Coca-Cola Beverages Sri Lanka has said it has regained carbonated soft drink market leadership from its close rival Ceylon Cold Storage (CCS). The two companies are the clear market leaders in Sri Lanka's established carbonated soft drink industry. However, BMI expects future market share battles to concentrate more on emerging beverage categories, such as ready-to-drink teas and coffees, which will be the key drivers of our 23% sales growth forecast to LKR12bn (US$105mn) in 2014.
Now that Coca-Cola has said it has regained leadership from CCS, BMI would estimates Coca-Cola's share of the carbonated soft drink industry at 46%, compared to CCS' 45%. Coca-Cola attributed its success to capacity expansion investments and aggressive marketing initiatives and it is likely to retain this focus over the duration of our forecast period as it looks to ward off competition from CCS. However, we would also expect both companies to ramp up their investment in non-carbonated beverage channels, which are set to be the key drivers of value sales growth over the next 5-10 years, if not volume growth.
In late 2007, Coca-Cola invested LKR600mn (US$5.2mn) in the construction of a new fruit juice production plant in Biyagam, near the Sri Lankan capital Colombo. The company combined the investment with an aggressive urban sales penetration strategy, pricing the new juice brand low in order to quickly build market share. Aggressive discounting will remain the mainstay of new product development and expansion drives in Sri Lanka - with per capita GDP just US$2,050 in 2009, average incomes are simply too low for it to be any other way. However, sustained rapid economic growth is likely to give producers the chance to accompany this discount-orientated strategy with gradual premiumisation of the industry.
Through to 2014, annual average Sri Lankan GDP growth is forecast at 6.1%. Filtering down into improved employment prospects and stronger wage growth, the positive economic outlook should have a significant impact on consumer spending on non-essential food and beverages. For the soft drinks industry, which is dominated by carbonates, bottled water and basic juices, this should mean a trading up to higher value products such as ready-to-drink teas and coffees, energy drinks and perceived healthier variants of existing offerings (ie: enhanced waters and juices).
BMI's expectation of this process is the primary reason behind our superior expectation for value sales growth over volume growth: 23% v 15% to 2014. This forecast hints at a bright future for Coca-Cola in Sri Lanka, albeit one typified by fierce competition with CCS, which has shown itself similarly interested in multi-category expansion.