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FOOD & BEVERAGES: Pepsi Goes Flat On Pioneer


Recent Western Cape Business News

PIONEER Foods has toned down its growth expectations for its Pepsi soft-drink venture.

Writing in the food giant’s annual report, Pioneer chairman Boy Blanckenberg says forecasts for the Pepsi venture were adjusted to reflect a ‘longer establishment phase to position the brand for long-term sustainable growth’.

Pioneer took up the Pepsi SA franchise in 2005 – acknowledging at the time that building a profitable footprint would require a long term effort.

Pioneer’s forecast adjustment comes after Pepsi endured some tough trading conditions in the year to end September 2009.

Blanckenberg says the carbonated soft drinks category is under pressure due to aggressive competitor (read: Coke) activity and challenging economic conditions.

But he says Pepsi sales volumes remain satisfactory under these circumstances.

The cautionary tone from Pioneer stands in stark contrast to the upbeat mood at Quality Beverages (which bottles Dixie, Jive and Planet). Quality recently reported vibrant trading conditions in its core Western Cape market.

The difference probably lies in the fact that Quality – owned by packaging group Bowler Metcalf - has gone out of its way to avoid rubbing up against Coca-Cola by sticking to carefully niched brands.

However, Pioneer’s Pepsi venture – which also includes brands like Mirinda, Mountain Dew and 7-Up - does compete head on with Coca-Cola (and Fanta and Sprite).

Pioneer, to its credit, is not retreating into a shell with Pepsi. Blanckenberg reports that new line extensions of Pepsi products were launched during the year.

He says several marketing initiatives with high exposure – such as the IPL and Champions Trophy Cricket tournaments - boosted brand awareness of the Pepsi range, and that further progress is being made to increase the distribution footprint.

While the Pepsi venture is not earnings enhancing for Pioneer, Blanckenberg remains hopeful. “With the anticipated volume growth and the marketing initiatives an improved performance should be achieved in the new financial year.”

He stresses there will be continued focus on increasing brand awareness through marketing spend. “The focus in 2010 will be on continuing to increase profit margins through efficiency gains.”

While Pioneer must be a little miffed that the Pepsi venture is not bubbling into profits yet, there is some comfort to be had from the performance of the beverage division – which also includes powerful brands like Liqui-Fruit, Fruitree, Wild Island and Ceres.

Blanckenberg discloses that Ceres Beverages – despite the pressure in the non-alcoholic beverage sector – achieved improved results on the back of a turnaround in the fruit concentrate mixtures category.

He says there is also an improved export sales volume (double digit growth) and export margin performance in the first half of the year. The growth in export volumes by Ceres Beverages hiked its 2009 revenue by 16% to R2.4 billion and kicked up operating profits 27% to R99 million on the back of stronger trading margins of over 4%.

Blanckenberg stresses that the performance of the export business confirmed the strategic importance of Pioneer’s drive to increase the international business in order to balance the fruit juice category.

Significantly capital expenditure was approved to develop a fruit juice factory in Wadeville.

Blanckenberg says the expansion would enable Ceres Beverages to capitalise on opportunities in the fruit juice category and result in substantial distribution savings between the current production facility in Ceres and the Gauteng and KwaZulu-Natal markets.

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