Pepsi set to eat into Delta market share 

Pepsi set to eat into Delta market share 

Source: Pepsi set to eat into Delta market share | The Financial Gazette May 17, 2018

The new Pepsi plant in Harare that came on stream earlier this year.

The new Pepsi plant in Harare that came on stream earlier this year.

DELTA Corporation’s sparkling beverages market share could decline during the current reporting season following the coming on stream of a Pepsi plant early this year, an analysis on the company’s outlook by Old Mutual Securities (OMSEC) has revealed.

OMSEC said competition in the sparkling beverages segment is expected to grow following the opening of a $30 million Pepsi plant in Harare.

“Going forward, we expect a decline in the company’s overall market share (83 percent) for the sparkling beverage segment as well as margin compression as the Pepsi branded products are currently being sold at cheaper price points than Delta’s competing product offerings,” said OMSEC.

Pepsi is selling its two-litre, 500ml and 330ml beverages for $1,65, 65c and 50c respectively; while Delta is trading similar beverages at $2,15, 95c and 50c respectively, and the 330ml price is promotional at the moment.

The Indian soft drinks manufacturer, Varun Beverages, commenced operations in Zimbabwe after investing $30 million in the Harare plant, with expectations to employ up to 400 people directly and 1 600 downstream.

Demand for Delta’s products is, however, expected to remain firm supported by a favourable outturn in the mining and agricultural sectors.

“A one-off surge in demand may arise from election spending through various political party campaigns. An improvement in tourism arising from significant infrastructure upgrades in airports coupled with the opening up of the skies to new airlines is expected to improve beverage spending in city and resort hotels where Delta will benefit,” said OMSEC.

Delta Corporation last week announced that its profit after tax increased 27 percent to $88,5 million in the full year to March 31, 2018 from $69,9 million in the same period last year.

Delta is Zimbabwe’s largest manufacturer and distributor of lager beer, traditional sorghum beer and soft drinks.

“Downside risks are likely to remain in the immediate term (next 12 months) from the shortages of foreign currency which have already materialised in the form of packaging supply gaps for sorghum beer as well as foreign supplier and creditor disharmony over delays in foreign currency payments,” said OMSEC on Delta’s outlook.

The foreign currency shortages are likely to negatively affect capital expenditure should they persist into the medium term.

Following the acquisition of a majority stake in the Zambian sorghum beer brewery, management is focused on growing sales volumes to bring it into profitability.

According to the Zambian Breweries’ last annual report, challenges that the company faces relate to highly informal market players who are able to sell competing opaque beers at highly competitive prices through tax evasion.

“The outlook for the business looks more favourable given that new government legislation will make it difficult for tax evasion and the recent commissioning of a $30 million sorghum beer plant should enable the company to produce at more competitive prices. In the absence of more lucrative investment opportunities in the brewery business, we expect the company to remain particularly generous on dividend payouts in the immediate term,” OMSEC.

The company is still trading under a cautionary with regard to The Coca Cola Company and potential termination of the bottler agreement with the company. Management indicated that negotiations are still in progress and finer details are too sensitive to disclose at this point in time. They did indicate that The Coca Cola Company is unlikely to terminate the agreement and if it does, a favourable franchise agreement would be brokered.

During the period under review, Delta managed to improve its return to shareholder’s equity by 290 basis points owing largely to a better net profit margin as lagers contributed more towards sales volumes.