The South African Cold Beverage Sector

There has been a recent, but growing, swell of activity in the non-alcoholic, cold beverage sector, driven by a range of factors, least of which is the onset of summer.

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Non-alcoholic beverages constitute 39.6% of the total beverage market (10 670 million litres), and the sector is valued at approximately R39.731 million.

Year-on-year to December 2010 the CPI for food and non-alcoholic beverages (CPIF) only recorded growth of 1.5%, compared to the international average of 25%, creating ideal conditions for new entries in the market. Amongst the new-comers there is a notable growth in the amount of energy drinks in the market, but that is a topic for another discussion.

Although the sector has traditionally been dominated by carbonated soft drinks (they held 83.2% of the market in 2009), it is beginning to lose its foothold. The best performing categories in terms of volume growth for 2009 - 2010 were Sports Drinks (-15.5% > 4.1%), Mageu (-12.6% > 3.2%) and Energy Drinks (5.5% > 13.5%).

There is also an increasing trend towards healthier lifestyles and this spills over into the food and beverage category. “The average consumer is becoming more aware and educated regarding beverage ingredients and the benefits of these, and there appears to be a greater incidence of consumers who read labels.”

These are interesting times for the beverage industry and if current trends continue, and there are no signs that they won’t, manufacturers and retailers alike will be facing some challenging changes.

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The ample supply of a relatively cheap labour pool has long been an asset to South African retailers, until now they have been able to employ a large workforce (by international standards) while still being able to maintain healthy margins (again by international standards). An international FMCG retailer expects to operate on a margin of between 0.5 and 1.0% while in South Africa Retailers aim for between 4 and 6%, but that is a topic for another discussion.

The cost of labour in South Africa is increasing considerably and legislation is reducing the number of retailer friendly employment options, such as contract and casual labour. At store level, retailing is labour intensive and the cost saving potential is limited. However contemporary IT solutions provide a viable alternative to the traditional staff heavy approach. Small innovations, like electronic shelf labeling, can significantly decrease costs and improve productivity. Whilst full automation at store level is still a way off, retailers are prepared to invest in the right technologies to reduce the dependence on labour.

It is not going to be the store floor worker who will feel the impact for the race to reduce the overall employee cost. They are largely protected by unions and legislation, however we can expect a sharp drop in contract and casual work opportunities. The brunt of the blow will be felt in the management teams outside of the store.

In SA some retailers have done well to keep “non store” management costs low, but in other instances these costs appear to be substantially higher than the global norm. Centralization of management functions such as purchasing and logistics helps to reduce the management cost, but that’s not enough. As the overall costs of labour increase we will see pressure exerted by executives to cut management structures to the bone.

Whichever way you look at it, the retail industry does not look set to increase the number of people it employs in the near future. When you consider the valuable training, low level entry requirements and upward opportunities that retailing offers, you would expect Government to be bending over backwards to create an environment that would stimulate employment. In my opinion it should form the backbone of the nation’s job creation strategy. Instead we seem to find ourselves in a web of legislation designed to have the reverse effect.

For a concise summary of the amendments to the Labour Laws, click here.

  
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The Algoa FM Quali Juice DRINK TO YOUR HEALTH competition QUALI JUICE, one of the few of its kind that’s 100% pure fruit juice, now offers three new flavours that include African ingredients to boost your health! read more

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Innovation In FMCG

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Innovation is key to survival in any industry. It is what keeps a product in the market, what keeps some competitors on their toes and others on top, essentially it is what drives a business forward.

Recently, I was among a number of privileged guests to attend the latest of TNS Research Survey's Breakfast series presentations where speaker Ray Crook, TNS Asia Pacific, Middle East and Africa Director for Innovation and New Product Development, addressed the issue.

Out of the blocks Ray hit us with some numbers: $190 billion is spent on the technology sector and $19 billion spent in the consumer sector; 90% of executives have come to the realization that innovation is crucial to building inertia; and over 90% of consumers have unmet needs. Apart from being an eye-opener this also revealed converging points in the market, most notably that executives and consumers have a large overlapping interest which could be mutually beneficial.

