Sloppy soda business pushes CocaCola Nigeria to juice production

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CocaCola HBC, the parent company of the Nigerian Bottling Company, NBC, said it will prioritize the production of plant-based beverages, juice smoothies, and PET juice packaging in 2018.

There are indications that the move will involve capital expenditure, CAPEX, to develop new brands as the company said it will “invest to support the production of plant-based beverages.”

NBC, its local unit, competes head-on with SevenUp Bottling company, makers of Pepsi, Mirinda and SevenUp soft drinks. The latter has also been struggling to boost revenue and growth due to a harsh business condition which led to a slow in consumer demand.

However, its current strategy is not ‘newsy’ as CocaCola HBC had in 2016 acquired about 30% shareholding in CHI Limited, Nigeria’s largest maker of juices and beverage smoothies. The acquisition arrangement was to see CocaCola HBC buy up to 60% in the next three years.

The continuous underperformance of SevenUp has led to its acquisition by Affelka, a South African private equity firm which now has 100% shareholding in the Nigerian company.

It is unclear if Affelka, the new owners of SevenUp would want to compete with Coca-Cola HBC in juice and plant-based beverages.

Coca‑Cola HBC’s strategic direction for 2018 was contained in the company’s full-year integrated report where it noted that Nigeria’s harsh economic conditions hampered its growth and profitability for 2017.

The new direction would probably be led by deep cost-cutting strategies as the company noted that it will “make further enhancements to procurement processes,” while it seeks to “maintain working capital discipline.”

It is an understatement that the company’s soft drinks business is struggling. While its major regions grew volumes by 2.2%, Nigeria’s volume fell behind. For SevenUp, the story is almost the same or worse.

Competition from other mid-size soft drinks companies has complicated business for both SevenUp and CocaCola. Industry analysts warn that both market leaders will need to do more than cost-cutting to achieve real growth.

Other areas where Coca‑Cola HBC seeks to get growth is the energy drinks segment. After its Burn energy failed in the Nigerian market, the company has since introduced Monster energy, an entirely-imported brand. As a result of the premium pricing for energy drinks, it is not clear if a further spike in inflation would not hamper volume for the new brand. The energy category has globally-competitive brands such as RedBull and Power Horse.

An analyst with the knowledge of the business says CocaCola will have to cut prices below the competition to gain serious market share.

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