KBL, operated by Sechaba Breweries Holdings Limited has become a victim to the growth of Fast Moving Consumer Goods (FMCG) retailers in Botswana, which alongside their growth rate have ventured into manufacturing cheaper in-house soft drinks that eat into the market share of the long time market dominance of KBL.
The company’s luckless drubbing is best captured by the Competition Authority (CA) in one of its studies named ‘In-House Brands retail chain stores in Botswana’.
The Authority’s research reveals that the growth of retail stores in Botswana has been accompanied by an emerging marketing concept known as ‘In-House branding’. The CA indicates that In-House brands are brands that belong to a particular retail store as opposed to the traditional Family brands which are owned by large multinational manufacturers. These In-House brands, it says, compete with traditional Family brands and are generally cheaper; with little being spent by way of advertisement.
The study, led by Tebelelo Pule indicates that the “no name brands” or “in house brands” rely mainly on the store’s allure and are mainly found under commodity products, or products that are known to be traffic pullers in retail outlets. Conventionally, multinational manufacturers used to produce and package their own branded products and sell them to wholesalers/retailers, who would retail them to consumers. However, since the retail sector is product centric according to the study, manufacturers’ now aim to maximize production capacity by also packaging In-House brands for retail store customers. From a consumer perspective, In-House brands provide a cheaper alternative to the conventional Family brand and are viable substitutes.
It appears that the market is slowly substituting the costly sparkling soft drinks which are products of the Coca Cola Company with cheaper in-house soft drinks brands.
KBL distributes Coca Cola Company products in Botswana.
Under the Coca Cola products agreement, the struggling KBL trades with Sparkling Soft Drinks (SSD), in Coca Cola itself, Fanta, Stoney and Sparletta products. These sparkling drinks are products of the Coca Cola Company. Further, KBL, which is owned by Sechaba Breweries Holdings Limited, also trades in Non Alcoholic Beverages (NAB) which includes Keone Mooka Mageu, bottled waters as well as fruit juices.
In their latest annual report, Sechaba Managing Director (MD) Johan de Kok announced that increased competition from in-house brands by local retailers continue to pile pressure on soft drinks, which has negatively impacted on sales.
Sales for that category, for the 12 month period ending December 2016 took a decline of 5 percent compared to the prior corresponding period, due to increased competition within the retail sector. During the prior year, sales volumes for the Coca Cola products were just under 600 000 hectoliters, but the figure slowed down to under 550 000 hectoliters, according to data contained in the company’s annual report.
Market trends reflect that should the brewer, whose sales are on a decelerating curve, fails to be vigorous in its non-alcoholic beverages market, it is likely to lose a significant market share due to the mushrooming of various in house brands sold by local Fast Moving Consumer Goods (FMCG) consumer goods retailers.
Major retail stores trading in Botswana have their own production plants, where they produce soft drinks at cheaper costs and also distribute them through their large retail network to the detriment of KBL products.
Choppies, the largest FMCG retailer, sells Twizza, its in-house sparkling drink brand which is pushed through its retail network of over 60 retail stores nationwide. Sefalana Holdings Limited, the biggest rival to the Choppies group trades with Kwencha, its in-house sparkling soft drink which is popular amongst Sefalana loyal customers. The same applies even to South African owned retailers like Pick N Pay, Spar, Woolworths to mention but a few.
All these FMCG traders sell their in-house brands which aggressively compete with Coca Cola products. Their competitive edge is that they are offered cheaply, almost two times lower than KBL products, which the KBL MD said affects them badly.
While KBL is crying foul, market watchers do not see anything wrong with retailers producing soft drinks but rather, they see it as clean competition. “This is competition, as a competitor in the market KBL should welcome competition and rather focus on its competitive edge and ability to attract customers,” said Gideon Nkala, Competition Authority Communications Director. However, De Kok’s worry is that with limited buying power, customers would obviously choose the cheapest product, so as to save the little they can. Coca Cola is sold at an average price of P17 per 2 Litre bottle, while products from retail supermarkets are sold at around P8 per 2 Litre. However Moemedi Mosele, Capital Market Analyst at Motswedi Securities believes that while Coca Cola products will lose some of its market, it will remain at the premier end of the market because of its quality and the brand loyalty it has created over the years.
De Kok has expressed worry that with their predatory pricing, which is influenced by nugatory costs of production, the in-house brands should be a concern going forward. Generally, there is limited disposable cash in Botswana, which Mosele agrees could push majority of the low income earners to settle for the low quality in-house brands, and abandon the Coca Cola products.
In its study, the Competition Authority says that there is a need for competition agencies to be worried by the growth of In-House brands when one considers the shift of power from manufacturers to the dominant retail stores; and the influx of these In-House brands on retail store shelves and crowding out of Family brands and the resultant competition issues.
Further, the Authority says that retail stores acquire and resell In-House brands at cheaper prices, and this is due to explicit terms of trade by retailers that dictate a lower charge on In-House brands compared to Family brands.
The study indicates that retail stores also receive trade rebates on both Family and In-House brands and have the discretion to return unsold Family brands products citing consumer preference, and this may disadvantage manufacturers (such as KBL) as they have no say in terms of shelf-space, volumes demanded or product mix. Whether it is intentional positioning or market forces at play, retail stores have the influence and the opportunity to utilise their dominant position (within the defined relevant market) in an unscrupulous manners and therefore monitoring is warranted, notes the study. The Competition Authority says there is a possibility of abuse of dominance where the most likely practices would be found, comprising of Margin Squeeze, Dictated pricing, Foreclosure as well as Barriers to entry.
The Authority says that the prevalent terms of trade should be assessed to ensure a fair trade platform between retailers and manufacturers. Such terms should seek to lessen the leverage on one specific side which may lead abuse of dominance. It also says that Government regulation can be imposed in the form of caps (maximum volume levels), which will create a balance in the sales volumes of both parties.