Report ndustry

Beverage Industry in Kenya: A sector characterized by innovation and intense competition

By Paul Ongeto

Awalk through the aisle of a local supermarket would give one a glimpse of the growth that the industry has experienced over the past 10 years. More players have certainly come in, introducing new brands and giving consumers a wide array of options to choose from. Existing players have also upped their game in terms of new innovation to protect their turf from an unending onslaught by new kids on the block. The soft drinks market has seen the most remarkable change, with more players streaming in to have a share of the rapidly growing market. To put things into perspective, the soft drinks beverage market is today valued at US$2.686 billion, according to data from Statista. This is remarkable growth compared to its value in 2014 which was pegged at US$1.667 billion by the same research firm. Over the next five years the market is expected to grow annually by 5.76% to reach a market value of US$3.554 billion in 2027.

A Sector Characterized By Innovation

Innovation has come to define the beverage industry in Kenya. Hardly a month passes without a new beverage coming to market. Changing consumer tastes and preferences are the key drivers to this innovation. “Market research, customer insights, and feedback are the main drivers for product diversification,” said former Premier Foods CEO Joseph Choge during one of the company’s product launches. “Through market research, we identify opportunity gaps and develop products to bridge them.”

The rising health consciousness has particularly had an impact on the industry leading to many functional beverages coming to market, to align with consumer needs for better-for-you beverages that boost their immunity. One of the most notable innovations is the Recharge Dawa Drink by Premium Foods inspired by homemade 'dawa', a herbal drink Kenyans enjoy to treat common flu. Others in this list include immune-boosting energy drinks dubbed Super-C by Topikal Brands and Vitamin C boosted Jooz drink by Bidco Africa.

Soda Aisle Gets Crowded

For decades, the soda aisle in Kenya was dominated by the American multinational beverage company Coca-Cola. New York-based PepsiCo and home-grown brand Softa for decades tried to wrest the market leadership from the Atlanta-based global giant but failed every time. Pepsi exited the market in the 1970s and Softa which had for more than 2 decades tried to take on the Atlanata based giant was put up for sale in 2016 after running into some financial headwinds.

The carbonated soft beverages landscape has however investing KES2.4 billion (US$19.5 million) in a new bottling plant in Nairobi’s Baba Dogo Industrial Estate. The plant started operations in 2013, bringing back Pepsi Cola, Mountain Dew, Mirinda, and 7Up among other signature brands of the New York-based food and beverage giant. 2 years later, Nyeri-based highland drinks limited, which had until then operated in the mineral water and cordials space, expanded into the soda with the launch of its Club Soda brand. Mainly targeted at the low-income bracket, Club Soda has fast gained popularity and today goes toe to toe with Coca-Cola in the market. radically changed in the last decade with more brands coming in to take on the market leader coca-cola. In 2011, Pepsi made a second attempt into the Kenyan market

The market got crowded even further when Bidco, one of the largest food companies in the region, diversified into soda, launching its own soda under the Planet Soda brand. Brava Foods also entered the scene and now has a significant share of the market. Come 2019, another company Maisha Beverages entered the market with its Hola brand in uniquely styled 301ml bottles. Having sold more than 2 million bottles to date, the company is well on its way to making a name for itself in the soda market.

The entry of more players really expanded what is available in terms of flavor options. It’s no longer cola, lime, and orange anymore. Customers can get almost any kind of conceivable flavor from Planet’s passion pineapple to Club Soda’s mango and apple to Maisha Beverage’s mojito and rose flavors. Still, on the crowded soda aisle, one more evident trend is the acceleration toward the use of sweeteners as alternatives to sugar. Market leader Coca-Cola has a zero sugar variant of its flagship brand Coke which is mainly targeted at people conscious about the number of calories they drink. Other brands such as Club Soda only partially replace sugar with other intensely sweet non-nutritive sweeteners such as Aspartame and Acesulfame K.

Even with more players, the soda segment is still lucrative and offers opportunities for growth. According to Market Research, until 2025, the carbonated soft drinks market in Kenya is forecast to reach US$823.33 million (in retail prices), thus increasing at a CAGR of 9.92% per annum for the period 2020-2025. To tap into this demand, Coca-Cola in 2018 said it would invest US$100 million in Kenya over the next five years to improve infrastructure and launch new products. “As the middle-class is (growing)... they are wanting more variety,” said local Managing Director Daryl Wilson. “Kenyan tastes are growing, the need for new brands is growing.”

Affordable Fruit Juices Flood The Market

Just like the soda segment, the fruit juice market has also seen more players come into the market. This aisle is no longer dominated by Del monte and Pick N Peel brands. Today, the aisle is comprised of a long list of brands including Afia Drink, Fruitful, Orchid Valle, Minute Maid, Go fruit, and Ceres, among other brands. The range of available varieties has also expanded from just mango, pineapple, and orange to guava, cranberry, red grape, and tomato. Interesting blends have also emerged including cranberry and kiwi fruit, passion fruit and pineapple, and pineapple and mango blend.

