AJEast gets growth-focused investment, bets on emerging middle class

Aug 8, 2018

AJEast Nigeria
U.K.-based private equity firm Duet acquired a majority stake in Nigerian beverage manufacturer AJEast. The investment will accelerate the company’s expansion to other markets in Africa and the launch of new products and brands to its portfolio.

AJEast, the Nigerian producer of soft drinks such as BIG Cola or BIG Orange, received a major $50 million investment from the U.K.-based private equity firm Duet. This is not Duet’s first foray in Africa, after setting up a $300 million investment fund in 2014.

AJEast is a subsidiary of the multinational beverage manufacturer AJE Group. The Group is currently present in 23 countries but still has a small footprint in Africa. Aside from the Lagos factory, it operates a factory in Egypt – where it also produces soft drinks under the BIG brand – and a bottling facility in Réunion.

Plans were already in place for AJEast to expand in the continent, with a special focus in West Africa. The investment made by Duet is expected to accelerate that process as well as to enable the company to add new products to its portfolio and increase existing sales volumes. Both Duet and AJEast made clear that the lion’s share of the investment was to be allocated to “growth capital”.

Betting on the emerging middle class

AJEast wants to target a young demographic of growing socio-economic base, banking on the “significant advance of the middle class”. Henry Gabay, Duet’s chairman has said that Duet “strongly believes in the African consumer growth story. As the number of middle-income households in Nigeria and select West-African markets keeps expanding, and more consumers are entering the formal economy through urbanisation, the demand for products such as BIG Cola will grow exponentially.”

Both urbanization rates and the number of households in the middle class are increasing across Africa and that is also the case in West Africa. According to the Trendtype Knowledge Centre, Nigeria’s urbanization rate stands at just over 51% and we estimate it to go as high as 61.7% until 2050. In the remaining West African countries, the picture is almost identical, if not slightly better, on average.

Still a small middle class

In the past few months, Trendtype has heard positive news from Nigeria, where the economy and business are picking up in the aftermath of the country’s economic recession. However, multiple manufacturers have yet to see that reflected in financial results. In the past few months, companies such as PZ Cussons and Chellarams have reported poorer performance in Nigeria. Others have made strategic and operational decisions that also reflect the feeling of a tough trading environment and the recognition of a slow-growing middle class. P&G shut down its brand new factory in Agbara and Nestlé started targeting lower income in Africa – which Trendtype thought was a good call.

This scenario fundamentally underpins the reality that Trendtype still sees on the data. As much as there is a rising middle class in Africa – and in West Africa in particular -, the proportion of the population to sustain a consumer class is still small. In West Africa, only 4.3% of the population lives with more than $10 a day and in Nigeria that number is below 2%. Data also shows that income growth rates are high in Africa and the picture will change. However, the greatest opportunities will still lie, for some time, in the lower income consumer class and companies still have to find a value proposition that balances high quality consumer goods and affordability.

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