SABMiller and the Coca-Cola Company have agreed to form a new company in order to merge their non-alcoholic bottling operations in Africa. The new business, Coca-Cola Beverages Africa, will be the leading bottler of the soft drink in the continent with annual revenue of approximately $3 billion.
Coca-Cola Beverages Africa will serve southern and eastern Africa, operating across a dozen countries. With more than 30 bottling plants and over 14,000 employees, the new company will account for approximately 40% of all Coca-Cola sold in Africa by volume. Multi-national brewing company SABMiller will have a 57% stake in the new business and soft-drink manufacturer Coca-Cola will hold 11.3%. The remaining 31.7% will be owned by the majority owner of Coca-Cola’s bottling partner in South Africa, Gutsche Family Investments.
By consolidating bottling operations, both companies will benefit from increased efficiency and access to promising long-term markets. African populations are growing, disposable incomes are rising, and middle-class consumers are increasingly attracted to branded beverages. SABMiller has its roots in South Africa, and this agreement will give the world’s second-largest brewer access to more countries with favourable demographics and rapidly expanding economies. Moreover, it will help Coca-Cola achieve their ambitious 2020 plan. Chief Executive Muhtar Kent’s “Vision 2020” requires strong financial performance to achieve a revenue target of $200bn by 2020. Africa currently contributes nearly 10% of Coca-Cola Company’s revenue. According to Kent’s vision, this deal is likely to double that figure.
This long-rumoured deal reflects the two brands’ efforts to diversify their beverage offerings. For SABMiller, whose beer brands include Peroni and Grolsch, the deal with Coca-Cola marks another shift from its traditional brewing focus. Soft drinks account for 20.6% of SABMiller’s total sales by volume, an increase of 3.4% since 2009. This figure is likely to increase to 25% upon completion of the deal. In addition, Coca-Cola is paying $260 million for the worldwide rights to an additional 19 SABMiller non-alcoholic brands in Africa and Latin America, including Appletiser. As health conscious consumers shift to waters and juices, Coca-Cola will be able to continue diversifying from its core Coke product while compensating for lacklustre US growth in more promising markets.
Analysts have predicted that more brewers will expand into the non-alcoholic drinks market. In many emerging markets such as Latin America and Africa, soft drinks sales are outperforming beer sales. Global demand for beer has stagnated in recent years, including in developed markets such as Australia and the US. While the margins of soft drinks are ultimately lower, bottling is a less demanding and capital-intensive process compared with brewing beer. As a majority stakeholder, SABMiller will be able to capitalise upon growing demand and per capita consumption of soft drinks.
Subject to regulatory approval, the deal is expected to complete late 2015.
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