Delta Corporation is to acquire Mutare Bottling Company (MBC) from Econet Wireless, a deal long sought after by both giants.
The sale finally gives Delta access to Manicaland’s soft drinks market, which had been controlled by MBC, and allows Econet to let go of a non-core asset that it has been trying to sell for a decade.
“The company is finalising discussions with The Coca-Cola Company for the extension of the sparkling beverages franchise territory to include Manicaland and has entered an agreement to purchase the bottling assets of Mutare Bottling Company (MBC),” Delta says in a statement accompanying its half-year financials, released Thursday.
“This is a welcome development which will allow the company to leverage on its scale and combined asset base to meet the sparkling beverages demand across the country. The transaction is subject to regulatory approvals.”
Delta does not disclose how much it will pay for MBC.
Econet bought into MBC in 2008. At the time, during hyperinflation, the telecoms company was making more Zimbabwe dollars than it knew what to do with, but which were not enough to reinvest in the network, where costs demanded US dollars. Econet ended up invested in various non-telecoms companies, including Afre and Rainbow Tourism Group.
Through wholly-owned investment vehicle Pentamed Investments, Econet bought 63% of MBC. Despite many offers over the years, Econet held on to the asset, saying most bids were below its valuation of the bottler. In 2014, MBC installed a new US$17 million automated bottling plant, funded by loans from MBCA and the former PTA Bank. The plant expanded output capacity from 10 000 bottles a day to 30 000 bottles per hour. However, the company has struggled to fully service the region.
While Econet got many offers, Delta always looked like the most likely buyer. MBC held the franchise for Coca-Cola brands in Manicaland, the only province in which Delta had no control.
Delta bottles and sells Coca-Cola brands under licence from The Coca-Cola Company. After SABMiller merged with AB InBev in 2016, Coca-Cola announced that it planned to cancel its bottling agreement with Delta. However, after negotiation, Delta and The Coca Cola Company late last year renewed their bottling contract for a further three years to September 2022.
Delta: bottoms up
The six months to September was a game of two-halves for Delta.
Demand collapsed in the first three months due to COVID-19 restrictions, which added to already poor consumer spending. However, the other three months saw lager volumes recovering by 18%, giving an overall 3% recovery for the half-year.
“The volume is currently skewed in favour of the mainstream brands and larger packs due to changes in consumption occasions and settings,” Delta says.
However, sorghum beer volumes fell sharply by 31% because of the closure of bars and bottle stores. Distribution to rural markets was disrupted under the lockdown.
Soft drink volumes recovered by 22% from the same period in 2019. However, this is from a low base as soft drinks were in short supply this time last year.
“The business continues to recover market share on the back of consistent product supply and competitive pricing,” says Delta.
The company says currency measures, such as allowing trade in foreign currency and the forex auction, have helped stabilise the market.
“The remainder of the year will depend on whether the current stability in inflation and the exchange rate will sustain. The businesses in Zimbabwe are witnessing recovery in volume and profitability on the back of improved access to foreign currency through domestic Nostro sales and benefits from a stable exchange rate.”