Sub-Saharan African bottling subsidiary Coca-Cola Beverages Africa (CCBA) has said its strategy is to secure organic growth in the 14 markets it serves by leveraging its market share of sparkling drinks to expand in adjacent product categories and its ability to invest to support its strategy to unlock sustainable long-term growth.
CCBA CEO Jacques Vermeulen noted during CCBA's capital markets day briefing to investors on January 18, that the change in ownership, leading to the Coca-Cola Company having a majority 66.5% shareholding, and business leadership in 2019 across all fronts, had resulted in a purpose-driven alignment of the business to unlock the significant African growth potential.
The company saw an opportunity to use its leading market share in sparkling soft drinks, which contributed 84% of its revenue, to base and scale its growth in other relevant categories, he said.
"We serve as the leading African bottler, contributing 40% of the Coca-Cola Company's volumes in Africa, and can unlock the growth potential to the benefit of the Coca-Cola Company. While we are focused on unlocking organic growth, the African bottling market remains fragmented, presenting consolidation opportunities, and we are ready with a strong balance sheet to invest in any opportunities that arise."
CCBA has also demonstrated double-digit growth over many years, other than in 2020, of revenue and earnings before interest, taxes, depreciation and amortisation (Ebitda) despite the growth occurring off an already sizeable base, he added.
The company also has a well-invested product footprint, having invested $1.1-billion of capital since 2017, which has largely been a function of its growth. This resulted in 120 products in its portfolio, and 39 bottling plants that include sustainable solutions, with some being greenfield projects. The bottling plants are positioned within the economic nucleus of a market to provide flexible and agile supply points, and ensure the company is close to its consumers.
Additionally, its procurement involved local sourcing for 83% of raw materials, outside of concentrates, which was important for its competitiveness and limited the risks of physical supply chain disruptions and mitigated some of its foreign exchange risks. The company focused on sustainable sourcing, protecting human rights and supporting suppliers by upskilling them to develop their businesses, Vermeulen said.
"CCBA's infrastructure and distribution reach is a key enabler for growth. Our biggest strength is our distribution network, which takes our products to market, and involves more than 3 000 distribution service providers, which we manage as an extension of our business. Our extensive reach enables us to deliver a crate of products to some of the most remote regions on a regular basis and have the product be relevant for the customers," he added.
Further, CCBA saw growth opportunities in each of the 14 African markets it operated in, including from population and economic growth, as well as the ability to grow per capita consumption within each of its markets. This gave CCBA confidence that it could grow at higher than gross domestic product growth, said CCBA chief growth officer Sarah-Anne Orphanides.
The company's key strategy was to use organic growth levers, and it had a clear strategy of where to play and how to win in each of the 14 markets. Key would be building on the scale of its leadership position in sparkling drinks and using that to expand in adjacent categories and selectively in new and emerging product categories, she said.
However, CCBA did not only aim to scale up its presence in these markets, but recognised that it could only grow if it continued to invest in physical capacity and the capability to drive efficiencies and then to reinvest returns to secure growth, Orphanides noted.
Following a decade of losing market share in South Africa, CCBA rolled out its new price pack strategies, which aimed to ensure that there were price pack options that were relevant for consumers based on their needs in each of its market segments, explained CCBA operating division Coca-Cola Beverages South Africa (CCBSA) MD Velaphi Ratshefola.
The formation of CCBA (in 2016) saw the consolidation of five out of six Coca-Cola bottlers in South Africa into CCBSA, which introduced a more consistent and sharper focus on pricing, particularly in more purposefully driving affordability initiatives, he said.
Echoing Orphanides' point, Ratshefola said that lower-income consumers often bought based on how much money they had on hand, which meant that CCBSA had to ensure it had ample choice of pack sizes to cover a range price points, which were typically linked to local currency denomination.
This strategy allowed it to recoup and once again grow its market share in South Africa, and CCBA has adopted this strategy in each market to improve its relevance to consumers and for occasions
"We are driving affordability initiatives to ensure we win over lower-income consumers. While there is a correlation between consumption and disposable income, we can drive near-term growth in per capita consumption by ensuring our products are relevant at critical price points, because these single price points matter to consumers in our markets," said Orphanides.
CCBA has a deliberate pricing strategy for different channels to remain relevant across its consumer segments. Price pack innovations provide it with effective affordability levers. It aims to optimise its range and formulations based on local consumer taste profiles and to ensure it has price pack options available to suit more occasions.
The company saw opportunities to further grow its market share and per capita consumption, as well as offering new hydration, nutrition and energy drinks products in the break occasion category in which it was underrepresented, she said.
Meanwhile, CCBA CFO Norton Kingwill said the company was focused on driving volume growth through sophisticated adjusted revenue per unit case management to manage inflation and growing consumption, and achieved double-digit growth in constant currency terms. It is achieving its growth without impacting on the adjusted revenue per unit case that it has maintained above $3 per unit case, apart from 2020 when it dropped to $2.92.
"CCBA has invested ahead of demand and this puts us in a good place, given our experience and presence on the ground. We can continue to grow volumes while keeping our margin structure intact, and have maintained it for many years, which is a clear demonstration that we are well capable of managing the volatile currencies we operate in," said Kingwill.
ESG ACTIONS
CCBA's environmental, social and governance goals aligned closely with the Coca-Cola Company, and CCBA focused on replenishing water it used in the countries it operated, reducing the carbon intensity of its operations and ensuring sustainable sourcing, said CCBA group public affairs, communications and sustainability director Tshidi Ramogase.
CCBA was achieving a 76% water replenishing rate, with the aim of returning a 100% equal amount of water to communities and the environment that it used, she added.
The company is committed to diversity and has a strong local talent development pipeline, with 72% of its management teams being constituted from local talent, and women constitute 38% of its senior management positions.
Further, CCBA has achieved a collection and recycling rate of 58% of waste proportional to its production of packaging, and its polyethylene terephthalate (PET) bottles are 95% recyclable, in line with the Coca-Cola Company's goal of having 100% of PET packaging materials being recyclable by 2025.
IPO
CCBA and the Coca-Cola Company announced in April 2021 that the Coca-Cola Company intends to sell a portion of its shareholding in CCBA through an initial public offering (IPO) and list CCBA as a publicly traded company in Amsterdam and Johannesburg within 18 months of the announcement, although timing depends on a number of factors, including macroeconomic conditions.
The plan underscored the Coca-Cola Company’s continued and long-term belief and commitment to the African continent and the leadership of CCBA from South Africa, the company said.
“The Coca-Cola Company sees Africa as a key growth market and views a separate listing of CCBA as an opportunity to deliver a broad, supportive, long-term investor base for the ongoing development of the business,” said Coca-Cola Company Africa operating unit president Bruno Pietracci.
Vermeulen said he was unable to provide further information on the IPO to investors; however, he said CCBA was confident it could achieve compound yearly growth over the next decade, and that its ability to grow organically within its markets presented investors with a unique opportunity to harness the African growth story for decades to come.
“As a business, we have undergone significant change in recent years and, through close alignment with The Coca-Cola Company, we have strategically repositioned our business to ensure that we are well-placed to capture the African growth promise,” he said.