‘Suntory’s acquisition of Lucozade, Ribena throws up opportunities for local sourcing’- CEO
Suntory Beverage & Food Nigeria Limited (SBFN) has completed the acquisition of Lucozade and Ribena brands from GSK Nigeria effective October 1, 2016. It will be recalled that Suntory Beverage Company of Japan had in 2014 bought British drinks brands Lucozade and Ribena from GSK for 1.35 billion pounds. Suntory subsequently outsourced production and sales of the brands in Nigeria to GSK Nigeria. Now, Suntory Nigeria has begun full operations in Nigeria regarding the Lucozade, Ribena brands. Chinedun Okereke, the CEO of Suntory Nigeria told BusinessDay in this interview that this development will see Suntory Nigeria responsible for the manufacturing, packaging, distribution and marketing of the popular beverage brands in Nigeria. Excerpts.
What is your assessment of business environment in the last 10 months of this year?
Looking at the economy and its impact on business in Nigeria, first, before October 1 when I took over as CEO of Suntory, I used to be head of supply chain for GSK, in charge of Middle East and Africa and therefore I understood how the devaluation of the currency impacted the cost of doing business in Nigeria. Clearly, it was quite tough for companies in Nigeria. However, I still see a big opportunity in Nigeria. It is time for companies and organizations to drive for efficiency, drive for focus and begin to drive for productivity.
Are there certain things you would have wanted government to do?
There are opportunities for government as well, if we look at areas of infrastructure. One is electricity supply; if the electricity supply could get better, obviously it becomes a big plus for organizations because the money spent on electricity could have been spent on procuring other materials to improve productivity. This would also give a level playing level field when you compare yourself with other African countries. Secondly, look at the roads. For instance, the roads leading to a lot of factories in Agbara are so bad. This increases the cost of freight, increases damage on the roads and these results to increased impact on the consumer. Another area government can help is in terms of regulations. Prices of some commodities to some extent can be regulated. Now, the price of sugar has increased by 100 percent in the last 6 weeks. There is a limit to which manufacturer can pass the cost to the consumer. If we can get a little bit of some regulations of some consumer products, that can help. The last point I would say is in terms of sourcing forex. Most of the companies now source forex almost at the parallel market rate if it is available. I know that government is putting up an effort in terms of getting people to go through interbank exchange rate, it is an area the organized private sector has to appeal to government for more support.
Are you then optimistic looking at these gamuts of economic challenges?
I am quite optimistic and what gives me the confidence is the resilience of the people. Economic down-times come in cycle, because this is not the first time the country has experienced this. But it is about looking internally of what is within our control. You can find out that we have a captive manufacturing side, a side that is within an integrated business where we draw 100 percent of our business, and this gives a good fighting chance unlike if you are purely an import based organization.
What is Suntory capacity utilisation?
Our capacity utilization actually goes from our pack sizes to pack sizes. But generally we are about 60 percent. Consumption and sales will up the capacity but at the same time, you want to invest ahead of demand. The save place to be is actually between 70 and 75 percent. No one wants to run at 90 percent. At 90% capacity utilization, the implication is that there is an upsurge and one would find it difficult to meet up. Some organizations are running at less than 30. We are one of the fortunate few in the industry.
What is the strategy and rationale behind Suntory’s acquisition of Lucozade and Ribena?
First and foremost, it meets up the need of Suntory as an organization of expansion strategy. Part of the expansion strategy for Suntory global is actually to try to have a very strong footprint in Africa. Nigeria is therefore the very first place it owns an operation in Africa. This meets Suntory global expansion strategy to invest in emerging market using Nigeria which is biggest economy in Africa as a foot stool. The second point is that Suntory has already found a partner in GlaxoSmithKline who were equally beginning to move away from its drink portfolio to health portfolio. This is like two needs meeting each other. Therefore Suntory is leveraging that to come in to Nigeria and it is coming with an existing brand as well as existing operation and existing people.
Are you saying that Nigeria is now a hub for Suntory in African market?
Yes and No. Nigerian manufacturing operation has not even fulfilled the demand of Nigerians as a market. However we are going to start exporting to W/African markets with time. But the first thing is to meet up with local demand.
Why is Suntory Beverage & Food Nigeria coming into the Nigerian market at this time?
We believe in the Nigerian economy and the growth potentials of this country. Despite the present challenges, we believe that consumers in Nigeria have very strong connection with our brands and we want to continue to invest in a market with one of the greatest potential for economic growth and which remains the largest economy in Africa. As part of our expansion strategy, SBF will continue to explore emerging markets and economies, empower local people and grow our brands.
What does the acquisition of these products by Suntory mean to Nigerian consumer?
What it means to Nigerian consumer is getting the products at the right quality, the right time and right cost and giving Nigerian consumer varieties. It also means having the Suntory operations and the people close to their brands.
What is the implication to local sourcing of raw materials and employees?
This throws up a lot of opportunities and we are already doing a lot of backward integration in terms of raw and packaging materials. We are already engaging a lot of local suppliers and this creates a lot of value and business as well. We are partnering with a lot of them by technology transfer either from China or Europe to them. Again, Suntory is committed to building the Nigerian people, Nigerian economy and the Nigerian business. We will continue to do that as we see our employees as strong partner in this journey. We value them and we will continue to work with our employees, as well as our distributors and partners. We cannot do it alone. In my three weeks as CEO, I have gone round to meet a lot of them and extending our hands of friendship.
You talked about introducing other brands going forward, how soon is the consumer expecting them?
In a couple of months, the consumer would begin to see a lot of exciting innovations coming out from the house of Suntory. Again our expansion strategy is both factory and products. We currently have a site in Agbara in Ogun State which is quite very big, but we will continue to test the market with Lucozade and Ribena. Of course, Suntory is known with other global brands and we will begin to introduce those brands. If we need to have any geographical expansion in terms of sites, then from our strategic direction, we will do that. This would help us in terms of distribution.
You operate in a very competitive market, how are you positioned for it?
We are very fortunate organisation. While Suntory is beginning to be known, our brands are well known. For instance, Lucozade is a foremost brand in energy drink category, Ribena has followed a lot of consumers from cradle. We are not afraid of competition but we are now more confident as we are owned by the third largest soft drink company in the world. We will leverage that expertise
What is your message to your consumers and shareholders?
For the consumers, Suntory will continue to excite them with its great brands, as they are important to the company and close to the company’s heart. For the shareholders, they should put trust in us as the best is yet to come out from Suntory.