Coca-Cola, which took a 40% stake in Nigerian juice market leader Chi Limited in 2016, will acquire the remaining 60% in Q1 2019. Chi is the owner of the Chi, Chivita and Hollandia brands, and co-packs Capri-Sun in Nigeria.
Peter Njonjo, president of Coca-Cola’s West Africa business unit, has confirmed that the company plans to complete its acquisition of Nigerian juice and drinking yoghurt market leader Chi Limited in early 2019. The company bought a 40% stake in January 2016, and announced at the time its intent to complete the purchase within three years, subject to regulatory approval. The move is part of Coca-Cola’s longstanding strategy to diversify away from sugary, carbonated drinks and part of a $600m investment in Nigeria.
Nigeria has banned the importation of fruit juices in retail packs (i.e. not in bulk form) since 2003, although imported fruit juice packs are freely available in informal channels. Even so, Coca-Cola is looking to increase local production and packing. Njonjo has said that, “affordability will start becoming a bigger issue in this market than it was in the past”, noting that using packaging formats such as pouches and looking at products that lend themselves well to local production (such as juices and drinking yoghurts).
Over the course of a long recession, cost to import has been a major issue for all Nigerian beverage manufacturers, eating into profit margins of companies including Guinness, Chellarams and Heineken’s Champion Breweries. As a result, beverage and dairy manufacturers have sought to adopt three key strategies to mitigate the impact of exchange rate volatility and availability of foreign currency:
- Increase use of locally-sourced materials
- Greater focus on lower price point (value) products
- Greater focus on cost cutting through operational efficiency
Coca-Cola is no different. In 2017, the company outlined plans to increase the share of locally sourced raw materials by 5%, from the current 70%. Its control of Chi Limited gives it the platform to invest in developing locally-made, affordable products outside the carbonated soft drinks category.
Nigeria is also seeing major investment in its dairy sector from FrieslandCampina and Dangote, among others, including a shift towards more fresh and ambient (rather than powdered) products. Drinking yoghurts, a key category for Chi Ltd with its Hollandia brand, are seen as a gateway towards increasing dairy consumption.
Coca-Cola also, no doubt, has one eye on a possible sugar tax in Nigeria. South Africa introduced a sugar tax in April 2018 that effectively added 7% to the price of a 500ml bottle of cola. In June 2018 the Nigerian government introduced a new tax regime on wine, beer, spirits and tobacco. A sugar tax is a favoured policy of the WHO and fits well with the governments aims to tax ‘vice’ and raise non-oil revenues.