However whenever engaged in innovation there are certain risks, least of which is product failure. There is also a large personal risk for the creative team, if an innovation fails this could potentially be career limiting. Thankfully, Crook offered some advice to avoid this. Top of list, an obvious but often overlooked step: do your homework. Find out what the needs of the consumers are, look for future gaps, what are the must have elements for the innovation. Furthermore, he advises a move away from the mass approach strategy to a more focused and targeted approach, when it comes to retail, everyone is not equal; consumers have different wants and needs, different levels of income, different priorities.

Once a consistent need has been determined, a focused approach must be taken and detailed briefs, for strategy and continuity, must be drawn up. It goes without saying that original ideas are very important, but it is just as important to recognize exactly what consumers want, or more accurately what they need. They don't necessarily want something that is unique to the point of alienation, or something that is so far ahead of the competition that it's confusing. It is also important to address the issue of timing, just because you have a ground-breaking product it does not mean the market is ready for it.

When it comes to launch time one of the most important factors is excitement around the product. This can be done at various levels: digital campaigns; traditional advertising; in store promotion; word of mouth. The latter has proven to be very useful, shown to be twice as effective as traditional advertising. Get the word out, it's the only way to move your product.

Innovation is a fascinating industry and is among a small number of universal factors that account for the success of any venture. Therefore, familiarizing oneself with the subject matter is not merely an option but rather a necessity.

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Heaven Elegance Heaven Elegance Blueberry Cheesecake provides a lighter indulgence, for consumers to enjoy more often. read more

South African retailers enter deflationary period.

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Defining Deflation
Coming off of an extended period of relatively high inflation, retailers are suddenly forced to contend with a new issue, deflation. What are the consequences thereof and how will retailers deal with this new obstacle?

An important distinction to be made early-on is the difference between disinflation and deflation. The former refers to a period during which inflation is still positive but decreasing over time. Deflation on the other hand, defines a period of negative inflation, i.e. Inflation is at, or lower than, 0%. Generally speaking, 2% inflation is regarded as a safe buffer against deflation.

Effectively what results during a period of internal deflation, is that the cost of keeping a SKU on shelf increases while its value decreases. This puts retailers in a difficult position as they literally cannot afford to drop prices to drive revenue. Furthermore, it may lead to consumers assuming that prices will continue to drop which in turn leads them to put off purchases, further exacerbating the situation.

Shoprite has managed to keep its head above water during increasingly trying economic times. Its turnover in the quarter ended September grew by 9.7%, and its core business, which includes the Shoprite chain, the U-Save Shoprite format and Checkers, grew turnover by 8.5% while internal food inflation averaged negative 1.5%. It has been a while since such negative growth has been experienced and it will certainly make efforts to stimulate turnover growth and increase gross profit margins more challenging.

Pick n Pay are facing similar problems as they admitted last week that “there had been significant pressure on the [their] margins as food inflation was below the growth in the consumer price index.” In August last year, internal food inflation was at 9.8% but has since fallen to 0.1%.

Although early signs are showing, it is yet uncertain if retailers are headed for full deflation. If the current rapid disinflation can be stemmed, it might be possible to disregard the former all together.


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Product innovation for category growth

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Maintaining growth in the older, more established FMCG categories is a difficult task for any brand manager and introducing new consumers to the category is as important as ensuring they choose your brand when buying. In a mature category, product innovation should form a corner stone of any successful growth strategy and if implemented correctly will help to grow the category as well as the brand. Product development is expensive and requires significant financial and human capital investment.

Retailers are often reluctant to invest shelf space to products in a category that has low or in some instances negative growth so it’s important that they are aware of the product’s appeal, as well as the intention to develop the category. Retail buyers ultimately play the role of St. Peter at the “pearly gates” for any brand, so it is important to consider them as partners and include them as early as possible in the development cycle.

The Laager brand has aggressively pursued a strategy to develop the tea category and have used product development and the positioning of Rooibos tea as a healthy hot beverage alternative to access and develop new markets.

Have a look at some of the fantastic innovations.

