A fizz in the Cape: lucrative niches for local beverage companies

Cape soft drink makers are beginning to fizz. In a market that has long been dominated by Coca-Cola , several Cape Town-based carbonated soft drink manufacturers are finding juicy niches for themselves.

A Financial Mail report highlights the success of the most prominent carbonated drinks player, Quality Beverages, the Epping-based company that has was acquired by listed packaging company, Bowler Metcalf, in 2004.

Quality Beverages, it notes, has been a good performer in a difficult economy for Bowler Metcalf, increasing revenue R68,4m to R331m and attributable income by over 115% to R15,3m for the year to end-June. Its brands, Jive, Aqua Blue and Planet, have grown in popularity, as its distribution and marketing efforts — cricketer Hashim Amla is its brand ambassador — have taken effect.

Next the article discusses rival Chill Beverages, (much in the news recently as the producer of Woolworth’s old-fashioned sodas that have been withdrawn), a company that, in ten years has evolved from a start-up to one employing 220 people in two factories and five warehouses.

Both companies produce their own brands but are also in the business of house brands for leading retailers. Quality Beverages supplies Pick n Pay with house brands and Chill Beverages works with Woolworths. Chill Beverages also has a national footprint through distribution agents around the country, something that Quality Beverages will soon emulate – it is expanding into Gauteng and Mpumalanga and is opening a 7 500m² R30m factory in Boksburg.

Despite their success, none of the smaller soft drink companies want to take on the global companies, which are powerful and entrenched . Bowler Metcalf CEO Michael Brain says his fight is with second-tier soft drink makers and not Coca-Cola (Coke) . “I’m not going to step on Big Red’s shadow.”

Brain is justifiably cautious. It’s easier for him to take on the smaller companies than Coke, which is the largest brand in the world. Further, its local bottlers, SABMiller subsidiary Amalgamated Beverage Industries and Peninsula Beverage Co (PenBev), have sophisticated logistics and distribution systems that could easily tackle any upstart. In effect, it has the best combination of global clout and local organisation.

Coke’s bottlers try to control the supply chain by providing stores with all kinds of support, such as a store sign with a Coke logo on it, along with a fridge to store only Coke products.

Coke’s distribution system is so effective that even if rival soft drink makers do manage to have their products sold in corner cafés and retail chains, they cannot match Coke’s reach into every restaurant, cinema complex and fast-food outlet .

Smaller soft drinks companies not only have to come up with a product that can compete on price and taste, they also have to provide the kind of support Coke’s bottlers provide.

It is a costly threshold. Brain says it costs about R8000 to supply a store with its own fridge; to provide this kind of support on a massive scale could easily cost up to R20m.

The rise of the local beverage industry is not lost on PenBev, Coke’s bottler in the Western and parts of the Northern Cape. It says : “The carbonated beverage industry in the Western Cape has always been highly competitive. The local soft drink brands have grown in recent years. We are highly respectful of the local brands and are constantly reinventing ourselves in order to protect market share as well as grow the overall beverage category.”

So instead of going head to head with Coke, the smaller soft drink makers tend to take each other on, and to focus on the more price-conscious communities.

Brain says Quality Beverages has also seen the popularity of its products rise among higher-income customers. He attributes this to the public recognising the quality of his beverages.

BashewsThe same goes for another soft drink maker Bashews, which has been around since 1899 and managed to get a following in poor communities in the Western Cape.

For decades, it has used a model of reselling drinks to agents, which would in turn deliver wooden crates of multi coloured glass-bottled drinks to households in the region. The horse and cart and later, a van would return in a week to pick up the empties and drop off a fresh supply.

While this formula has worked, Bashews MD Abdul Omar acknowledges that they are now at a crossroads, with the traditional glass bottle is coming under pressure because of the bad economy, but at the same time, its PET-packaged version (produced for it by Chill Beverages) is becoming popular in up-market areas.

The report also notes that the country’s beverage industry’s prospects are decidely healthy. It quotes a 2010 report by research group Frost & Sullivan that said: “The SA population is expected to grow by more than 1,5m between 2011 and 2014 as a result of the rise in regional migration. This increase in population size will also boost existing demand for locally produced beverages.”

Apart from the expected rise in the overall population, Frost & Sullivan also expects the growing black middle class and steady rise in income levels to support both the alcoholic and non-alcoholic beverage markets.

The latest figures from Pepsi’s bottler in SA, Pioneer Foods, bear out this growth. In a trading statement for the four months to end-January it says: “Pepsi is continuing to grow volumes close to double digits in a stable price environment.”

Ceres beverages, which is Pioneer Foods’ drinks operation, produces the global beverage brand in SA. The company, well known for its fruit juices, has said this continuous rise in Pepsi sales will underpin its growth.

Research published by Marketline says sales of carbonated drinks were the most lucrative for the SA soft drink market in 2010, generating total revenues of US$826,8m. This is equivalent to 37,6% of the soft drink market’s overall value.

The overall soft drink market is expected to grow at 4%/year from 2010 to 2015. The market is expected to be valued at $2,7bn by the end of 2015.

With this kind of growth forecast, comments the article, no wonder the second-tier players are finding profitable niches. There may be no need after all for them to step on Big Red’s turf.

Source: Financial Mail

Quality Beverages: www.qualitybeverages.co.za

Chill Beverages: www.chele.co.za