• Delta is considering price hikes for its beverages due to unsustainable margin pressures from the sugar tax, VAT, and rising input costs
• The move risks alienating price-sensitive consumers in a hyper-competitive market flooded with cheaper, often imported alternatives, which could erode market share
• The company's path forward hinges on balancing cost recovery with market retention through operational efficiencies, product reformulation, and potential government intervention

Harare- Delta Corporation Limited, Zimbabwe's leading beverage manufacturer, is reportedly weighing the option of increasing prices for its soft drinks and other beverages as the combined effects of the sugar tax and value-added tax (VAT) continue to erode margins.

Despite a stellar performance in the third quarter of 2025 and the cumulative nine months, where the company absorbed much of these costs to maintain affordability, this strategy may not be sustainable in the long term.

“Price adjustments may be required in response to the ongoing sugar tax burden and the increase in the VAT rate,” the group said commenting under the sparkling beverages performance.

The sugar tax, initially introduced to curb health issues related to high-sugar consumption, has been a significant burden, with Delta paying out US$20.3 million in sugar taxes during Q3 2025 alone, alongside US$900,000 in surtax on cordials.

 Although the government reduced the surtax on cordials from US$0.001 per gram to US$0.0005 per gram effective January 1, 2025, the relief has been partial, offset by rising costs of juicing fruits and sugar.

 VAT, at 15%, adds another layer of fiscal pressure, amplifying the cost base for imported raw materials and packaging. This is in addition also to 2% IMTT tax charged on every electronic transfer, circa 25% corporate tax on gross revenues among a number of many taxes charged by the government.

The improved performance during this period was largely attributed to Delta's deliberate absorption of sugar tax costs and aggressive promotional campaigns. By shouldering these expenses rather than passing them on to consumers, Delta maintained competitive pricing, which fuelled volume growth in sparkling beverages by 18% in Q3 and 14% over the nine months.

 Promotions, including national events like the Chibuku Road to Fame and Neshamwari Traditional Dance Festival, along with radio jingles and video commercials, boosted consumer engagement and drove sales.

This approach not only protected market share but also capitalized on increased consumer incomes during the festive season, supported by bonus payments and savings clubs. Overall group revenue surged 37% in Q3 and 31% for the nine months, reflecting robust demand across categories and the consolidation of Schweppes Holdings Africa Limited, where Delta increased its stake to 69%.

 Schweppes volumes, in particular, jumped 31% in Q3 and 16% year-to-date, aided by price moderation on cordials and restored supply chains for Minute Maid products.

However, if Delta proceeds with price increases, the market impact could be profound, given the hyper-competitive landscape. Zimbabwe's beverage sector is flooded with foreign brands and new entrants, many benefiting from preferential trade agreements like COMESA, which allow duty-free or low-duty imports.

While illicit imports have been curbed through stricter border controls and enforcement by authorities, legal inflows of millions of units from regional players continue unabated.

Pricing remains king in this environment, where cost-conscious consumers, especially in urban and peri-urban areas, prioritize affordability over brand loyalty. A price hike by Delta could alienate price-sensitive segments, potentially driving them toward cheaper alternatives and eroding the volume gains achieved in 2025.

Despite these risks, Delta is positioned to capitalize on its superior quality and entrenched customer loyalty. The company's brands, including Coca-Cola, Fanta, and Sprite under its sparkling beverages portfolio, enjoy strong equity built over decades.

Even as competitors like Mirinda offer litre bottles at roughly half the price of Delta's equivalents, Delta's sales have continued to climb, reflecting the value consumers place on perceived quality, reliability, and local production.

Mirinda, a PepsiCo product, undercuts on price due to lower production costs and trade incentives, yet Delta's sparkling segment grew steadily, suggesting that loyalty and marketing prowess can mitigate some competitive pressures.

Nevertheless, there is a pressing need to reduce operational costs, perhaps through supply chain optimizations, product reformulations to lower-sugar variants, or further investments in efficiency to avoid over-reliance on price absorption.

An analytical lens reveals that Delta's contemplation of price hikes is a strategic pivot from its 2025 absorption model, which, while successful in driving short-term growth, has squeezed margins. The sugar tax distortion, has encouraged cheaper imports, undercutting local producers and creating an uneven playing field.

Recalibrating its product mix toward no-sugar or low-sugar drinks and cordials, Delta aims to align with health trends and reduce tax exposure, but this alone may not suffice if input costs like sugar and fruits continue rising.

 The company's ability to pass on costs without losing market share will depend on economic stability, with currency steadiness and declining inflation providing a supportive backdrop in 2025.Looking at how the government can intervene, policymakers have already shown responsiveness by reducing the sugar tax in early 2025, a move welcomed by Delta as it anticipates partial relief from pricing pressures.

Further reductions or exemptions for locally produced beverages could level the field against imports. Enhancing trade barriers under COMESA protocols, such as anti-dumping measures, would curb the influx of underpriced foreign brands. Investments in agricultural subsidies for sugar and fruits could lower input costs, enabling Delta to maintain affordability.

Additionally, streamlining VAT rebates for exporters or manufacturers could ease fiscal burdens. By fostering a pro-local industry environment, the government can support Delta's growth, which paid US$315 million in total taxes in 2025, a 24.7% increase.

 Such actions would not only aid Delta but also bolster the broader manufacturing sector against external competition.

Therefore, Delta's potential price adjustments represent a delicate balancing act between cost recovery and market retention. While quality and loyalty provide a buffer, the persistence of tax bites and competitive pricing wars necessitate innovative strategies and government collaboration to sustain long-term performance.

 Equity Axis News