- Delta saw its performance heavily impacted by the sugar tax introduced last year
- Sparkling beverage and wines/spirits segments faced increased competition from informal imports due to higher local prices from the sugar tax
- Schweppes recorded a 12% volume decline due to significant price increases from the sugar tax
Harare- Delta Corporation, a leading beverages manufacturer with over 80% market share, has seen its performance heavily affected by the sugar tax introduced by Finance and Economic Development Minister Mthuli Ncube in 2023 while drought spells heavily affected the sorghum beer segment in both Zimbabwe and Zambia.
Presenting the 2024 national budget last year, Ncube introduced a levy of 0.02 per gramme on sugar contained in beverages to discourage consumption of high sugar contents.
However, during the first quarter of 2024 despite an 11% growth in the Sparkling Beverage sector, Delta said competitiveness has been impacted by the relatively higher sugar tax., hence, it affected efficacy.
This has resulted in increased informal imports of similar products from neighboring countries.
The situation was similar for African Distillers Limited (Afdis) in the wines and spirits segment. While the company saw a 6% volume growth for the quarter compared to the previous year, driven by improved product supply and some price moderation, it faced an increase in informal imports and the prevalence of illicit offerings.
The sugar tax has made locally produced products more expensive. Zimbabwe's production costs are already higher compared to neighboring countries like South Africa, Zambia, or Mozambique.
The added sugar tax has further exacerbated the situation, forcing producers to adjust their prices, making it difficult for locally produced products to compete with illegal imports.
The impact was most pronounced at Schweppes Holdings Africa Limited, which recorded a 12% volume decline for the quarter. This was primarily due to significant price increases resulting from the sugar tax, particularly affecting cordials.
The sector is also weighed down by a surge in informal imports of the flagship Mazoe Orange Crush from regional markets, driven by the price disparity created by the new tax.
A standard 2-liter Mazoe Orange Crush now costs around $5, far beyond regional prices, up from $2.50 last year.
Recognizing the negative effects of the policy, Ncube has waived the payment of the Special Surtax on Beverages Sugar Content for the period from January 1, 2024, to February 8, 2024, for operators who had already paid their tax.
Delta Corporation also saw a decline in volumes for Sorghum Beer, with a 10% decrease in Zimbabwe, 2% in Zambia, and flat performance in South Africa. The company attributed this to competition from hard spirits, increased lager beer supply, and investments by competitors in the same category.
The introduction of Nyathi beer by Innscor in 2022 provided direct competition to Delta, though Delta has a significantly larger capacity and superior distribution network.
In May, Delta Beverages estimated that it held a 93% market share in the masese (sorghum beer) market. The company has built a new Chibuku Super plant, and its sales last year were at near-record levels.
Based on data from distributors who supply both Delta and Nyathi, Innscor had a capacity of around 30,000 hectolitres per month. This is a fraction of Delta's sales of up to 400,000 hectoliters per month.
Despite the challenges, the Group's revenue grew by 23% for the quarter compared to the restated prior year figures.
However, collections of foreign currency through domestic sales have declined from an average of 80% in the prior year to 65% following the introduction of the ZiG currency and the strict enforcement of dual pricing at official exchange rates in the formal retail sector.
The company remains focused on accessing the much-needed foreign currency to meet the Group's requirements and the deployment of the increased ZiG inflow through the willing buyer, willing seller arrangement.
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