With cutthroat competition among brands, a trend toward lowering the percentage of fruit concentrate in the cans is evident. The highly priced brands tend to have higher fruit

Key Numbers

US$2.6B

THE VALUE OF KENYA'S SOFT DRINKS BEVERAGE MARKET IN 2022.

concentrate which can go up to 35% while the more “affordably” priced ones can have a fruit concentrate of between 10 and 15%. The pricier products still exist for the high-end category of the market, but most growth is being seen in competitively priced brands like GoFruit and Afia which have significantly lower amounts of fruit concentrate. A rise in cocktail culture has further driven growth in this segment with most mixologists incorporating fruit juices in their on-premise cocktail drinks. The demand from this segment has been so great that Excel Chemicals, the makers of Go fruit added lemon mint mojito to its range of fruit juices for use in cocktail preparations.

Despite their obvious environmental benefits, some brands have deviated away from the standard composite cardboard boxes to plastics either for convenience or affordability purposes. Minute Maid and Afia Drink are among the most popular fruit juices that are packaged in PET plastic bottles.

With more variety coming to market and prices plummeting the fruit juice market expanded to US$422.90m in 2022, according to data from Statista. The market research expects the market to grow annually by 6.41% (CAGR 2022-2027). To take advantage of this growth, maker of minute maid juices Coca-Cola launched a Ksh7 billion (US$69 million) new juice line at its Nairobi plant. The following year, Kevian Kenya, which produces Pick N Peel and Afia juice brands, secured a US$11 million loan facility from the German Development Finance Institution DEG which it used to finance the company’s expansion of its production facilities. These investments have been really critical in driving the market shares of these two brands in the Kenyan market.

Energy Drinks And Malt Drinks Become Mainstream

A little over a decade ago, energy drinks were limited to the premium beverage sections of supermarket and convenience store aisles. Their consumption was mostly limited to the middle and upper classes of society. Enter Azam beverages from Tanzania and the entire energy drinks sector was radically transformed. Unlike their competitors which were exclusively packaged in aluminium cans, Azam energy came in relatively easy-to-procure PET bottles and sold at rock-bottom prices.

For a quarter of the price of Monster or Red Bull energy drink, consumers could get Azam energy which delivered just as much caffeine, if not more. Azam also used a new route to market which broke away from the confines of modern trade and ventured into the informal markets. The

WITH MORE VARIETY COMING TO MARKET AND PRICES PLUMMETING, THE FRUIT JUICE MARKET EXPANDED

biggest movers of Azam were hawkers and small kiosks mostly at bus stops and on the roadside.

The lucrative low-prices segment of the sector has attracted other players including Brava, Maisha Beverages, and even carbonated soft drinks market leader CocaCola. Brava has the Bravado energy drink while Coca-Cola has two brands Predator and Power Play. The Predator brand is produced by Nairobi Bottlers, the largest of its bottling franchise in Kenya, while Power Play is produced at its Kisumu-based plant. Leveraging its already existing distribution network, Coca-Cola has been able to get ahead of the competition although a late entrant into the scene. A relatively new entrant into the scene, Maisha beverages has upped the game by introducing flavored energy drinks. Its energy drink portfolio now includes Hola Energy Green, a peach and lemon-flavored energy drink, and Hola Energy Red which is red berry flavored. Fruit juice maker kevian drinks, hungry for a share of this lucrative market also in 2019 expanded its Afia drink brand into the energy segment. The company today boasts of an energy drinks range that includes four flavors, apple, classic, strawberry, and exotic.

Malta Guinness was one of the most popular nonalcoholic malt beverages of the early 21st century. The brand disappeared from the Kenyan market giving Novida, a product of Coca-Cola, and Alvaro which is an East African Beverages Limited product, an almost duopoly status. Kevian Kenya enhanced competition in the segment when it expanded its Afia drinks brand into the malt segment. The brand has 4 different variants namely vanialla, ginger, coffee, and dark. A late entrant, Brava Foods also has a range of three flavored malt drinks under the Malto brand. Competition is also intensifying from imports with Bavaria leading the charge with its apple and mango passion flavoured malt drink.

Tea And Coffee Reinvented

For years little value addition had been made to tea. The only thing that came close to product diversification was the addition of ginger to the tea. Consumer demand and the desire for product differentiation due to the rising number of players in the sector has however led to an explosion of innovation in the tea sector.

Market leader Ketepa has since expanded its teas from to include a wide range of new flavors and herbal infusions. This trend is cutting across the tea sector with competitors Kericho Gold and Melvins Tea all having their own variants of flavored teas and herbal infusions. Kericho Gold has even gone further to introduce various teas specially tailored for different consumer needs. Some of the interesting additions in its line include Nursing Tea, Hangover Tea, and Eros tea. Kericho Gold has taken the innovation further, launching cold brew teas, enabling tea to be enjoyed cold for the first time in Kenya.

