Nigeria’s soft drink market offers a blueprint for how to boost local production

By Temitayo Lawal
Posted on Friday, 22 July 2022 16:52

A man pushes a wheelbarrow loaded with some packages of soft drinks and bottled water at Wuse Market in Abuja, Nigeria, 26 January 2022. REUTERS/Afolabi Sotunde

Nigeria's soft drink market is huge, ranked fifth largest in the world, according to Statista. The market has been dominated by the Nigerian Bottling Company Limited and Seven-Up Bottling Company, which have matched each other's products to maintain their duopoly: Coke vs Pepsi, Seven-Up vs Sprite and Fanta vs Mirinda.

However, the dynamics changed after La Casera introduced PET plastic bottles in 2001, which meant that instead of having to stick around to return glass bottles to retailers, drinks can now be consumed on the go.

As such, off-trade sales (from supermarkets, off-licences, online stores etc.) of soft drinks have risen from $713.6m in 2016 to $1.4bn in 2021, according to Euromonitor International.

That is why you’ll majorly see the big brands at places like restaurants, supermarkets, big parties where people can afford to buy

In recent years, indigenous brands have been making inroads into the highly competitive soft drink market. These include Bigi drinks from Rite Foods Limited; the Big Bottling Company, which is owned by Ajeast (the Nigerian subsidiary of Peruvian company Aje Global); and La Casera.

The sustained growth of indigenous participation in the Nigerian soft drink market is exciting as much as it is instructive to the government.

Their success may provide a policy framework that facilitates competition and creates thriving local industries – as opposed to policies that focus on import bans and limit foreign exchange availability in the hope that this will spur local production.

Lessons to learn?

Buhari’s administration is infamous for its ban on imports. In June 2015, the president announced the ban of 41 imports to Nigeria to shore up foreign exchange. Even though the intention was to boost local production, producers found that necessary materials for manufacturing and production became scarce, expensive and drove up inflation.

“These policies have not worked,” says Abiola Gbemisola, assistant manager of equity research at FBNQuest. “But why an entry like Bigi worked is because they had already installed capacity… and knew the distribution game.”

The local soft drink market has thrived because of its ability to leverage existing infrastructure, to reduce operational costs and build capacity for local productivity and quality. The ability to source bulk of their raw materials locally has also helped a great deal.

“Bigi as a new brand took the price competition route, with a low-price entry into a highly competitive market,” says Gbemisola. “It was also able to distinguish itself with the introduction of several product variants, hence giving customers an option to choose flavours.”

“There is no money in town, but people still want to enjoy these things,” says Bukola Adetoro, a major soft drink wholesaler in the Ikorodu area of Lagos state. “New entrants reduced the price, increased volume and gave the customers choice.”

The battle

Apart from their business strategy that was heavy on price reduction, volume increase and flavour variants, the Nigerian-wide distribution capacity that the owners of Bigi built was a game changer – even though inflation is on the rise and purchasing power is relatively low.

Bigi strengthened their business model and distribution network over four decades via Agfa products. This is a Belgian company that develops, manufactures and distributes imaging systems and IT solutions for the printing industry, healthcare and specific industrial applications – and a company in which one of Bigi’s founders had a vested interest. For Bigi, Agfa provided a distribution template to leverage.

Bigi launched in 2016, the year Nigeria experienced its first recession in 25 years. Another recession followed in 2020. These economic issues inflated operational costs of the big international brands that needed foreign exchange for large operations across the whole country. This wasn’t the case for local manufacturers.

The market is poised to remain stable over the long term.

After the first recession, however, the international brands have also made efforts to accelerate their local raw materials use. Coca Cola sought to increase the share of local input to 75% by 2020. This was one of the major reasons why the operations of the soft drinks giant were not adversely disrupted during the Covid-19 pandemic in Nigeria.

“As wholesalers and retailers, the prices incentivise us. It is almost as if the big brands are begging us now because their products move slowly and we don’t make as much profit as we make on the new entrants,” Adetoro says. “That is why you’ll majorly see the big brands at places like restaurants, supermarkets, big parties where people can afford to buy.”

Nationalist sentiments

When asked about the factors that have sustained the growth of the brand, Boluwatife Adedugbe, assistant brand manager, Rite Foods Limited, tells The Africa Report that it is because “we have consistently expanded our horizons across the country and have fast become Nigeria’s favourite brand with exponential brand portfolio growth, and pride in developing excellent flavours”.

She adds that another thing that has worked for them is their “crusade of changing the narrative that Nigerian-made is substandard“.

The brand “is proudly blazing the trail by ensuring it drives home excellence in its culture, its people and in totality, its brands and what they represent by being ‘Truly World Class but Proudly Nigerian’.”

When Nigeria went into the 2016 recession amid depleting oil revenues and foreign exchange woes, there was widespread sentiment – especially among the country’s leaders – to promote local production. In fact, the #BuyNaijaToGrowNaira campaign trended on social media, stirring nationwide discussions on local content in several sectors of the economy.

Outlook

The Nigerian soft drink market has always been attractive and flourishing largely because of the country’s weather conditions and demand for chilled carbonated drinks.

Nigerian households spent N551.2bn ($1.3bn) on non-alcoholic drinks in 2019, about four times how much they spent on alcoholic beverages (N150.3bn), according to the National Bureau of Statistics (NBS). Data from Euromonitor International also shows that they consumed over 1.6 billion litres of soft drinks in 2021.

Soft drink products will remain in demand and long-term health implications will take the backstage

As people get more health conscious and move towards more healthy food and drinks, there are concerns that the market may be headed south in the near future. Some analysts believe that this is one of the reasons for the pivot or diversification of some known brands into fruit drinks.

After it announced – in 2017 – that it was going to invest $600m to expand its product range, the Nigerian Bottling Company fully acquired one of the biggest fruit drink manufacturers in Nigeria, the Chi Limited, in 2019 to take over the production and distribution of its juices and value-added dairy products from the Tropical General Investments (TGI) Group. They have also expanded their portfolio with the production of new 5 Alive fruit drink variants.

In 2019, a year after it was fully acquired by Affelka S.A. (its majority shareholder) amid plummeting revenues, Seven Up Bottling Company, makers of Pepsi, Mirinda and Seven Up, launched the Lipton Iced Tea at the popular reality show Big Brother Naija.

In June this year, Rite Foods Limited launched its five-flavour Sosa fruit drink collection.

If economic fortunes don’t improve, we may see the proliferation of smaller sized containers

“The market is poised to remain stable over the long term. Soft drink products will remain in demand and long-term health implications will take the backstage,” Gbemisola says.

Even so, how is the battle for market share especially by the indigenous brands that have adopted low pricing as a strategy likely to pan out? Can they hold on for much longer to complete their revolution or will they also fizzle out or be acquired by the bigger players? Will Nigeria’s economic realities make price reduction unsustainable or is the industry likely to motivate other smaller brands to throw their bottles in the ring?

“If economic fortunes don’t improve, we may see the proliferation of smaller sized containers. There are already variants in retail markets,” Gbemisola says.

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