Health, wellness shaping Nigerian soft drink market

Growth in the consumer sector has been a bright spot in Nigeria’s economy, with many of the fastest-growing industries focusing on the country’s rapidly growing private consumer demand and rising retail sales growth.

Nigeria’s soft drink market has continued to develop positively with all major categories showing robust growth in total volume and current value sales. This performance is underpinned by population growth, rising disposable incomes and other favourable economic indicators, but also driven by new launches, marketing activities and improvements in distribution.

According to Euromonitor, growth in total market volume sales was down on 2011 and slightly slower than the review period Compound Annual Growth Rate (CAGR). This was due to the elimination of government fuel subsidies at the start of 2012, which caused fuel prices to almost double overnight and had a negative impact on consumer spending power.

Besides this, increasing maturity in some categories and insecurity in the North caused growth in total soft drink volume sales to slow.

With health and wellness becoming a growing trend in the soft drink market, the impact of rising health awareness among consumers is becoming more visible in the performances of the fruit/vegetable juice and bottled water categories.

Consumers are becoming more brand conscious and interested in new products; a development that is expected to keep players on their toes with investment in research and innovation remaining paramount.

BusinessDay findings show that rising health awareness has bolstered demand for low calorie cola carbonates and non-cola carbonates products. Manufacturers of major soft drinks have responded to this general trend by developing new reduced sugar and sugar-free variants, as well as products that contained more natural ingredients and fewer artificial colourings, flavours, etc.

Performance

Coca-Cola Nigeria Ltd, due to its long established history in the country, strong distribution network, and aggressive marketing techniques, has continued to lead shares in carbonates and bottled water. On the other hand, domestic companies have continued to churn out variety of products with continuous gains in the market.

La Casera Co. Ltd (formerly Classic Beverages Nigeria Ltd) recently introduced the first sugar-free carbonate with real fruit, Latina. The company was one of the first to use PET bottles and has introduced a new ‘Ice Feel’ bottle to raise the stakes again.

Domestic companies have continued to experiment with different flavours, tapping into consumer demand for flavours other than cola and orange. Chi Nigeria Ltd still surprisingly leads Coca-Cola Nigeria Ltd in fruit/vegetable juice, according to Euromonitor report.

Soft drinks distribution

Off-trade channels accounted for the lion share of total soft drink volume sales in Nigeria in 2012, according to experts. On-trade soft drinks volume sales grew faster, partly because they were emerging from a much lower base but also because favourable economic conditions continued to bolster the development of the local food-service market.

The expansion of major fast-food chains is a key driver of growth in on-trade volume sales. BusinessDay investigations also show that independent small grocers remained by far the most important channel in terms of off-trade volume sales, followed by other grocery retailers (traditional open markets, street stalls/kiosks).

Supermarkets and hypermarkets have made modest gains during the review period, thanks to rising urbanisation and the expansion of chains like Shoprite and Spar, which offer wider soft drink assortments and more competitive prices than other retailers.

Economic outlook

The outlook for soft drinks in Nigeria is favourable, with growth in total volume sales over the forecast period expected to be slightly faster than that recorded over 2007-2012, analysts believe. Rising disposable incomes and population growth will continue to underpin the positive development of the entire market, while new launches, marketing activities and improvements in distribution will also bolster demand in individual categories.

Economic growth and the growing influence of Western consumption trends will encourage Nigerians to trade up to higher quality and more expensive soft drinks, particularly healthier products.

Together with price hikes imposed to offset inflationary pressures, this trend should ensure that growth in total soft drinks constant value sales is slightly faster than growth in total volume sales, and markedly stronger than the constant value CAGR recorded during the review period.