Local sourcing keeps Coca-Cola SA’s costs in check
● With the world reeling from supplychain shortages and soaring costs because of the pandemic and the Russia-Ukraine conflict, Coca-Cola’s focus on local sourcing is paying dividends for its South African operations.
Phillipine Mtikitiki, vice-president for Coca-Cola’s SA franchise, said the group’s focus on local sourcing seven years before the pandemic helped it navigate these global issues and keep its products affordable.
For example, at least 90% of the fruit juice used in its beverages in SA, such as Cappy, is sourced from South African farmers, and most of its sugar comes from local producers.
“For most of our fruit juices and fruit-based ingredients, we work with local farmers in South Africa to be suppliers.”
And it is not just a matter of buying for Coca-Cola — once it has identified local suppliers, it brings in “subject matter experts” to ensure “product spec is acceptable from a global CocaCola standards perspective”.
In this way Mtikitiki says the company is investing in building capacity in the local market and helping transfer new skills.
Had the group not made major strides in local sourcing in the years before the pandemic, it would have been a “very different narrative” and “we continue to increase our local sourcing drive”.
But the group still has to contend with high prices for certain commodities.
This is why Mtikitiki says soaring inflation is still the biggest challenge it and others in the soft drinks industry face. She lists increases in the cost of aluminium and plastic PET bottles used for soft drink cans and bottles, the pricing of which is determined by international commodity pricing, as other pressures.
“You can imagine all the globally-priced commodities and the supply-chain backlogs bringing in a lot of costs for businesses.
“This is the single biggest challenge. How do we manage these rising costs and balance that to make sure that our products are still affordable?”
She says one advantage Coca-Cola has, along with its local sourcing, is its breadth of products which cut across various soft drink categories, including a recent move into alcoholic beverages through Topo Chico Hard Seltzer, an alcohol-infused sparkling water.
Among the group’s many lines are bottled water brand Valpre and Fanta and Sprite.
“We are in a privileged situation in that we have invested significantly in a very strong portfolio. We leverage the entire portfolio to enable everything to work.”
Because of this diversification, not all products are affected by the high costs.
Another critical issue is to make sure the company “manages inventory levels” and constantly updates an “acceptable stock profile” to prevent too many delays in running the business.
Mtikitiki, who has headed Coca-Cola SA since January last year, says the group is optimistic about its growth trajectory in the country, with planned increases in investment across its operations in the coming years.
We are in a privileged situation in that we have invested significantly in a very strong portfolio. We leverage the entire portfolio to enable everything to work Phillipine Mtikitiki Coca-Cola SA vice-president
As for fierce competition in the soft drinks market, she says though Coca-Cola is big, it “thinks like a number two and complacency is the enemy of progress”.
She says competition brings “new energy and new thinking” which is good for the broader economy and ensures companies stay at the top of their game.
Coca-Cola’s biggest rival, PepsiCo, has also invested significantly in the South African market with its acquisition and delisting of food and beverages producer Pioneer Foods in March 2020.
However, Mtikitiki says she doesn’t spend time worrying about specific competitors.
“I spend a lot of time building the right culture and the right plans.
“If we go as a team to the marketplace every day with the mindset to do what is right, to execute the strategy and learn to adapt every day, it doesn’t matter which competitor we deal with, we have a high chance of success.”