- Delta paid $31.2m in sugar taxes impacting its market share and profitability.
- The sugar tax led to a 16% decline in sparkling beverages volume for Q3 2024 and a 1% drop in cumulative 9-months, as regional imports surged
- Despite a reduction in sugar tax from January 2025, Delta faces ongoing cost pressures from rising juicing fruit and sugar prices
Harare- Delta Corporation, Zimbabwe's largest beverages maker, has paid US$31.2 million in sugar taxes during the period from February 2024 to December 2024, which has had a ripple effect on the market.
The implementation of the sugar content surtax in January 2024 precipitated a substantive price adjustment across the Group's soft drinks and cordials portfolio, thereby compromising its price competitiveness in the market.
“The introduction of the sugar content surtax in January 2024 necessitated significant increases in the prices of soft drinks and cordials.
“The surtax impacted the Group’s price competitiveness which fuelled the influx of imports of similar products from the region, which is further compounded by rampant smuggling,” the group said in a trading update.
This diminution in competitiveness created an arbitrage opportunity for regional importers, resulting in a significant influx of imported products that have been eroding the Group's market share.
The proliferation of smuggling activities has exacerbated the challenge, necessitating strategic interventions to mitigate the impact on the Group's performance.
As a result, the sugar tax-induced price increases have led to a surge in imports of similar offerings from neighbouring countries, affecting the competitiveness of local sparkling beverages.
This has resulted in a 16% decline in sparkling beverages volume for the third quarter ended 30 December 2024 compared to the same period last year and a 1% drop in cumulative 9-months.
Schweppes Holdings Africa Limited experienced a significant volume contraction, with declines of 27% and 17% for the quarter and nine months, respectively.
This downturn was primarily attributable to substantial price increases, precipitated by the sugar tax, which compromised the company's price competitiveness.
Consequently, the flagship Mazoe Orange Crush brand was severely impacted by a surge in imports from regional markets, further exacerbating the volume decline.
In response, the group is recalibrating its product mix to emphasize less or no sugar drinks and cordials, leveraging this trend to drive revenue growth and reduce its reliance on sugar-based products.
The recent relaunch of its Maheu offerings under the Shumba Maheu brand, featuring an expanded and improved flavour range, exemplifies this strategic pivot.
However, government has reduced the sugar tax to 0.005% from January 2025 which is a positive development that is anticipated to partially alleviate the pricing pressure.
Despite that, the benefit of this tax reduction is expected to be partially offset by escalating cost pressures, particularly with regards to rising juicing fruit and sugar prices.
The global cost of sugar has risen to its highest level since 2011 in 2024, with a projected 20% increase following concerns of underproduction rates from countries such as Thailand, which faced severe drought.
These dry conditions, aggravated by the El Niño weather pattern, have crippled sugar production, leading to a global shortage. Despite a bountiful harvest in Brazil, the world's top sugar exporter, the global shortage continued to persist in 2024, leaving importing countries to grapple with rising sugar prices.
Consequently, the scope for moderating retail prices remains limited reflecting the need for ongoing cost management and pricing discipline to maintain competitiveness.
