Coca-Cola Dominant, Growth Ahead Too
We see strong growth ahead for Kenya's carbonated soft drinks industry, which forms part of our wider positive fundamental view on consumer spending. To 2016, we are forecasting carbonates drinks volumes to grow at a CAGR of 8.1%. The landscape is almost entirely dominated by Coca-Cola brands, which distinguishes Kenya somewhat from two of its East African Community (EAC) neighbours Tanzania and Uganda, where PepsiCo franchisees are putting up a firmer challenge. After a long absence, Pepsi did re-enter Kenya in 2011.
More recently, three Coca-Cola franchise bottlers have merged to create Almasi Beverages with the aim to create a more efficient operating framework. Ultimately it is hoped that greater scale will allow the entity to respond more effectively to higher operating costs over the past few years. Currently the largest Coca-Cola franchise bottler is Nairobi Bottlers Limited, which is owned by South Africa-based Coca Cola SABCO.
|Kenya & Tanzania Carbonated Soft Drinks Sales By Volume (mn litres) - Historic & Forecast - 2007-2016|
Distribution systems are hugely important across East Africa. Accessing your consumer base can be a major challenge, but the likes of Coca-Cola have led the way in that regard for many years. Getting products directly to the market is the name of the game, which has provided a lot of scope for innovation. Coca-Cola provides kiosks with fridges and individual vendors with coolers and bicycles, which is hugely relevant to its success.
Going forward, looking at the wider soft drinks sector it is likely that a lot of opportunities will present themselves in sectors such as bottled water and juices, where there is arguably greater scope for premiumisation than in carbonates, which does rely a bit more on scale. In water, there is scope for more differentiation with product sizes, and we may well see more capital put into growth areas such as vitamin water. SABMiller, which although mostly focused on beer, has been targeting growth in bottled water, particularly in Kenya, over the past few years.