Coca-Cola’s Nigerian partner NBC shuts Enugu plant amid ‘cola wars’

The Nigerian Bottling Company Limited (NBC), part of the Coca-Cola Hellenic Group, has effectively closed its plant in Ngwo, Enugu State. The plant has been converted into a logistics and distribution hub. The company’s statement says that the move will bring better value to its customers in south east Nigeria.

The Ngwo plant has been operational since 1975 and manufactures the Coca-Cola, Fanta, Sprite, Schweppes, Eva Water, and Five Alive, soft drinks brands.NBC retains manufacturing facilities in Abuja (2006). Asejire (1983), Benin (1970), Challawa, Ikeja (Lagos, 1978), Maiduguri (1983), Owerri (1982) and Port Harcourt (1973). The company has invested around $560m since 2015 to upgrade its factories.

Price wars and competition

The reasons for the closure are more important than the closure itself. Coca-Cola has long had a dominant position in Nigeria. Its carbonated brands competes directly against brands including Pepsi, 7Up and Mirinda (SevenUp Bottling Company) and LaCasera (La Casera Company). Increasingly, Coca-Cola is also facing competition from domestic brands targeting less affluent consumers. These include Big Cola, launched in 2014 (Ajeast Nigeria Limited, a subsidiary of Peru’s AJE Group), and Bigi Cola (launched in 2016) (Rite Foods Limited).

Consumer affection and loyalty for the flagship Coca-Cola brand is being tested by aggressive and competitive pricing. Coca-Cola is up to 10% more expensive than Pepsi and up to 20% more expensive than Big Cola and Bigi Cola. While Coca-Cola enjoys strong awareness, pricing of N150 ($0.28) for a PET bottle (50cl) still makes it a barely affordable luxury for many consumers on a regular basis. For those consumers, the differences in taste and quality between Coca-Cola and cheaper rivals can be trivial.

NBC has responded to these challenges by using smaller, cheaper bottle sizes – notably its 35cl ‘Solo’ size to bring pricing down to the important N100 mark  -the ‘old’ price before inflationary pressures from the devaluation of the Naira kicked in. The new 35cl format delivered strong growth in volume sales but rivals have followed suit with 35cl bottles of their own. Worse, Pepsi was reduced in price to N100 for the larger 50cl format.

Cutting costs

The closure of the Ngwo plant signals a new chapter: a relentless focus on cutting operational costs, including the closure of older, smaller and less efficient sites. This is a familiar theme we’ve seen among Nigerian manufacturers, which have suffered from rising import costs since the start of the recession in 2014. As the recession has come to a close, that pain has typically been translated into a new strategic imperative of improving profits through efficiency.

In the case of NBC and Coca-Cola, the imperative is profit but it is also about passing on efficiency gains in manufacturing, packaging and distribution onto the consumer to keep the carbonated brands more price competitive. Fundamentally, NBC are unlikely to make up a 20% price discount to the cheapest brands. But they will want to put pressure on Pepsi’s bottler SevenUp Bottling Company, the real target.

Shake up of the portfolio

Trendtype believes that long term Coca-Cola needs refresh of its portfolio more urgently. The option of introducing value brands in the portfolio to recruit customers who cannot afford the main brands has worked well for brewers in Nigeria and Kenya. But it is generally avoided by Coca-Cola, which fears the erosion of brand value and cannibalisation. The challenge for soft drinks manufacturers is that it is hard to position the brands by pointing to an ingredients/manufacturing justification for why one carbonated soft drinks brand is more expensive than another.

Instead, Coca-Cola tends to prefer local market innovation, still at premium price positioning. Here also, its partner NBC has been sorely lacking. In fact the carbonated soft drinks market has seen little innovation in the past five years in Nigeria which is one reason why some consumers have reacted to rising prices by choosing me-too brands. The closure of the Ngwo plant is not a catastrophe for NBC. But the given reason of ‘value’ or efficiency doesn’t tell the whole story. Now that the recession is over, the Naira is more stable and growth is accelerating NBC needs to look at the portfolio too. We might also question whether Coca-Cola Hellenic Group, for whom Nigeria is its sole African market, is sufficiently geared towards the challenges of its most income-constrained markets.