Indian Pepsi bottler to enter the largest soft drinks market in Africa

Photo credit: ET Retail

Indian soft drink maker Varun Beverages, one PepsiCo’s largest franchisee outside the US, has unveiled plans to acquire The Beverage Company (BevCo) of South Africa for ZAR3bn (US$161m). This acquisition marks Varun's entry into the biggest soft drink market in Africa.

BevCo has an agreement with PepsiCo to bottle and distribute its drinks, including Pepsi, Mirinda, Mountain Dew, in southern Africa. It serves as PepsiCo’s sole licensed bottler in South Africa, Lesotho, and Eswatini, and also holds distribution rights for Botswana and Namibia. BevCo's portfolio includes its own brands like Reboost energy drinks, and Jive and Coo-ee carbonated beverages. The company operates five manufacturing facilities, with two in Johannesburg and one each in Durban, East London, and Cape Town.

BevCo posted a revenue of ZAR3.615bn (US$194m) in 2023 with PepsiCo products making 14.9% of its sales volume. Among the global soft drink brands available in South Africa, PepsiCo holds a relatively low single-digit market share.

South Africa is the largest soft drinks market in Africa with 1.186bn eight-ounce units (approximately 237 millilitres) sold in 2022. The industry is expected to grow at an annual compound rate of 5.3%, reaching 1.537bn units by 2027. According to Varun, urbanisation (over 60% of South Africans live in urban areas), longer workdays, and emerging interest from female consumers, are key factors contributing to the beverage consumption growth in South Africa. Notably, Namibia, South Africa, and Botswana, all part of Varun’s acquisition deal, have the highest per capita soft drink consumption on the continent, at 262, 244 and 155 eight-ounce units per year, respectively.

Despite the optimistic projections for the soft drinks industry, South Africa faces numerous economic challenges. The country struggles with an unemployment rate exceeding 30%, and its GDP growth for 2023 is estimated at a mere 0.8%. Additionally, ongoing electricity cuts, a result of insufficient generation capacity, have further strained the economy. Over the past few years, South Africans, like consumers globally, have faced financial pressures stemming from high living expenses due to inflation and elevated interest rates affecting the cost of credit. Inflation peaked at 7.8% in July 2022 but moderated to 5.5% by November 2023.

Elsewhere in Africa, Varun Beverages holds PepsiCo franchises for Morocco, Zambia, and Zimbabwe, while it also has subsidiaries in the Democratic Republic of Congo and Mozambique. Beyond beverages, Varun expanded its portfolio in 2022 by entering into an agreement to sell PepsiCo snack products, including Lay’s, Doritos, and Cheetos, in Morocco. The company's African operations account for approximately 15% of its revenues.

 

References

‘Consumer inflation accelerates to 7,8%’, Statistics South Africa, 24 August 2022

‘SA sees job growth, but it's cold comfort for millions of unemployed youth left behind’, News24, 15 November 2023

'Update on incorporation of subsidiary company in Mozambique', Varun Beverages, 28 November 2023 

‘Investor presentation’, Varun Beverages, 19 December 2023

‘India's Varun Beverages to enter S. Africa with $159 mln deal’, Reuters, 19 December 2023

‘Disclosure under Regulation 30 of SEBI (listing obligations and disclosure requirements) regulations, 2015’, Varun Beverages, 19 December 2023

‘Consumers under pressure: South Africans spiral as their disposable income shrinks’, The Citizen, 27 December 2023 

‘About Varun Beverages Ltd’, Varun Beverages, Accessed 10 January 2023

‘Annual report 2022’, Varun Beverages Limited, Accessed 10 January 2023

‘Urbanisation’, Parliamentary Monitoring Group, Accessed 10 January 2023