Multi-nationals are looking to emerging markets for future growth, while local players are finding important niches. Claire Hu analyses the challenges and opportunities likely to bubble to the surface in 2012.
As we enter the new year, soft drinks activity in the southern African market shows no signs of slowing. The sector continues to be a competitive battlefield for companies and suppliers as the economy slowly recovers. Consumers are increasingly segmented into two camps: a growing class of cash-rich professionals looking for premium, innovative and convenient drinks and those who continue to feel the pinch and are driving a strategy of high-volume, value-led sales.
As the market becomes increasingly saturated in Europe and the US, suppliers are looking to emerging markets in Africa, the Middle East and Asia. In SA, the soft drinks market is predicted to grow by 14,5 per cent in volume between 2010 and 2015, according to Euromonitor International. This is slower than the 24,6 per cent growth in the heady five years to 2010, but still represents a bigger opportunity than more mature markets.
The increasing importance of Africa is being driven by rising GDP, especially in countries such as Angola, Congo, Zambia, Botswana and Nigeria where a wealthy sector is starting to consume more soft drinks. Euromonitor’s report, Soft Drinks Trends and Future Directions, says of Africa and the Middle East: ‘Broad increases in younger populations, coupled with rising consumer expenditure, should make this region attractive for soft drinks manufacturers. The Coca-Cola Company has a large concentration in carbonates here but non-carbonates remain open.’ In 2010, Africa nearly doubled its soft drink value sales, albeit from a much smaller base than established markets.
Major carbonates, juices, water and RTD tea brands should do well in emerging markets such as Africa, adds the report, and new carbonates trying to break into the Coke-dominated market could find success with an economy price focus. ‘The greatest challenge will be the logistics of distribution to second- and third-tier cities and rural areas, as well as the lack of a pre-existing premium segment in many countries,’ says the report. ‘Regional and local partnerships with established players might be the most viable entry strategy.’
SA is seen as a more mature market, and growth has not exploded from a tiny base as elsewhere on the continent. The Coca-Cola Company, by far the biggest soft drinks company in SA, says the country’s carbonated soft drinks category showed only slight growth in 2011 compared to the previous year. ‘Soft drink category growth is primarily driven by the value segment as consumers look for more value due to the prevailing economic climate,’ says Dr Wamwari Waichungo, director of strategy and planning at Coca-Cola SA.
Packaging company Boxmore SA has a growing presence in countries such as Botswana, Zambia, Angola, Namibia, Mauritius and the Seychelles. Commercial director David Drew says there is an increasing battle between major ‘A-list’ brands and newer value-led ‘B-list’ brands. ‘There is a big battle unfolding between these two classes of brands – who wins will depend very much on the economy,’ he says. ‘The question is whether consumers will carry on trading down, a trend we have seen already and which will probably continue through the summer and Easter.’
The players
Coca-Cola, manufactured and distributed through Amalgamated Beverage Industries (a division of SABMiller), continues to dominate the South African soft drinks market with a 53,5 per cent volume share (Euromonitor International, 2011). ABI also distributes Appletiser and its other brands include TAB, Schweppes and Nestea. Tiger Brands’ key brands include Energade and Hall’s fruit juice drinks and Pepsi is bottled and distributed by Pioneer Foods (Ceres Beverage Company) which also has the sole franchise in SA for Lipton Ice, Mirinda, 7Up and Mountain Dew.
Local companies that are playing an increasingly influential role with widened distribution in mainstream retail outlets include the BOS ice tea brand, which had a capital injection from the likes of Sir Alex Ferguson in 2011, as well as Chill Beverages, which last year launched the Innesense range of traditional sodas, as well as its rival, Frankies Olde Soft Drinks Co. Another significant player is Soda King, which makes carbonated flavoured soft drinks and filtered waters and has seven franchises throughout Africa. It has declared an expansion drive across southern Africa in the next five years.
Consumer trends
The last vestiges of the 2009 recession and events in the US and Europe are causing consumers to be cautious about spending and putting a squeeze on consumption, says Dr Waichungo from Coca-Cola SA. ‘How do we continue to grow beverage consumption under the prevailing conditions?’ she asks. ‘And how do we ensure that our beverages are affordable, accessible and relevant to the emerging middle class consumer while remaining relevant to high income consumers?’
A major trend in soft drinks is the switch or addition from glass to PET packaging. The most radical manifestation of this has been for Appletiser – a brand that plays heavily on its upmarket image – which has added 350ml and 1,25l PET bottles to its range.
Boxmore supplies the PET packaging, which David Drew said had been a big hit with consumers. ‘Demand has been huge and the volume increase has been amazing’ he says. ‘There was a big debate about whether people would accept Appletiser in PET – whether it would look premium or would last long enough – but it’s worked incredibly well.’ The new packs have a slightly lower price per litre, with the disadvantage of not being preservative-free unlike the glass bottles – but that could be an option for the future.’
Another trend has been the growth of the formal retail trade at the expense of the spazas. This presents a challenge to the soft drinks trade, says Dr Waichungo. ‘The corner grocery is no longer the everyday partner – instead the supermarkets are right around the corner and always running specials. How do we help the spazas, the cornerstone of our business, to compete effectively and co-exist with formal grocery?’
