The Sunday Mail
WHEN Varun Beverages, the franchisee bottlers of the world-renowned Pepsi brand, opens its factory gates in Harare next year, it will be opening up more than a manufacturing plant.
In fact, it will be opening up a new front for the 118-year-old dogfight between Pepsi and its American peer Coca-Cola, which has been playing out in all continents across the globe.
Delta Beverages, the country’s largest company by market capitalisation at US$827 million, is the manufacturer and distributor of Coca-Cola on the local market. It holds sway over the lucrative carbonated soft drinks market.
But, most importantly, the anticipated scrum for the local market share between Varun Beverages and Delta Corporation will happen at a time when the beverage industry has been the best performing sector since 2009. It’s currently operating at more than 90 percent capacity.
But as civil contractors begin clearing the plant site at Varun’s Ardbenie plant site this week, the countdown to a new bruising engagement between the two big brands becomes imminent.
It might possibly be a new chapter to the “Cola Wars” that resulted in Pepsi and Coca-Cola trading mutual marketing barbs in the 1980s.
Marketing and advertising revenue
As Delta and Varun tussle for the local market, this might be a boon for local industry.
By nature franchises carry with them a responsibility to market the product, and this might mean rich pickings for both advertising and marketing.
Coca-Cola and Pepsi have incredible brand values.
Since its formation in 1892, Coca-Cola has managed to grow its brand value to more than US$83,8 billion — a value that is more than the combined gross domestic product (GDP) of Zimbabwe, Zambia, Namibia and Mozambique at US$70 billion.
The New York Stock Exchange listed counter has a market capitalisation of US$189,4 billion, underlying its huge financial muscle. Experts also say the company spends an estimated US$565 million on advertising in the US.
Pepsi are no pushovers either.
Last year, the company, which had a market cap of US$156,72 billion as of Wednesday, generated more than US$63,1 billion in revenues. It also splashed US$2,4 billion on advertising from 2013 and 2015.
In order to gain a foothold on the local market, the two companies will undoubtedly have to allocate more resources to advertising and marketing.
Pepsi’s India connection
Though an American product, Pepsi is going to be introduced on the local market by an Indian company Varun, which is owned by Indian billionaire Mr Ravi Jaipuria, whose net worth was estimated at US$1,7 billion by Forbes Magazine last year.
And this is hardly surprising.
India has for long been a country charmed by Pepsi. In 2012, Pepsi was the third popular soft drink in the South Asian country after Sprite and Thums Up.
Coca-Cola is actually considered to be the fourth most popular carbonated soft drink.
However, before 1977, when India made it mandatory for its locals to hold majority shareholding in companies under the Foreign Exchange Regulation Act (Fera) — just in the same way as Zimbabwe is indigenising local companies — Coca-Cola was in fact the leading soft drink.
After divesting from India, it later returned 16 years later after New Delhi liberalised. But Pepsi had already gained a stranglehold after it obliged to Fera by forming a joint venture with the Punjab government-owned Punjab Agro Industrial Corporation (PAIC) and Voltas India Limited.
It is unsurprising then that Varun was comfortable to partner with local businessman Mr Adam Molai for the local venture.
Ready to slug it out
Varun presently operates 20 bottling plants in India, South Asia and Africa.
It is this experience that the company hopes to leverage on to outflank local competitors.
Varun’s investment, which has since been accorded National Project Status, is believed to be one of the biggest in recent years. More than 400 people will be directly employed, while 3 000 will be employed downstream.
The company’s group chief executive officer (for) Africa, Mr Krishnar Shankar, told The Sunday Mail Business last week that operations will begin by the end of the first quarter of 2017.
“We have succeeded in highly competitive markets like India, Nepal, Sri Lanka, Morocco, Mozambique and Zambia.
“Against such a background, we believe the group has the requisite expertise to penetrate and gain market share through innovative marketing and distribution strategies, adequately supported by our principal PepsiCo,” said Mr Shankar.
In an ominous development for Delta, Pepsi beverages are already being sold in the country at US50c for a 300 ml can while Delta’s sparkling beverage cans are selling for US60c.
Prices are expected to fall further when local production begins next year.
Combining world-class manufacturing equipment such as a Linker automatic filling and crowning machine from Poland, an automatic sugar conveying machine from India and a shrink wrapper machine from Germany is understood to be one of the key strategies to improve efficiencies.
In the launch phase, the Pepsi plant will have a high-speed 600-bottles-per-minute production line and an ultra-modern 400-cans-per-minute filling line.
Footings for Varun’s local buildings will begin “in the next three to four weeks”.
According to Mr Shankar, a structural contractor is also designing the final steel structure based on the approved architectural drawings by Harare City Council that were submitted by their architect.
“The actual construction will start mid-September 2016 and we believe we are on course to meeting our target to have the plant up and running by the end of the first quarter of next year,” he explained.
Its compliance certificate from Harare City Council was issued on July 29.
A list of equipment that is expected to be imported was submitted to the Ministry of Finance two weeks ago.
There are positive spin-offs that are expected to accrue from the operationalisation of the project.
Delta remains tight-lipped
But Delta is not giving away much.
Last week, the company’s secretary, Mr Alex Makamure, said “it would be inappropriate for us to comment on the activities of our direct competitors”.
“Delta Corporation is a public company whose investment programmes are in the public domain. These are formulated based on our key business priorities and not as a reaction to what competitors are doing,” he said.
