eBusiness Weekly
Tawanda Musarurwa
Listed beverages giant Delta Corporation reported volume declines across all alcoholic beverages segments for the third quarter to December 31, 2019 as stagflation took effect.
The beverages-maker’s third quarter (Q3) coincided with the culmination of 2019’s currency reforms, with the re-introduced Zimbabwe dollar having fallen from its initial level of 2,5 to the United States dollar to around 16 to the US dollar at the official interbank market; and the black market rate hovering around 23 to the US dollar.
The group highlighted how its product distribution activities were affected by ongoing power outages and constrained fuel supplies.
The sourcing of imported raw materials and services remains challenging due to the delays in servicing overdue payables to its foreign shareholders and suppliers.
But what would have hurt Delta’s volumes more was that the inflationary pressures which dragged down consumer spending.
“Consumer spending is constrained by low disposable incomes as salary and wage adjustments continue to lag the increases in prices of goods and services,” said Delta in a trading update.
But perhaps worse still, the country appears to be suffering from stagflation (low product demand due to both high inflation and high unemployment, although all things being equal the two should not co-exist).
Volumes in the alcoholic segment were also down over the nine-months period to December 31, 2019.
According to the group’s Q3 trading update, lager beer volume declined 43 percent for the quarter and 46 percent for the nine months compared to the same period last year.
Delta said it has had to cut back on lager beer production during the period under review.
“There is a focus on supplying key brands and packs and conserving foreign currency.”
Sorghum beer volume in Zimbabwe declined 41 percent for the quarter and 25 percent for the nine months.
Production of sorghum beer was also lower during the period under review as it was “adversely impacted by the constrained supply of maize and escalation in the cost of imported inputs such as packaging materials. There is renewed focus on the returnable Scud pack,” said Delta.
The regional operation — Natbrew Zambia — recorded volume that were 32 percent lower from the prior comparable quarter.
There are some pricing disparities with other alcohol categories particularly driven by the steep increase in maize prices.
On a positive note, the group’s sparkling beverages segment’s volumes grew 38 percent for the quarter on the back of a good performance of new products, but was down 40 percent for the nine months.
“There is a notable volume recovery in response to improved product supply and moderated retail pricing. The recently launched “No Sugar” variants have been welcomed by the consumers.”
African Distillers (Afdis) recorded a 10 percent volume drop for the quarter amid concern over imitation products on the market. However, demand for ciders and white spirits remained strong.
Beverages volume at Schweppes Holdings declined 23 percent for the quarter due to an outage of key imported raw materials for both the Mazoe and Minute Maid brands; but performance of the recently launched Fruitade range of products was positive.
During the period under review, Schweppes Holdings commissioned a one mega-watt rooftop solar plant to mitigate the power outages at the Harare factory.
In terms of financial performance, revenue for the quarter rose 27 percent in inflation adjusted terms (646 percent historical) reflecting the changes in product mix and price increases that are based on replacement cost.
The group said revenue increased 2 percent for the nine months (historical 346 percent)
Going forward, although Delta expects the macro-environment to “remain challenging”, it will “manage the emerging risks with particular focus on reducing the foreign liabilities and maintaining consistent product supply.”
From a broader perspective, the authorities need to implement policies that can provide a delicate balance between controlling inflation and stimulating growth to overcome stagflation.
