6 March 2014

Uganda: Soda Mayhem

When Riham Soda manufactured by Harris International, hit the Ugandan soda market early last year, company officials had an ambitious plan of hitting 10-12% market share in the soda market dominated by giants Coca Cola and Pepsi, by end of 2013. Now that is a feat one has to be prepared for - long before the word go and more so when there are even newer players such as Fizzy Soda.

Riham's strategy of market penetration has centered on lower prices and intensive advertising. One can safely say that the company has given the giants a good run for their money.

Currently, the company is running adverts indicating the retail price of its plastic packaged soda -Riham Cola, Riham Whats' Up and Riham Funtime - all in 320ml bottled plastic bottles - as Shs1, 000 per bottle. Two years ago, Coca Cola took the battle to the courts of law when it sued Riham over copyright infringement. The case was eventually settled out of court. But that Riham's products are awash on the market is an indication that it won on that front as well.

The company is running adverts saying it is reducing the price of all its brands to Shs 800 soon. The company literally invited other companies to play ball. Currently, they retail soda in glass bottles (300ml) at Shs 800, down from Shs 1, 000 before Riham entered the market.

Riham officials declined to be interviewed for this story. But having made its name ten years ago with pocket-friendly biscuits and mineral water, the company ventured into the soda market less than a year ago. Available information shows that it has invested $45 million till the year 2013 and further investment has been estimated at $25 million towards expansion projects of carbonated soft drinks, which includes a variety of non-alcoholic malt drinks. The company employs over 1,500 Ugandans directly and indirectly and 2014 projections show that the employment opportunities will considerably increase going forward.

Definitely, cheaper soda is a big plus for consumers who have spent decades having to contend with high prices that have made the soft drink a 'luxury' for the lucky few. For the older soda companies, it translates into a decline in revenue. Producers of substitute beverages such as mineral water and beer are also casting a wary eye on the soda market as it threatens to eat into their revenues. Thanks to high retail prices, Uganda's per capita soda consumption is comparatively lower in the region, standing at just 23 bottles compared to Kenya's 40 bottles and Tanzania's 35 bottles. This is beginning to change, thanks to Riham.

All manufacturers of soda have since last year maintained a somewhat reduced price of different soda quantities, a move that is attributed to increased competition in the market and consequently higher supply of soda of the product on the market.

Formerly retailing at Shs 1,000, the 300ml glass bottle now goes for Shs 800, a 1 litre bottle goes for between Shs 2,000 and Shs 2, 500 down from Shs 3, 000. A 1.5ltr pack has also dropped to Shs 3, 500 from over Shs 4, 000 whereas that of 500ml has reduced to Shs 1, 500 from Shs 2, 000.

Currently, a crate of soda [300ml bottles] goes for Shs 14, 400 down from Shs 17, 400 earlier for all the companies. Because of the lower prices, retailers are in celebratory mood. "We are now in business," said one Labeja, a soda retailer in Kampala who has however maintained the price of a 300ml returnable glass bottle at Shs 1, 000. Labeja makes Shs 9, 600 net profits on each crate compared to the Shs 6, 600 he used to make before the price was reduced last year.

Retailers like Labeja are still reluctant to respond to the price changes - taking advantage of the fact that many consumers take long to adjust to and demand to buy at the new prices.

Rivals speak out

"The prices have reduced because of competition," said Maggie Kigozi, a director a Crown Beverages Ltd, makers of Pepsi Cola, Mountain Dew and Mirinda.

Kigozi told The Independent on Feb. 24 that they have carried out a survey in the market about the current soda prices and found that consumers are happy and the volumes (sales) are growing.

"But of course our profitability is reducing," she said without giving details. She added that it is difficult to remain profitable with lower prices.

"Ugandan consumers are price-sensitive," she added, you have got to reduce the price when another player does so, if you don't consumers will buy the cheaper product from your competitor.

But the reductions in prices will not only affect the profitability of the companies but also, the government, according to Kigozi. It means less tax remittances to URA and less jobs going forward, she said.

She was critical of retailers who are taking advantage of consumers to make more profits. "Some businesses are trying to thrive on the ignorance of consumers by not reducing the price at their retail outlets when we have all reduced factory prices," she said, adding that others increase because of the ambience at their points of sale among other factors. But consumers should always demand that they buy at affordable prices, Kigozi added.

