Q&A: Delta focuses on regional and exports strategy

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Listed beverages manufacture Delta  Corporation last week reported a 57 percent slump in lager beer volumes for the first quarter while carbonated drinks sales also fell 79 percent on account of a myriad of debilitating macroeconomic challenges that have become a threat to industry. Business Times senior reporter Taurai Mangudhla (TM) this week interviewed Delta Corporation CEO Pearson Gowero (PG) on the challenges being faced by the business and strategies to remain one of the top performing counters going forward including a regional expansion drive and an export strategy. Below are excerpts:

TM: You reported a 57 percent slump in lager beer volumes in the first quarter, how much of that do you attribute to consumers slashing spending, price increases and inflation?

PG: The decline in lager beer sales in the first quarter was mainly due to traders applying varying exchange rates to the standard USD retail prices. The company also sold a small portion of its beer in forex in order to support its operations. This resulted in reduced
demand as many customers were unable to buy stock in foreign currency.

TM: To what extent is the 57 percent slump in lager sales a result of lack of product in retail outlets, given that even as of today some of your products are in short supply?

PG: The supply gaps arise from the power cuts and the inability of some retailers to fully stock due to the current macroeconomic conditions. The volume performance for June and July indicates some recovery in demand as product is more accessible in RTGS$ prices.

TM: Carbonated drinks volumes also went down by 79 percent, what were the reasons?’

PG: The volume in Q1 was affected by very limited production in April and May as our factories were mostly on shutdown due to lack of imported raw materials.

TM: To what extent is the coming in of alternative carbonated beverage manufacturers locally and the influx of imports eating into your market share in this segment? Based on your internal research, what is our market share currently and how does it compare
with say full year 2018?

PG: The soft drinks sector has always been competitive. The company has been able to hold market share when there is consistent supply. We do not have recent market share readings as our soft drinks were not available in the market.

TM: Sorghum beer volumes went up by 2 percent, what do you attribute this to?

PG: Our strategy was to maintain supply with the product sold exclusively in RTGS$ in Q1.

TM: What strategies do you have to promote lager and carbonated drinks sales going forward in the current operating environment?

PG: The lager beer and soft drinks businesses have enough capacity to meet market demand. We have made strides in securing imported raw materials and reducing supply bottlenecks that will ensure consistent supply of product. The availability of forex on the interbank market and energy to power our factories will be critical in these efforts.

TM: What is the strategy going forward around the sorghum beverages?

PG: The focus for Chibuku is on sustainable sourcing of imported packaging for Chibuku Super. This will be complemented by the Scud pack which requires less foreign currency in its production. There are additional risks in this business relating to the shortages of both
maize and sorghum due to the drought.

TM: We understand you want to grow the Chibuku brand regionally and diversify income streams. How are you going to implement it and what areas are you targeting specifically?

PG: This largely talks to the acquisition of regional traditional beer assets as they become available.

TM: What are the timelines for the Chibuku regional expansion initiative and the capital requirements?

PG: We already have National Breweries Zambia Limited and are finalising the acquisition of United National Breweries in South Africa. There are no specific timeframes for other countries.

TM: A regional strategy, at this moment, is crucial as it brings in foreign currency, what are your estimates in terms of foreign currency earnings from the Chibuku regional strategy?

PG: We are already getting a stream of income from Zambia through royalties and fees. The focus is for the businesses to generate enough profit to pay for the investment and dividends to Delta.

TM: Foreign currency shortages are hampering industry, how much foreign currency do you require monthly in the absence of capital projects and how much is Delta generating per month?

PG: Delta is a net user of foreign currency. We require about US$4 million per month for ongoing operations; then you add capital projects. We plan to resume malt exports to generate some foreign currency.

TM: To what extent has the interbank market solved foreign currency shortages for imports, based on your personal experience?

PG: The interbank market has not been consistent as a source of forex. We have accessed reasonable amounts in the last few weeks.

TM: Power outages have increased operating costs for business, what has been the experience for Delta, what is the marginal increase in terms of operating costs as a result of running on generators?

PG: The use of diesel generators adds to operating costs. The fuel used in generators is imported and with the current forex shortages this is not a sustainable solution. Our beverages require electricity for refrigeration   in the trade and so do the retail outlets and
consumption premises for lighting. The power cuts have a debilitating effect on the entire value chain.

TM: To what extent have fuel shortages hampered your business especially in terms of distribution?

PG: The company uses over 400 000 litres of diesel monthly in distribution. We carry buffer stocks that have mitigated the supply gaps. The greater impact has been on inbound logistics which are supplied by third parties, mostly small transport operators that buy
fuel from service stations.

TM: What other strategies do you have to diversify revenue streams going forward, besides the Chibuku regional drive?

PG: Delta predominantly supplies the local market given the geographical franchise arrangements and common brands in regional markets. As mentioned before we intend resuming barley malt exports in 2020 and have already contracted additional tonnage for this purpose.