Varun Beverages says Zimbabwe is one of the fastest growing markets for its Pepsi products, although the foreign currency crisis remains a cause for caution.
In a conference call with investors on Tuesday, Varun director Raj Pal Gandhi said the company’s international business grew 27% in the quarter ended September, with Morocco and Zimbabwe seeing the highest growth.
“Actually, average is 27%, major here has been Morocco and Zimbabwe, we’re seeing such thing in the vicinity of about 50%,” Gandhi said. He did not provide a split that shows the rate of growth in Zimbabwe alone.
Outside of the US, Varun is the biggest bottler and distributor of PepsiCo products such as Pepsi, Mirinda, Mountain Dew and Seven-Up.
When it entered the Zimbabwean market, dominated by Delta, the company announced an ambitious plan to grab up to 35% of market share within five years and to control half the market in a decade. The company commissioned a US$30 million plant in Harare in 2018, and has budgeted US$150 million in investments over the next five years.
Varun has gone about its business aggressively. First, it entered the market by offering products at discounted prices, undercutting larger rival Delta. When Delta was forced to shut down its soft drinks plant in December due to a forex crisis, Varun doubled its own output.
While both Delta and Varun have raised prices over recent weeks, a 500ml Mirinda PET costs Z$5 compared to Z$7.50 for Delta’s 500ml Fanta and Z$4 for the 300ml Fanta bottle.
In a trade update released Tuesday, Delta reported a fall in volumes across all its product lines, with the soft drinks segment down 56% in the six months to September.
The company seems prepared to take a hit in order to gain market share. Commissioning the Varun plant in 2018, Varun chairman and founder Ravi Jaipuria said his firm was “not too concerned about profits at this stage”, as it looked to establish its presence on the market.
Forex caution
However, Zimbabwe’s foreign currency crisis means the company still has to be cautious. On Tuesday, Varun told investors in India that it has a US$42 million exposure in Zimbabwe.
“We have a dollar exposure of US$42 million in Zimbabwe, out of which US$30 million deferred, (Reserve) Bank of Zimbabwe has undertaken and signed an agreement to undertake that,” Gandhi said in a response to questions on how Varun was providing for the exchange risk in Zimbabwe.
“Yes, we have about 2.5 years maturity for this (liability taken on by RBZ). So we will start observing it after a year or so, once we find the reverse strength,” another Varun official told the briefing.
The company reported lower sales realisation in Zimbabwe in US dollar terms, but saw lower sugar prices in Zimbabwe in USD terms and benefitted from a change in the product mix.
Varun’s Harare plant has capacity to roll out 36 million 500ml bottles every month. The company also plans to open a new canning factory.