· NEW! Laager Rooibos Cappuccinno
· NEW! Laager Shake4Kidz

Innovation within FMCG categories is crucial in driving category growth

BRAND NEW PRODUCTS

NEW! Laager Rooibos Cappuccinno All the natural goodness of rooibos in an indulgent Laager Rooibos Cappuccino read more
NEW! Laager Shake4Kidz Great Tasting Chocolate & Strawberry flavoured Rooibos shake for kids! read more
Add a twist of flavour to your food with Lecol Flavoured Lemon Juice The Lecol taste and convenience you have come to trust and rely on will be available from August 2010 in three delicious new flavours. Look out for Lecol Lemon with a twist of garlic and herb flavour, butter flavour and peri-peri flavour at a supermarket or a grocery store near you. read more

Stimulating Growth

Get Lucky with Lucky Star

Mobilitrix

Win with Wellington’s

Huggies - Love the Joyride

KWV 20 Year Old wins Gold

New Laager Rooibos Cappuccino

Maintaining growth in the older, more established FMCG categories is a difficult task for any brand manager and introducing new consumers to the category is as important as ensuring they choose your brand when buying. In a mature category, product innovation should form a corner stone of any successful growth strategy and if implemented correctly will help to grow the category as well as the brand. Product development is expensive and requires significant financial and human capital investment.

Retailers are often reluctant to invest shelf space to products in a category that has low or in some instances negative growth so it’s important that they are aware of the product’s appeal, as well as the intention to develop the category. Retail buyers ultimately play the role of St. Peter at the “pearly gates” for any brand, so it is important to consider them as partners and include them as early as possible in the development cycle.

The Laager brand has aggressively pursued a strategy to develop the tea category and have used product development and the positioning of Rooibos tea as a healthy hot beverage alternative to access and develop new markets.

Have a look at some of the fantastic innovations.

· NEW! Laager Rooibos Cappuccinno
· NEW! Laager Shake4Kidz

Innovation within FMCG categories is crucial in driving category growth


New Products

NEW! Laager Rooibos Cappuccinno All the natural goodness of rooibos in an indulgent Laager Rooibos Cappuccino read more NEW! Laager Shake4Kidz Great Tasting Chocolate & Strawberry flavoured Rooibos shake for kids! read more Add a twist of flavour to your food with Lecol Flavoured Lemon Juice The Lecol taste and convenience you have come to trust and rely on will be available from August 2010 in three delicious new flavours. Look out for Lecol Lemon with a twist of garlic and herb flavour, butter flavour and peri-peri flavour at a supermarket or a grocery store near you. read more

BRAND ACTIVITY

Eat Smart Organics Teas A truly South African company uniquely specializing in the preparation and packaging of superior, certified organic convenience foods and beverages. read more Huggies® embarks on their Joyride Over the recent years Huggies® has worked on better connecting and truly understanding moms through their communication and superior product offerings. As a result they are closing the gap to market leadership in the disposable diaper category with only 2.9 %* difference between them and the category’s leading brand. read more BART SPICES appoints Stafford Bros & Draeger as their official distributor in South Africa Stafford Bros & Draeger continues its tradition of introducing innovative and new food trends into the South African market by bringing Bart Spices to the country. Bart Spices is an independent sustainable company that helps people enjoy good food. read more One mom wins royal treatment from Huggies® Gold Between April and June this year, Huggies® Gold ran a competition where one mom could win a grand prize worth R75 000. This prize consisted of a faithful helper for a year as well as a wardrobe for both mom and baby. read more Brakpan to get fresh with Freshstop Freshstop, one of South Africa’s fastest growing 24-hour convenience retailers will launch its 22nd store in Anzac, Brakpan on 6 August 2010. read more The Laughing Cow pops in at schools to raise awereness The Laughing Cow set out on a mission to increase brand awareness in low awareness regions by taking The Laughing Cow mascot into select Model C primary schools in the Western Cape and KwaZulu-Natal region to educate the learners about nutrition. read more Award-winning Cape Estate launches range of luxury body products South Africa, Riebeek Kasteel, August 2010; LOCATED in the Western Cape’s fertile and picturesque Riebeek Valley, the historic Kloovenburg Wine & Olive Estate has launched a comprehensive range of olive oil-based luxury body products. read more