The Sunday Mail
CUTTING prices for the second time in four months in 2014 alone, Delta Corporation is clearly proving its determination to boost declining volumes, but more importantly, analysts believe the brewer’s actions tell of a company whose products have been overpriced for many years.
Cumulatively, Delta slashed clear beer prices by 13 percent in 2014.
The second cut which came on December 29 saw Delta slashing prices of its premium priced lagers by 10 cents, as consumer resistance became increasingly entrenched.
Rather, consumers opted for cheaper opaque beer.
Understandably, the market has sought to understand Delta’s behaviour.
The beverage manufacturer enjoys near monopoly in both lagers and soft drinks as well as opaque beer.
At the end of 2013 the beverage maker, with capacity to produce 9,8 million hectolitres annually, held 96 percent of the clear beer market, 85 percent of soft drinks and 94 percent of sorghum.
Its dominance expands to include the manufacture of its own packaging materials such as plastic bottles and crates; holding a significant 30 percent stake in liquor producer African Distillers Limited, as well as controlling a massive distribution network.
Experts say with such humongous business lines, it is well within the company’s sphere to control prices of its products.
In this case, it is influencing the downward review of prices.
Market dynamics have changed. The economy is in bad shape, production is low and consumers are squeezed for cash due to low disposable incomes.
Analysts who spoke to The Sunday Mail Business last week said a challenging economy was at the core of Delta’s decisions.
Government has also played a role.
Beginning this month, excise duty in lagers has been cut by 5 percent.
Such a move could mean more competition for Delta, as cheaper priced clear beer hits the domestic market.
In a statement last week, Delta said: “The new prices will result in Zimbabwean consumers paying less for their pints and quarts which will now be between US$0,90 and US$1,55 per unit, respectively.
“We are confident the new prices will be convenient to our customers and consumers who will now have the opportunity to use the recently announced new bond coins from the Reserve Bank of Zimbabwe.”
Lager volumes have for the past two years been on a downward spiral.
For example, lager volumes in the three months ending June 30, 2014 fell 21 percent from a year earlier, while sparkling beverages were 8 percent weaker on low consumer spending.
In its trading update for the second quarter to September 30, 2014, Delta reported lager volumes were 29 percent lower than the prior year for the quarter.
But sorghum beer grew 12 percent compared to the same period in the prior year.
Harare economist Mr Albert Norumedzo said the signs were clear that Delta was responding to the economic environment, which is not very conducive for business, with disposable incomes overstretched.
“A lot of people lost jobs in 2014 and that generally limits disposable income. It is also important to factor in that a lot of companies did not give out the 13th cheque to employees, so there is not enough money for beer,” he said.
He added that the rollout of bond coins on December 18, 2014 could force companies to shift from rounding off figures to adopting actual prices of commodities.
Since dollarisation in 2009, the issue of smaller denominations for change has been a challenge.
Many consumers were short-changed and forced to accept unwanted trinkets as change.
In some cases, prices would be rounded off to a higher figure that does not require any change while others introduced redeemable change vouchers.
Mr Norumedzo said just like any other business, the beverages sector is not immune to changes that happen in the global economy.
In 2014, global oil prices went down by almost 100 percent, which subsequently pushed prices of other commodities and services down.
But this development has not been felt by local consumers.
“When global oil prices are reduced, transportation costs also goes down for businesses; therefore pushing down the price of the final products,” he said.
Econometer Global Capital head of research Mr Takunda Mugaga noted that Delta remains a solid company despite the economic headwinds it currently faces.
Its unrivalled brands, financial base and infrastructure would ensure its survival despite a slowdown in consumer spending.
“It’s a stronger business and going into 2015, consumers will adjust and volumes will pick again. Right now, the company is hurt by product cannibalisation, with consumers shifting brands,” he said.
Mr Mugaga further observed that the reduction in prices would not affect Delta’s bottom line in the short to long term, adding that dominant companies like Delta are usually able to offer better returns, defensive counters and remain big brothers of the industry despite economic challenges.
“It’s been over priced anyway.”
Founded over a 100 years ago, Delta’s main operations are in beverages manufacturing and distribution; that is, lager, traditional opaque beer, sparkling soft drinks, wines and spirits.
It is also involved in the manufacture of plastic products and the agro industrial sector.
In 1946, Delta, which has become the largest company on the ZSE with a market cap of US$1,3 billion and a total 1,2 billion shares in issue, listed on the Zimbabwe Stock Exchange (ZSE).
Its share price spiked to a record US142c on January 6, but closed the year at US102c, its lowest in the whole of 2014.
Last year, Delta, together with telecoms giant Econet, were listed among Africa’s top 30 companies by market capitalisation.
The beverages maker was ranked number 19 in Africa by a UK-based Hartland-Peel Africa Equity Research, which has a database on African-listed companies dating back to 1990.
It is ranked the fourth biggest company in Africa under industrial, manufacturing, food, beverage and tobacco category, after Nigeria Breweries, Nestlé Nigeria, Tanzania Breweries and Kenya’s East African Breweries.
On October 5, 2012, Delta became the first and only Zimbabwean firm to breach the US$1 billion mark in terms of market capitalisation since dollarisation.