The need to increase capacity, make the environment a priority and reduce costs, led to the opening last summer of Coca-Cola’s Valpré spring water factory in Heidelberg, southeast of Johannesburg. Not only is the design of the factory geared towards recycling and making optimal use of water and solar energy, but the new Valpré PET bottle is made from up to 30 per cent fully recyclable plant material. Coke has also switched to the lighter-weight PCO 1881 bottle neck and thinner side walls, reducing weight and cost. Other soft drinks manufacturers have followed in its wake and taken advantage of the new manufacturing infrastructure put in place to meet Coke’s needs.
Trends from Western Europe that are gradually filtering through to SA include health, wellness, more convenient packaging and a move to more unusual flavours. ‘In the overall rather mature and saturated markets of Western Europe, soft drinks have reached a point where it becomes more and more difficult for manufacturers to come up with product innovations beyond the well-established brands and packaging types,’ says Euromonitor’s report: New Flavours Become Strategy to Growth in Western European Soft Drinks. ‘For this reason, many manufacturers have put particular emphasis on the selection of new, often rather exotic flavours.’
In markets such as Germany and the UK, traditional fruit flavours like apple and orange are losing share to tropical tastes like mango and chilli flavoured water from Bonaqua or pineapple and cactus from Nestlé Waters and antioxidant rich flavours like pomegranate and acai. Along the added health benefits theme, there could be opportunities for smaller, local companies to compete against the multinationals by incorporating indigenous ingredients.
Soft drinks that are presented as being more natural are also the inspiration for recent product launches. David Drew from Boxmore says: ‘Another trend is the slew of Glaceau-type products that are preservative free. These have taken off at a slower rate than the marketing people forecast. This year will be a real test of whether these preservative-free drinks can find their place and move to a place where all the investment will have been worthwhile.’
Innovation
Manufacturers and ingredients and packaging suppliers have been responding to these consumer trends with new product launches, albeit at a slower rate than post-recession.
New to SA is Coca-Cola’s preservative-free juice brand &Nada, available in Minute Maid Lemon &Nada, Mango &Nada and Naartjie &Nada in 300ml and 1,5l PET bottles. The lemon flavour will ‘drive’ the lemonade segment, says Coca-Cola.
Packaging innovations have included new formats such as Ceres Sparkling’s new 275ml slim can and 750ml glass bottle, and Lipton Ice Tea’s new Tetra Pak 200ml and 1l packs in peach, lemon and red rooibos flavours. Appletiser has introduced a PET bottle for the first time. Such products tap into the environmental trend as well as consumers’ needs for drinks that are convenient to consume on-the-go.
Other notable launches in 2011 included Chill Beverages’ retro soft drinks line Innesense, in flavours such as vanilla rooibos and with no added flavours, colours or preservatives. Flavour suppliers include Inessence and Comhan and the 275ml bottles were supplied by Consol. More traditionally-themed products include the new malted apple drink Soraya from Soda King, as well as Foodcorp’s limited edition Smooth Tropical Fruits flavour for its Mageu Number 1 brand.
Energy drinks
These were being hailed a decade ago as the next big thing for emerging markets such as southern Africa. The recession has put a dent in such buoyant confidence and growth has been slower than many would have predicted – but energy drinks still represent a big opportunity in SA.
Euromonitor International predicts that volume growth in SA between 2010 and 2015 will be around 11,1 per cent, compared to 42,2 per cent in the previous five years. ‘Energy drinks can no longer command double-digit growth in their core markets of the US, UK and Australia. Expansion to new markets will need to become more of a focus for international brands,’ it says. ‘The edgy positioning that the current offering of energy drinks is known for may play very well as the populations of these developing markets become more urban.’
The main brands in SA are Energade (Tiger Brands), which is relaunching the packaging for its concentrated format with Qualipak; Powerade (ABI) while more niche brands include Volt from Lentas Beverages, Eagle Rush from Enebev and the first certified organic and vegetarian energy drink, Scheckter’s Organic.
Andre Lloyd, managing director of Eagle Rush, which contains natural ingredients such as B vitamins, ginseng, guarana, ginkgo and no preservatives or colour, said it was tough for smaller local players to get a foothold in the bigger chain retailers.
‘It’s been a struggle since the World Cup to break into markets dominated by Energade, Monster and Red Bull but we now have listings with Spar in the Western Cape,’ he says. ‘In SA a lot of people jumped on the energy drink bandwagon in 2009-2010 but a few months down the line and those products didn’t exist anymore. The market is quite fickle – it’s divided between those who know the benefits and read the label to see what is in the product, and those who just pick up an energy drink now and then.
But functional drinks in SA are slowly but surely starting to overtake the market. Everybody is interested in alternative soft drinks, with less sugar and more benefit from the product. Also, most mainstream products in bottles are moving to the R8,00 mark which is getting closer and closer to energy drinks. So people think, why not get a drink that has more benefits than half a cup of sugar and a few flavourings?’
Future
The performance of the soft drinks sector in 2012 will depend on the tricky balancing act that companies need to tread between driving volume sales of cheaper products to keep the market moving, and innovating to keep consumers interested and increase unit prices. This will depend on close and dynamic working relationships between manufacturers and the companies that supply them.
Another factor will be increasing distribution within emerging markets in southern Africa, appealing to both the growing middle class and cash-rich consumers looking for more premium products. Making a difference within the communities they work within, as well as reducing carbon footprint, will be of increasing importance especially for the multi-nationals.
