The Sunday Mail
RETAILERS are being forced to adjust their business and pricing models as consumer spending patterns shift from high value goods and services to conveniently priced alternatives.
Prices have become a key factor shaping consumers’ decision-making.
The tale of two listed beverage manufacturers — Delta Corporation and Afdis — tellingly points to a new phenomenon on the local market.
Blue-chip counter Delta Corporation has been growing in leaps and bounds since 2009, buoyed by an ambitious US$200 million recapitalisation plan. It’s fortunes grew as a result.
But the biting liquidity crunch is now putting significant pressure on the business. In the first quarter to June, the company’s volumes rose by a marginal one percent.
Although premium-priced lager and sparkling beverages volumes dropped 21 percent and 8 percent respectively, sorghum beer volumes climbed 15 percent, underlying a significant pattern within the local retail market.
Essentially, opaque beer has grown into the de facto flagship of the business.
Recently, Delta general manager for the lager business unit Dr Munya Nyandoroh announced that the company was slashing prices of beer across the whole product portfolio, except for pints, citing “affordability” issues.
Delta controls 96 percent of the beverages market in Zimbabwe and is the local unit of the London-headquartered SABMiller.
The company pumped US$12 million in the expansion of its Chibuku Super plant in Chitungwiza, whose annual production capacity could rise to 1,8 million hectolitres.
Such a seismic shift in consumer preferences has not only been confined to Delta Corporation but it has also been felt in its associate companies.
Afdis, which specialises in wines and spirits, has managed to accomodate a sizeable number of imbibers who have seemingly traded opaque beer for hard-hitting liquors.
In the year ended June 30, 2014, Afdis reported a 100 percent increase in net profit to US$2,1 million from US$808 767 in the same period a year earlier, driven by growth in volumes — largely of spirits.
Volumes grew by 10 percent to 6,1 million litres, with the local product portfolio contributing 71 percent, up from 58 percent last year.
Instructively, Afdis chair Mr Joe Mtizwa attributed the growth to firm demand for brown spirits in the second half of the year, coincidentally the same period when the illiquid conditions worsened.
Also, at the group’s annual general meeting in November 2013, Afdis general manager Mr Cecil Gombera singled out Viceroy and Chateau brandies as the top performers for the business.
Shareholders Old Mutual and Delta Corporation have since committed to bankroll the firm’s US$5 million recapitalisation plan.
Brokerage firms are convinced Afdis has set the stage for growth after expanding its product portfolio and shifting from an import-reliant business model to depending on the local portfolio contribution.
The Zimbabwe Revenue Authority announced a 25 percent surtax increase in January covering a range of products including alcohol, slightly pushing up prices for imported brands resulting in Afdis’ import portfolio losing both margins and volumes.
The company is set to commence production of ciders this quarter following a recapitalisation initiative in January this year through a US$4,8 million rights issue.
EFE Securities last week was bullish about the future prospects of the business.
The Harare-based brokerage noted that since retooling, Afdis has restructured its business model, creating a balance between imports and local production as evidenced by the 22 percent growth to 71 percent in the local portfolio contribution to turnover.
“This has ignited firmer gross margins as local produce does not attract excise duty.
“The group’s envisaged product portfolio expansion expedited through introduction of own ready to drink beverages on the market after a successful recapitalisation earlier this year sets a platform for future growth.
“This is only but a harbinger for better things ahead, more so with the better margins on the local brands.”
EFE Securities said leveraging on emerging favourable gross margins with the shift of the portfolio skew towards local produce, a forecast of 50 percent gross margins, is realistic.
Afdis has shown the ability to stably grow margins in the last three years, which is in tandem with global benchmarks for spirit makers averaging 55 percent for gross profit margins.
“This, therefore, places a gross profit forecast of US$12,6 million and from these we expect the company to achieve attributable earnings of US$2,3 million,” said EFE Securities.
Apart from buying cheaper products, consumers have also turned to informal retailers who charge lower prices compared to formal retailers.
This has seen most top retailers reducing prices, while manufacturers are shifting production lines in favour of low-cost products that are within reach of most consumers.
In Zimbabwe, monthly inflation for August was -0,31 percent, dropping 0,32 percent on the July inflation rate, implying that prices of goods and services moved by an average of 0,31 percent between July and August this year.
Market watchers say the country was highly likely to retain low but positive annual inflation rates after July figures went up due to an increase in utility charges and the effects of the Zimra’s garnishee orders.
