for every player to get a slice."

Pepsi made its intentions for the Kenyan market clear about three years after it acquired SBC Kenya, a franchise bottling and distribution firm through which it has been trying to increase the visibility of its products in the past few months.

By the time it arrived to challenge Coca-Cola’s dominance in the Kenyan market, Kuguru Foods, another soft drink company better known for the Softa brand had been trying to punch above its weight for close to a decade, but had failed to unsettle Coke.

mass market

Having been assured of a market for their products, Coke and Pepsi seem to be employing diverse strategies as they seek dominance over each other.

Pepsi is yet to unveil products for the mass market. The plastic bottles that it uses for packaging are targeted at the emerging middle class and are relatively pricier compared to the more brittle bottles used by coke for the lower segment market, which could complicate its bid to wrestle some chunks of the more lucrative mass market from Coke.

History and statistics favour Coke, but the fact that Pepsi has vast experience drawn from other markets and financial muscle should have executives at Coca-Cola thinking of other ways to guard their turf.

But unlike Coke, which has a vast distributorship network, supported by a well-laid transportation system, Pepsi and any other players seeking to enter the local soft-drink market could be starting at a disadvantage because they lack critical advantages accrued by dominant market player.

The tradition of consumers identifying with particular brands of soda or juices in particular markets also signifies the existence of indigenous chains, which have possibly built up strong reputations and this could toughen penetration for new brands.

"Usually, after the launch of new products, proper penetration usually comes with high transportation costs and heavy expenditure on advertisements because of the need to reach large parts of the country," said the KAM official.

renewed assault

"This could push up the expenditures of Pepsi and other new market entrants,"

Although Pepsi was reluctant to divulge much, Financial Journal learnt from highly placed sources close to the firm that it is preparing for a renewed assault in the African market, with plans to build two plants in Zambia as it seeks to cut on logistics costs and gain space to wage a sustainable price war.

Zambia is a member of the Common Market for Eastern and Southern Africa region (Comesa) trade block and importing products from there could afford Pepsi tax leverages it could ride on to make its products more competitive in the local market.

The situation could sound and even look rosy in the soft drink business, but this is not the first time Pepsi is coming to Kenya. The company stopped bottling in the country under competitive pressure from Coca-Cola in the 1970s.

Its re-entry into Kenya has relied on imports to serve the local market with brands such as Pepsi Cola, Pepsi Diet, Mirinda, Evervess Soda Water and Seven Up. Importing the soft drinks is more expensive than having a local production unit.

recruit kenyans

Last year, Moldenhauer was quoted in parts of the media saying that Pepsi had already recruited 120 Kenyans — engineers, architects and technicians to handle the development phase of its Ruaraka-based plant and expected to have about 300 employers on board once it is completed.

Coca-Cola has the largest variety of beverages, including Fanta, Sprite, and its flagship Coca-Cola. Last week, the company, which is also working on plans to unveil a new canning facility, expanded its juices portfolio by investing in a new cold fill juice line at Coast Bottlers in Mombasa to produce a new juice — Minute Maid Pulpy.

"Our strategy is to continue diversifying our offering of juices and juice drinks to capture this growth segment as more and more consumers seek choice," says Njonjo.

"In order to continue on this path, we see backward integration as critical to sustainable sourcing," says Njonjo.

Njonjo says that Coke has partnered with small scale farmers in Kenya and Uganda, where it is working to mainstream 54,000 mango and passion fruit farmers into its supply chain and that the company will seek to build similar partnerships for both social and commercial benefits.

Share this story
Assistant Minister, DC attacked by cattle rustlers
Justice and Constitutional Affairs Assistant Minister William Cheptumo and a District Commissioner escaped death narrowly when they were attacked by suspected Pokot cattle rustlers.
Absa Bank net profit for 3 months up 24pc
The performance was mainly driven by growth in interest income, particularly in the small and medium enterprises.
.
RECOMMENDED NEWS
Feedback