On a visit to South Africa about nine years ago Doug Daft, then the chief executive of The Coca-Cola Company, remarked when asked to comment on the company’s growth ambitions, that he would only be happy when the C on household taps was taken to stand for Coca-Cola.
Given the shortage of running water in households in so many of South Africa’s townships, that might not be a sufficiently ambitious target for John Ustas, the chief executive of Amalgamated Beverage Industries (ABI), a wholly owned subsidiary of SA Breweries.
Ustas says the “embedded” annual growth rate for Coca-Cola in this country is 2 percent but he believes there is opportunity for this to be pushed to 6 percent. And Ustas believes that opportunity lies in the townships.
“In South Africa, the consumption of Coca-Cola is skewed to the upper income because there’s limited availability in the townships,” says Ustas. Nowhere else in the world was Coca-Cola consumption skewed to income, he notes.
The skewed distribution in South Africa is attributed to the lack of even the most basic form of retail infrastructure in the townships.
“We are servicing just under 70 000 (retailer) customers; we believe there’s potential for 200 000,” says Ustas. The bulk of the added customers would be informal traders and other outlets in the townships.
Ustas says he “sees a lot of similarities between South Africa and Mexico” and for this reason believes consumption in the local market can increase to the sort of levels achieved in Mexico.
Coca-Cola consumption locally is equivalent to 282 servings of 8 ounces, or 66.7 litres, per person each year compared with 665 8 ounce servings, or 157.3 litres, in Mexico.
Achieving the 6 percent growth rate that Ustas believes is possible will require a hefty amount of investment by ABI. More company reps will be sent out to beef up ABI’s “feet on the street” capabilities, there will be more – albeit smaller – trucks and more signage, and the “cold drink cooler” density will be increased from 40 to 80 coolers per 10 000 population.
Ustas does not underestimate the challenges. While he describes Africa as the “best Coca-Cola market” he has ever seen, he acknowledges the difficulties of creating a distribution system for the all-important township market. He reckons that putting the systems in place to realise the 6 percent growth potential could take up to three years.
Achieving this growth rate will reverse the squeeze on margins that ABI has suffered since 2004 as pricing has failed to keep up with inflation.ABI accounts for about 60 percent of the Coca-Cola sold in South Africa, with the rest shared by three bottlers.