By publicly announcing plans to set up a Pepsi bottling plant in the capital two weeks ago and conducting a groundbreaking ceremony, a matchstick that could ignite a competition powder keg in Zimbabwe’s beverages sector could have been lit.
All along Delta Beverages had wondered who was behind the Pepsi beverages that flooded the market. Now, they know.
The months prior to the groundbreaking ceremony, consumers had seen competitively priced Pepsi products on retail shelves and street vendors hawking the world’s second largest beverage manufacturers products and supplied with ice to cool the products.
In a market dominated by Delta Beverages, the appearance of Pepsi on the scene undoubtedly caused a bit of discomfort for Delta, the largest beverages manufacturer in the country.
A trading update for the second quarter ended September 30 last months reflected the impact the new entrant had caused.
Delta said revenue was down 6% in the quarter and down 8% for the six months, reflecting changes in the portfolio mix and the recent price moderations.
“In the short term, there will be pressure on operating margins as we adopt strategies to address affordability and stimulate volume through price reductions and streamlining value chain costs,” it said.
Sparkling beverages were down 14%, the company said, compared to the same quarter last year and down 15% for the six months attributed to increased competition “particularly from imported lower priced alternative offerings”.
Sales are down significantly, according to the company’s latest financials.
Revenue declined by 8% to US$269 million from US$291 million in the interim period to September due to changes in the portfolio mix, volume declines and the recent price moderations.
The group has also seen its net income decline by 20% to US$35,7 million in the six months to September 30 owing to low revenue attributed to declining consumer spending and stiff competition.
Net income was US$45 million in the same period last year.
Naturally, United Bottlers, Coca Cola’s licenced bottlers in Zimbabwe, are watching the developments with keen interest.
While the rivalry between Coca-Cola and Pepsi is legendary, with the two companies splashing millions in advertisement spend year in and year out in a bid to win market share, nothing would worry Delta more than the appearance of an entrepreneur like Adam Molai riding on a global brand like Pepsi.
Molai’s little known Savannah Tobacco has given another global conglomerate, British American Tobacco Zimbabawe (Batz), a run for their money.
Molai, who can be likened to the biblical David in terms of stature in the tobacco industry, has seemingly taken on the big Goliath of the market, Batz.
What started out as a tobacco threshing plant 10 years ago has become a cigarette manufacturing company that global giants, Bat, worry about.
Today the company produces a selection of competitive cigarette brands such as Pacific Storm, which is popular with smokers and rivals Bat’s premier brand, Madison. The company produces between 35 000 and 40 000 master cartons. If what Molai has achieved at Savanna Tobacco is going to be replicated at Varun, then battle lines have been drawn for a season of the Cola Wars.
Already, the fight has started at a price level.
Owing to the emergence of Pepsi, which retails at US0,50 cents per 330 ml can and penetrative priced 2 litre of Twizza on the market, Delta had to get back to the drawing board on its price.
A whopping 40% mark down on the United Bottler’s products, Coke, Fanta and Sparletta priceswas affected much to the delight of consumers. Before the appearance of Pepsi and Twizza, Delta had kept prices at a premium, perhaps taking comfort in the fact that it was a virtual monopoly.
Now, there is relief for the consumer, who bore the brunt fuelled by the company’s insatiable monopolistic greed for super profits for five years.
There could be further cheers for the consumer.
To start with, Varun Zimbabwe, the licenced Pepsi bottler in Zimbabwe, is getting product from the Ravi Juipunais Zambian operation.
If the operation begins within the set period, the local operation will not contend with costs such as transport and logistics, which are being factored into its price of US0,50 cents.
By setting up a plant locally, the price of Varun’s products, Pepsi, Miranda and Mountain Dew could be much lower than the current offering. This could further put pressure on Delta to forego margins again.
The effect of the price cut on profitability has already started to show. When that happens, it’s a consumer’s dream.
The first phase of the war-price — has fortunately benefitted the consumer. But market watchers contend the second phase of the fight will be through promotions.
While Pepsi is looking at developing markets in the near term, analysts say the person who fires the first shot could eventually start the war.
Molai once erected a bill board outside Bat headquarters with tag-line “not British, not American. 100% Zimbabwean.” Many viewed it as an attack on Batz’s American and British history.
Judging by that, the market could be headed for interesting times ahead. With a billionaire for a partner, Molai has other advantages and is set to give Delta a run for its money.
Given the legendary rivalry between Coca-cola and Pepsi, on the Global sceen a replay of the Cola wars is expected to premiere in the foreseeable future.
Coca-cola and Pepsi have run campaigns that sometimes get personal and provide comic relief for audiences.
Pepsi once seized a golden opportunity to market itself when a Coca-cola truck driver was photographed drinking a Pepsi and developed the famous tag-line even competition drink us line.
Under the tagline “Summer time is Pepsi time,” a pair of the campaign’s spots pokes fun at Santa Claus and polar bears — two of Coke’s traditional iconic characters. But despite the sometime lighthearted episodes offered by what are known as the Cola Wars which the companies have been waging for decades, local advertisement companies could benefit from such wars.
But despite the fierce market fights, Coca-Cola still has the overwhelming lead in the fight for market share with 41,9% while Pepsi trails behind at 29,9%.
Carbonated drink sales have been down across the board and the category hasn’t grown since 2004 globally.
Competition is seemingly not limited to Zimbabwe but with the entry of Varun in the market, consumers are set, to use Delta’s terminology, for a festive cheer.