Delta warns of turbulent operating environment

…amid policy shifts and currency instability

CLOUDINE MATOLA

Delta Corporation Limited,a publicly traded beverages maker, has issued a warning that the operating environment in the country is highly complex, with ongoing policy changes and currency instability posing significant challenges to business operations.

The company is calling for immediate reforms to address these persistent challenges, which threaten to hinder growth within the beverages sector.

Faith Musinga, Company Secretary at Delta, highlighted the mounting difficulties faced by the company, including rising input costs, elevated taxes, and increasing competition from low-cost imports.

These factors, she noted, are compounded by market disruptions caused by policy-driven changes that alter established supply chains and routes to market.

For the sector to stabilize and grow, Musinga emphasized the importance of policies that focus on stabilizing the local currency and ensuring easier access to foreign exchange through formal banking channels.

“The operating environment in Zimbabwe remains complex, influenced by policy changes and currency instability. The beverages sector faces further challenges relating to uncompetitive retail prices arising from high input costs and taxes which attract lower priced imports from the region and policy driven changes to the route to market. The implementation of policies that promote the stability of the local currency and access to foreign currency through formal banking channels would improve the operating environment,” Musinga said.

The beverages industry, she explained, is grappling with a combination of economic instability, fiscal pressures, and growing competition from regional players offering cheaper alternatives.

With policy reforms that prioritize currency stability and reliable foreign currency access, the operating environment would improve, Musinga suggested, fostering greater competitiveness and business sustainability.

Delta’s call for reform is not an isolated one.

Zimbabwe’s broader business environment has faced significant turbulence, with many companies, including Delta, struggling to remain profitable amid rising operational costs and volatile market conditions.

Several businesses have resorted to downsizing or restructuring to mitigate these pressures, further highlighting the difficulty of maintaining sustainable operations in the current economic climate.

In its trading update for the quarter to December 31, 2024, Delta Corporation reported a 1% increase in group revenue, with a 7% growth for the first nine months of the fiscal year.

Despite these modest gains, the company noted that performance varied across its business segments, influenced by external economic pressures and market fluctuations.

Part of the revenue increase in soft drinks was attributed to price hikes spurred by the sugar tax, which helped offset some of the cost challenges faced by the sector.

The lager beer category demonstrated a solid performance, with volumes growing by 4% during the quarter and 7% year-to-date.

However, the business faced operational disruptions, including prolonged power and water outages, which led to supply mismatches for key brands and packs.

Nonetheless, Delta’s investments in capacity expansion and additional glass production helped mitigate some of these disruptions, allowing the company to maintain product availability despite external challenges.

The sorghum beer segment, a key pillar of Delta’s portfolio in Zimbabwe, faced more complex challenges.

While domestic volumes grew by 2% for the quarter, they declined by 2% year-to-date.

The segment as a whole saw a more pronounced decline, with an 8% drop in volume for the quarter and a 10% decrease year-to-date, primarily due to the suspension of export operations.

The sorghum beer category has been significantly impacted by adverse weather conditions, such as drought, which reduced agricultural yields.

In addition, a decrease in disposable incomes in rural markets, changes in retail dynamics, and the rise of new competitors have all contributed to the decline in volume.

Despite these setbacks, Delta’s sorghum beer brand, Chibuku, achieved notable milestones during the quarter. Popular events such as Chibuku Road to Fame and the Chibuku Super Cup were held, strengthening the brand’s connection with consumers.

Additionally, Chibuku Super was recognized by the Marketers Association of Zimbabwe as the 2024 FMCG Sorghum Beer Sector winner, further solidifying its position in the market.

The sparkling beverages segment saw a notable decline, with volumes down 16% for the quarter and 1% year-to-date.

This drop was largely attributed to the sugar tax-induced price hikes, which made local products less competitive compared to cheaper imports from neighbouring countries. The sector has been grappling with high tax rates and significant cost disparities, further exacerbated by the influx of regional imports.

To counter these challenges, Delta is focusing on introducing low- and zero-sugar alternatives, alongside expanding product offerings at more accessible price points.

Despite these strategic interventions, the sector’s performance continues to be negatively impacted by pricing distortions in the formal retail channels, driven by exchange rate disparities and tax concessions granted to some competitors.

Delta’s affiliate, African Distillers (Afdis), recorded strong volume growth, with a 14% increase for the quarter and 12% year-to-date. This growth was driven by the Ready-to-Drink (RTD) and Wine segments, which saw increases of 12% and 47%, respectively.

Afdis benefitted from improved product supply and a slowdown in informal imports, which had previously inundated the market.

The company is hopeful that the ongoing crackdown on illicit alcohol imports will continue to level the playing field and reduce unfair competition, further supporting its growth trajectory.

Meanwhile, Schweppes Holdings Africa Limited faced a challenging quarter, with volumes down 27% compared to the previous year and 17% for the first nine months.

These declines were primarily driven by steep price increases resulting from the sugar tax, which prompted an influx of cheaper imports of products like Mazoe Orange Crush from neighboring countries.

In addition, disruptions in the route to market, caused by fiscal regulations, further impacted performance. While the reduction in sugar tax announced in January 2025 offers some relief, the company remains under significant pressure due to rising costs for juicing fruit and sugar, which limit its ability to reduce retail prices.

Nampak Zimbabwe Limited, a key supplier to the beverage industry, recorded a 25% decline in volume for the quarter, largely due to a poor tobacco crop in 2024 and the operational disruptions caused by power outages, plant breakdowns, and heightened competition in some product segments.

The company is also operating under a cautionary note regarding the potential sale of its stake in Nampak International to TSL Limited, which could further affect its market position.

Delta Corporation’s performance highlights the profound challenges businesses face in Zimbabwe’s unpredictable operating environment.

The combined effects of currency instability, high taxes, rising input costs, and competition from regional imports have strained the competitiveness of local companies.

 To unlock the full potential of the beverages sector, Musinga called for urgent policy reforms aimed at stabilizing the local currency, improving access to foreign exchange, and addressing the broader structural inefficiencies that hinder economic growth.

For Delta and its industry peers, the path to sustainable growth lies in the implementation of consistent, pro-business policies that address the fundamental economic issues at play.

Only with a stable economic environment and clear policy direction can Zimbabwe’s beverages sector hope to regain its competitive edge in a challenging regional market.

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