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Coca Cola Nathan Kalumbu

Coca-Cola Co tapping into Africa’s fizz

THERE’S a catchy song from the 1970s that goes: “I’d like to buy the world a Coke/ And keep itcompany…” It features in an ad about The Coca-Cola Company’s flagship cooldrink beyond what it was originally designed to be — refreshment — and more about a commonality between people of all nationalities.

Today the soft drink is sold in every country in the world except Cuba and North Korea. The expanse of Coca-Colahas made it one of the most enduring and universal consumer connections ever created and nowhere is this more evident than in Africa.

Before MTN’s sea of yellow umbrellas sprang up in shanty towns across the continent and the “rising middle class” hullabaloo, the world’s largest beverage maker had already established its presence: seeing promise in Africa was nothing new.

Over the past 90 years the group has mastered the infrastructure hurdle. Its red crates, stacked on wobbly bicycles, pushcarts and motorcycles, make their way to remote and hard-to-reach areas where more than 3 000 micro distribution centres (MDCs) serve as local distribution nodes.

Having its products within arm’s reach of desire is an ongoing exercise as markets inAfricacontinue to grow, says Coca-Cola Eurasia & Africa president, Nathan Kalumbu (pictured above). Based in Istanbul, he leads the group’s operations in just over 80 countries.

NYSE-listed Coca-Cola sells more than just sparkling drinks and the “big red”. Its 500-brand portfolio includes juices, water and even milk. The African continent even has its own flavours: you won’t find Stoney Ginger Beer or Sparletta Crème Soda anywhere else in the world.

“We continue to see a number of societal trends [in Africa] — improved infrastructure, greater education, positive demographics and increased urbanisation — that represent growth opportunities forCoca-Cola,” Kalumbu adds.

Promising growth

The region accounts for about 10% ofCoca-Cola’s total revenue and volume, and it expects this to double in less than six years.

The company will have to sell a lot of Fanta Orange to reach that goal, but by 2020 the number of middle-class consumers in emerging markets will exceed the US and Europe combined, auguring well for the drinks maker.

Africa is expected over time to have the youngest emerging-market population, so consumer-staple companies are looking to capture these consumers for life. They include big-name players like Cadbury owner Mondelez International, Nestlé and Unilever.

Consumer equity strategist RJ Hottovy at Morningstar, Chicago, says younger African consumers have not only become important to the region’s economies but, like those in many developed economies, have also become more brand conscious and tech-savvy.

As emerging-market consumers shift from rural to urban settings and trade agricultural jobs for positions in the manufacturing, service and technology industries, consumer staple companies will find themselves fighting over a much larger pool of disposable income.

So far, the ability to buy more “stuff” has led to African consumers favouring Western brands, which largely carry “you’ve made it” status.

Coca-Cola doesn’t disclose sales in Africa, but its first-quarter report showed a 4% sales volumes rise in its Eurasia and Africa unit, which outpaced a global sales volumes rise of 1%. Company chairman and CEO Muhtar Kent called sub-Saharan Africa”a bright spot”.

Morningstar believes sales growth in emerging markets can be driven to middle to high single digits in the long run as the group has ample space in these markets, where per capita consumption (PCC) is relatively low.

PCC of soft drinks in Africa was 27,1-litres last year — barely half that of Asia and about 13 times less than in North America.

“Africa is evidently well below the global average, but did grow faster compared to global PCC,” says Suzanna Clarke, head of beverage research at market research company Canadean.

No wonder then that Atlanta-based Coca-Cola has put its money where its mouth is with a $17bn investment in the continent.

Along with community-focused projects, Coca-Cola is launching an initiative called Source Africa to get its product ingredients locally. The company will also pump money into new manufacturing lines, cooling and distribution equipment and production.

The poor quality of drinking water in both rural and urban areas in some African countries has led to consumers spending more on bottled water, soft drinks and juices.

“Africa represents the future for Coca-Cola. It’s very focused on the region, given the low penetration of the category relative to everywhere else,” says Ali Dibadj, an analyst at Sanford Bernstein in New York.

Coca-Cola originated in 1886 as a soda-fountain drink when John Pemberton, a pharmacist, produced a syrup that he sold to Jacobs Pharmacy, where it sold for US5c a glass after the addition of ice and carbonated water. Early growth was impressive but it was only when a strong bottling system developed that Coca-Cola became the seminal brand it is today.

The company essentially runs one of the world’s most primeval franchise systems, owning its brand and making profit from producing a syrup concentrate, which it sells to independent bottlers who hold Coca-Cola franchises in geographical areas.

Coca-Cola bottlers in Africa make its products from concentrate derived from a French unit which supplies bottlers in West Africa, while a Willy Wonka-esque plant in Swaziland provides concentrate to bottlers in the rest of Africa. Coca-Cola regards its formula as the most closely held trade secret in 128 years.

Big African move

Coca-Cola is about to take an even larger swig of Africa. The forthcoming consolidation of its Southern and East Africabottlers allows a leaner and nimbler expansion with the pooling of resources and manufacturing, distribution and marketing capability across the region.

Coca-Cola Beverages Africa (CCBA), headquartered in SA, will be the largest Coca-Cola bottler in Africa and 10th biggest in the world, when SABMiller (owner of ABI, which already bottles 55% of Coca-Cola’s volumes in SA) and Gutsche Family Investments (which controls Sabco, a Coca-Colabottler for the past 74 years) combine their soft drinks operations in a deal announced last year.

Serving 12 countries and accounting for over 40% of allCoca-Cola beverage volumes on the continent, the new entity is expected to have revenues of $2,9bn and a 17% operating margin.

At SABMiller, the global brewer which owns brands like Peroni and Grolsch, soft drinks have become more significant, accounting for 20,6% of volumes and growing faster than its beer operations. Under the joint venture, soft drinks will account for 26% of SABMiller’s volumes.

The margins for bottling soft drinks are structurally lower but it’s less capital-intensive than brewing beer — providing speedier exposure to another part of the overall drinks segment in the long term……

Financial Mail:Read the full article

Related reading:

In conversation: Nathan Kalumbu, Coke’s midfield marshal – African Business Magazine

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