Lager loses to cheaper sorghum

SABMILLER’s unit in Zimbabwe, Delta Beverages, is planning a $30-million (about R477-million) expansion and will commission two new plants, in Kwekwe and Masvingo, in September this year to boost production of sorghum beer as consumers shun pricier lager and branded soft drinks.

The expansion comes amid a slump in volume of brands such as Castle Lager in favour of cheaper alternatives, as demand for all Delta products dipped in the year under review.

The decline in volume reflects the subdued performance of Zimbabwe’s economy, worsening under a liquidity crunch, low commodity prices and a widening trade deficit. This week, the government cut its economic growth forecast for 2016 to 1.4% from 2.7%, following a devastating drought.

Delta’s lager volumes fell by 8%. Sparkling beverages such as CocaCola fell by 6% and sorghum beer such as Chibuku fell by 3%.

Delta CEO Pearson Gowero, speaking at a briefing of analysts in Harare, attributed the softening of demand to, among other things, policy discord in central government that had discouraged foreign direct investment, and a strong dollar, which made local goods expensive to produce.

Gowero said the two Chibuku Super plants to be commissioned were part of Delta’s attempt to position itself for the future.

“The trend has shown that this is the growth area which will drive volume and profitability in light of declining performance across other categories.”

The strategy of growth in the sorghum beer category would entail reducing production of the standard Chibuku brand while increasing production of Chibuku Super, “where the future lies”.

Chibuku is sold in a paper carton while Chibuku Super, introduced in 2012, is carbonated and sold in a plastic bottle. The increased production of Chibuku Super is in response to growing demand.

“We will use the standard Chibuku facilities to build capacity for Super,” said Gowero. In October last year, Delta commissioned a Chibuku Super plant in Fairbridge, Bulawayo, which has helped increase its volumes.

Despite the host of operational challenges it faces, Gowero said Delta would leverage on its association with SABMiller and introduce new products.

Revenue for Delta Beverages declined 7% to $538.2-million from $576.5-million in 2015. In its outlook, Delta said it expected trading conditions to remain difficult and business survival strategies would remain a priority.

“Transactional difficulties due to cash shortages pose a risk and the perceived policy risk [will] remain.”

On the Zimbabwe Stock Exchange, Delta remains the largest company by market capitalisation and is seen as a safe haven.

The ZSE has lost $2-billion in value since elections in July 2013. The capital flight has been linked to anxiety fuelled by uncertainty over the 51% “indigenisation” law.

Ray Chipendo, the head of research at Emergent Research, said economic uncertainty would continue and make foreign investors on the ZSE even more cautious.

“Risk aversion will continue to influence investment decisionmaking. This investor pivot may once again provoke another wave of disinvestment in equities. Infrastructure and perhaps property are the most likely beneficiaries, as they are perceived as relatively safe assets,” he said.

The ZSE this week had its second listing this year, of Axia Corporation, an Innscor Group unit. South African microfinance firm GetBucks listed in January.

This is the growth area which will drive volume and profitability