Coca-Cola To Double Africa Investment As Soft Drinks Demand Sizzles

In a development that in our opinion further underlines Africa's ongoing emergence as a highly promising fast-moving consumer goods (FMCG) market, Coca-Cola is to double its annual African investment spend to US$1bn effective 2010. The behemoth's Eurasia & Africa region's five-year compounded annual growth has comfortably outperformed the wider group (see chart) and is poised to continue doing so.

In harmony with its official sponsorship of the ongoing FIFA World Cup in South Africa, which we see as providing a major opportunity for even greater pan-African brand reinforcement, scaled up investment spending makes sense given the rate at which we expect incomes to appreciate across Africa over the next few years, with private consumption taking on greater significance.

Why We Like Soft Drinks And Coca Cola's Prospects In Africa

Having long been overlooked by weary Western food and drink investors, the notion of Africa as a consumer play has been strengthened by the global financial crisis. Erstwhile growth engines like emerging Europe have been knocked down forcing investors to look elsewhere for growth. Coca-Cola has long bucked this embedded weariness having cracked the African consumer market in a way that arguably no other FMCG brand has come closing to matching.

Making its drinks affordable (prices rarely track inflation growth) to the masses and taking on a significant responsibility in routing its products to the market (strong truck fleets and innovative distributional and marketing techniques abound), Coca-Cola has shown that it is possible to generate significant volume scale.

Below we briefly highlight why we like soft drinks in Africa and Coca-Cola's prospects:

  • Soft drinks serve equally adeptly as affordable luxuries and essential thirst quenches. Often more affordable than bottled water (tap water is not safe) and crucially chilled, carbonated drinks are widely established.
  • Coca-Cola is the undisputed soft drinks leader across Africa, easily beating out the core PepsiCo carbonate substitutes.
  • Per capita soft drinks consumption will continue to grow rapidly in line with greater investment and rising incomes. According to the president of Coca-Cola's South African unit, William Egbe, Africa's proportional contribution to group revenue is expected to double from about 6-7% over the next decade.

The regional outlook for soft drinks could be strengthened even further if some governments remove excise levies on soft drinks bearing in mind how price sensitive consumers are (some countries levy excises while others do not).

Ripe For Non-Carbonate Expansion

With greater investment devoted to Africa, Coca-Cola is set to devote more resources to growing its non-carbonate sales. Investment into the bottled water and fruit juice is expected to pick up strongly.
While we still see plenty of room for volume growth in low cost carbonates, rising incomes should allow Coca-Cola to diversify regional sales.

This article is tagged to:
Sector: Food & Drink
Geography: Africa, Asia

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