Tea is already the most popular hot beverage in Kenya, generating revenues of more than US$1.436 billion in 2020. The innovations have spiked demand for tea in the country. According to the projections done in 2018, domestic consumption may rise by roughly 50 percent in ten years. This has forced manufacturers to expand their operations. In 2018, Global Tea & Commodities, the Mombasa-based maker of Kericho Gold Tea brand, received KES 400 million loan from World Bank’s commercial affiliate International Finance Corporation (IFC) to increase its packaging capacity at its factory in Kenya and directly source an additional

5,000 metric tonnes of tea.

Kenya is a major coffee producer in the region, but most of its produce is exported raw with little to no value addition. Once processed, the same coffee finds itself back in Kenya in different brands most notably Nescafe, which is owned by Swiss food giant Nestle, and MacCoffee which is a product of Food Empire, a Singapore listed food company. Investments by investors has however seen our local processing capacity expand and more coffee brands that have just about the same quality as imports now exist in the market. Across supermarket shelves, brands like Dormans, Sasini, Safari Lounge, and Java sit side by side with their foreign competitors.

These brands are entering into a market that is continually growing. According to Statista, coffee sales accounted for merely US$64 million of the revenue from hot beverages in 2020. The Statista Consumer Market Outlook estimated that 2021 will see an increase in revenue of around US$11 million and by 2025 revenue of the market will increase to US$100 million. To capitalize on demand, Dormans in 2019 inaugurated a new KES650 million coffee processing complex in Ruiru with a capacity of handling up to 15,000 tonnes of coffee annually.

Water Fortunes Shift To Premium Segment

Arguably one of the most crowded beverage segment is water. Low entry barriers has enabled water packaging companies to sprout from almost every corner of the town. In Nairobi, a single street can have up to three water packaging companies. This has really crowded the segment, with the low prices of mass packaged water making the sector almost unprofitable for big players like Coca-Cola which had for long dominated the market.

Still there are millions in the sector. According to data from Statista, revenue in the Bottled Water segment amounts to US$881.30m in 2022. The market is expected to exhibit a CAGR of 3.98% between 2022-2027. Major players in the market are now moving towards the premium segment were profitable revenues are guaranteed. CocaCola in 2017 bolstered its position in this segment through the US$260 million acquisition of premium water beverage brand Keringet water from Crown Beverages. Through its Dasani and Keringet brands, coca-cola now comfortably sits at the apex of the water market with a share of 23% . CocaCola has to however compete with other brands such as Aquamist which was in 2019 acquired by rai family-owned Menengai Group. Other players in the segment include Ketepa-owned Maisha water, Nyeri-based Highlands water, Excel Chemicals-owned Quencher life premium drinking water, and Mt. Kenya water which is owned by Kevian Kenya Limited.

E-COMMERCE ENABLES DTC SALES

Gaining popularity during the pandemic, e-commerce has become mainstream in the Kenyan retail market. In 2021 alone, the Kenyan eCommerce market grew by 67% making it the 55th largest market for eCommerce in the world with a revenue of US$3.4 billion, according to data from eCommerceDB. Statista projects that e-commerce revenue of US$5 billion by 2027. Beverage companies have been quick to tap into the immense opportunities offered by e-commerce to further grow their sales. At the height of the pandemic, the market leader Coca-Cola launched its online ordering platform dubbed Dial-A-Coke to further its reach. From the online platform, customers can order their favorite drinks and have them delivered to their homes. One can also order their favorite soda, energy drink, or water from the Bidco Africa e-commerce. Other brands have opted for Jumia Kenya, the country’s leading e-commerce site to sell their products. With Jumia and other online ordering platforms, the initial investment cost in e-commerce capabilities is significantly lowered to almost zero, making it an attractive proposition for players without the resources of setting up their own e-commerce capabilities. With more growth expected in the sector, more brands are certainly expected to join the online bandwagon to grow sales and prevent market share loss.

A Future Of Intense Competition

is expected to show an annual growth rate (CAGR 20222027) of 9.54%, resulting in a projected market volume

Starting out as an almost monopoly sector, the soft beverage industry in Kenya has grown in leaps and bounds to become one of the most competitive sectors in the region. Today more than 100 different brands compete in the multibillion US dollar market. Standing out has come down to three factors: route to market strategy, product prices, and quality of products. Different brands have succeeded based on how best they have managed to position their product. As the sector grows to a market value of US$3.5 billion in 2027, players need to be on the lookout and invest in trends that best resonate with consumers to avoid being crowded out by competition. In the near future, market analyst strongly recommends that beverage players try to reduce their use of sugar and include fortified carbonated soft drinks, as well as zero-calorie drinks in their portfolio for them to remain competitive. In addition, the number of people, who are paying attention to labeling is increasing. Thus, companies also need to focus on transparency and simplicity regarding information in order to gain customers’ trust. FBA

Atoning for own sins: food processors create new innovations that help keep

By Abel Ndeda

The food industry has certainly been blamed for the recent spike in lifestyle-related diseases most notably cancer, diabetes, and heartrelated complications. Mounting research suggests that eating ultra-processed food, which is the expertise of the food industry, may raise cancer risk. To put the narrative into perspective, I will highlight a few examples. In a 2018 observational study published online by The BMJ, every 10% increase