On 2 December, six West African heads of state stood up to the IMF at a conference it organised, arguing that development will come to a standstill if the Bretton Woods institutions do not change their approach.
South Africa: PepsiCo launches Africa drive with Pioneer purchase
Sub-Saharan Africa is set to become a new regional division for multinational PepsiCo after it completes the $1.7bn purchase of South African food group Pioneer Foods, announced last week.
Food and beverages will be one of the fastest-growing sectors in Africa over the next decade and various multinationals, including Walmart and ABInBev, have been building up their presence through buying South African companies with African networks.
- According to PepsiCo, the deal is key to unlocking the potential of African markets for future growth, given macro-economic prospects and the affordability of many PepsiCo products.
Pepsico’s brands include Pepsi, Tropicana, Quaker Oats, Lays, and Simba. At present, its African operations fall partly under Europe/sub-Saharan Africa (10% of operating profit in 2018), and partly under Asia, Middle East and North Africa (12% of operating profit).
Pioneer Foods’ brands include White Star, Weet-bix, Liquifruit, Ceres, Sasko and Spekko. It exports to several African countries and has joint ventures in Namibia, Botswana, Kenya and Nigeria.
In its last annual report, Pioneer noted increasing competition in the food sector in Africa as a result of a focus by many multinationals on growing their market share and penetration. “Often, these strategies are undertaken at the expense of short- to medium-term profitability, which further shrinks already narrow margins for all market participants,” it said.
In a December 2018 report from the Africa Growth Initiative at the Brookings Institution, researcher Landry Signé said consumer spending in Africa had risen by a compound rate of 3.9% since 2010 and was expected to reach $2.5 trillion by 2030. The sectors that would benefit the most from future growth in household consumption would be food and beverages, housing, luxury goods, transport, hospitality and recreation.
Cassie Treurnicht, a portfolio manager at Gryphon Asset Management in Cape Town, said South African industrial companies were not popular acquisition targets for multinationals at present, given disproportionate fears around Eskom and electricity generation. But Pioneer Foods did offer the attractions of an existing distribution network and immediate capacity for expansion into Africa.
It was interesting that PepsiCo was targeting growth in African markets, Treurnicht said.
- Five to seven years ago there was a lot of interest from multinationals in expanding in Africa, but many fled the continent after the collapse in commodities prices.
Although Treurnicht said he was not sure now was the right time to go back into the continent, for a company like PepsiCo that had clearly decided there were opportunities, Pioneer Foods was a good vehicle.
Keith McLachlan, a fund manager at AlphaWealth, said there are four important issues to consider in this deal:
- PepsiCo is not just a beverages business. Snacks are a very important component.
- Pepsico and Pioneer had a previous relationship through a bottling agreement so they know each other and have worked together. (In July 2015 Pioneer and PepsiCo terminated a contract under which Pioneer had sole rights to bottle and sell Pepsi in SA.)
- Pioneer has very valuable brands as well as excellent manufacturing capability and the ability to distribute its brands across a wide footprint in the SADC region. For PepsiCo, tying up with Pioneer will allow it to distribute its own brands across Africa and select some of the Pioneer brands to distribute within its own global network.
- Pioneer Foods has shareholders who are keen to sell.
McLachlan said Africa represented an excellent opportunity for food companies. There were short-term headwinds in some economies – including SA – but in the longer term Africa’s population growth required food and its rising living standards would result in higher buying power over time.
PepsiCo said its new sub-Saharan Africa operating sector will be led by Eugene Willemsen, who most recently served as the group’s executive vice president of global categories and franchise management.