She was optimistic that the price is now affordable and would remain at that level for some time. While the regional market would have been an immediate alternative to shore up their revenues, Kigozi said Kenya's protectionism policy has limited the company's export volumes to that country.

"We do not know why they are doing this when we are in the EA Common Market," she said. The company also exports to South Sudan, Rwanda, DR Congo and Burundi but so do its competitors.

The other challenges are the high costs of production, high power tariffs, unreliable water supply, poor infrastructure in some parts of the country all of which affect the cost of doing business and hence lessen profitability. Going forward, Kigozi said, the company would remain innovative in terms of product branding and unveiling new products, promotions. She boasted that CBL currently holds about 50% of the soda market share in Uganda.

In recent years, the company has implemented various promotions that have given it an edge in the market. These included Chamuka (2009), Chamuka Keys (2009), Motozela (2010), Mirindarific (2011) and Moto Moto (2012) among other innovations and more are likely in the near future.

CBL's brands include Pepsi-Cola-the flagship brand, Mountain Dew, Mirinda (Fruity, Orange, Pineapple and the recently-launched Green Apple), 7UP and Evervess. These are available in 300ml returnable glass bottle, 500ml, 1 litre and 2 litre recyclable plastic bottles. The company also bottles mineral water under the Peak brand.

The company has four new glass bottling lines and one plastic packaging line added to the Nakawa-based plant and several new products introduced. It directly employs 600 people directly and over 3, 000 indirectly. It pays Shs 70 billion in taxes per year. It recently invested in a water treatment plant that cost Shs 4.6 billion to set up.

Like their counterparts at Pepsi, Coca-Cola says its products are very price-sensitive, and affordability is key to stimulating growth in soft drink beverage consumption in Uganda. This therefore means that the more favorable the economic climate is, the better the consumption of our products, the company's Public Affairs and Communications Manager, Maureen Kyomuhendo told The Independent.

The company has been responding to competition in many ways. The company recently introduced (Ka-Mini plastic 300ml) as one way of responding to competitors. It costs Shs 1, 000, the same as that of Riham, though the latter has a volume of 320mls.

"The introduction of Ka- Mini in September 2013 was in response to our consumer's demand for an affordable and convenient pack," Kyomuhendo said, adding this is in line with our strategy of keeping in line with consumer trends to meet the changing consumer landscape in Uganda.

To date, Kyomuhendo said, the Ka- Mini package has received "overwhelming demand" from consumers.

Looking at 2013, Kyomuhendo said, the company focused on building manufacturing and distribution infrastructure to meet with the changing landscape in Uganda.

The company commissioned a US $27 million PET investment in Q1 of 2013 before completing an upgrade of the glass manufacturing capability.

She said the upgrade of their manufacturing capability facilitated their entry into the non-alcoholic ready to drink (NARTD) category with Dasani Water and Minute Maid Juice.

This she said has given them the opportunity to operate as a 'total beverage company' and the ability to provide beverages for all consumption occasions and for all consumer tastes. The company also continued to improve its distribution network to deliver products, on an average of three times per week, to its more than 65,000 agents.

The company commits 0.4% of its annual revenue to developing people through its CSR activities, according to Kyomuhendo.

On the other beverages, Kyomuhendo said, the per capita consumption of NARTD beverages is low in Uganda at 49 per year. This is far lower than some comparable countries in East and Sothern Africa for instance Kenya at 56, Tanzania at 75, Mozambique at 66 and Zimbabwe at 66.

The company believes that the opportunity in Uganda is to get more consumers to drink more commercial beverages, more often. Coca-Cola says it boasts of a third of the NARTD beverage market in Uganda and the opportunity to grow it further is enormous.

"This we are doing by engaging our consumers in various top of the mind campaigns," said Kyomuhendo.

Commenting on the company's price cuts in December 2013, Kyomuhendo said the objective was to drive the per capita consumption of soda in the country.

With the affordability matrix, Kyomuhendo said, their consumers shall purchase more of their products and hence shall be able to up the per capita consumption to meet that of other neighbors in the EAC region.

The company contributes over Shs 100 billion annually in form of direct and indirect taxes. Last year alone, it invested over $30 million in upgrading its manufacturing capacity.

"We will continue to lead beverage innovation coupled with marketing plans that will stimulate beverage consumption," she added. As competition continues to grow, bottlers will want to see a rebound in the growth of sparkling beverages in the country which Kyomuhendo described as "flat" for the last two years due to a slow in economic recovery and price increases in 2011.

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