Beverages - Wesgro.co.za

1 Beverages Executive Summary Soft drinks are forecast to be the largest sales category in South Africa reaching in 2020f, followed by alcoholic Beverages at The largest beverage companies in South Africa include SABM iller, Pioneer Foods, Tiger Brands etc. South Africa has the highest beer consumption in Africa with billion litres consumed. Value growth is expected to reach in 2016 according to Euromonitor, 2016. South Africa and the Western Cape are net exporters of Beverages exporting and (66% of national) respectively. The top three beverage exports from South Africa on HS 6 level were: Bottled wine ( ) Bulk wine ( ) Undenatured ethyl alcohol ( ) The top three beverage exports from the Western Cape were: Bottled wine ( ) Bulk wine ( ) Cider, perry & mead ( ) South Africa is a net recipient of investment in the Beverages sector receiving in the last decade (2005-2015).

2 There was one investment made into the Western Cape by Vina Concha y Toro into the wine sector worth ZAR223m. South Africa invested in 12 projects in the global beverage sector with three quarters of these investments being made by Western Cape companies, namely Distell, Origin Wines, Lourensford Wines and Bright World. 2 Contents 1. Sector Overview .. 3 Global overview .. 3 South Africa Overview .. 4 Key Companies in South 7 2. Trade .. 9 Global trade of Beverages .. 9 South African beverage trade .. 11 Western Cape Trade of Beverages .. 13 3. Foreign Direct Investment (FDI).

3 16 Global FDI .. 16 South Africa s FDI in the Beverages sector .. 19 Inward investment .. 19 Outward investment .. 20 3 1. Sector Overview Global overview Global beverage sales have been driven by alcoholic drinks followed closely by soft drinks. America and Western Europe are drinking less mainstream beer on average, the wider beer industry seems to have been re-invigorated by the success of craft beer, which as an industry has had more success in capturing the evolution of consumers' tastes and preferences. The ability of craft beer to register sales growth despite this trend reflects its favourable performance.

4 While commercial beer is on the decline in developed countries, beer has generally done quite well across most of the big developing economies over recent years (with the exception of Russia), which has been supported SABM iller's emerging-markets-centric business. While the average Sub-Saharan African and Asian consumer is either drinking more beer or drinking more expensive beer, the average Western European is drinking less beer than in recent years. Premium whisky has been alcohol's best performing global areas over the past few years. It is no surprise that global spirits giants, Diageo and Pernod Ricard, are increasing their investment into whisky.

5 Premium blends of Scotch whisky are particularly popular in countries such as China and India. Soft Drinks Despite volatility in leading markets and an accelerating trend towards healthier Beverages , the global soft drink industry demonstrated stable volume growth in 2015. Global soft drinks volumes expanded by 4% in 2014, in line with the industry s performance since 2011 and a rate that is expected to continue over the foreseeable future. In the simplest terms, bottled water is sustaining the soft drinks industry. The majority of all ready-to-drink (RTD) volume growth experienced in 2014-2015 was the result of bottled water sales.

6 Premium brands and enhanced waters are creating value opportunities in this category. Markets in Southeast Asia, the Middle East and Africa will be an important part of volume growth over the long term. Carbonated soft drinks are in a tail spin. Global growth reached its lowest point of the historic review period in 2015. Consumers are flocking to waters, teas and alternative beverage options perceived as both healthy and natural. Fruit Juice The global juice industry is facing a two-track growth story, as Asian demand for flavourful and functional juice drinks offsets declining volumes of 100% juice in many developed markets.

7 Flavour and function-driven innovation in low juice content Beverages as well as premium superfruit 100% juices will sustain growth in the category. Total juice volumes grew by less than 1% in 2014, with a decline in 100% juice and a significant slowdown in the growth of juice drinks. While fruit flavours were the main area of growth in flavoured water and carbonates, traditional juices failed to benefit from the consumer interest in fruit Beverages . Alcoholic Drinks In 2014, emerging markets continued to account for the majority of global volumes (around 63%), while developed markets contributed the most to total value sales (around 55%).

8 This emphases the need for emerging market expansion, but highlights the continuing importance of developed countries and that a balance should be maintained. Source: Euromonitor, 2016 4 Source: Euromonitor, 2015 South Africa Overview South Africa s beverage sales follow a similar trend as global sales, with soft drinks and alcoholic drinks being the most sold Beverages . Fruit/vegetables and bottled water started off at a low base in 2008 and have been showing steady growth since. In the future, higher value products such as energy drinks are likely to become more important players across the soft drinks industry.

9 The weakening of South Africa's consumer outlook will put pressure on growth in the drinks industry in 2016. There are likely to be higher industry risks in the soft drinks segment as the market is exposed to the growing global sugary drinks tax debate. The coffee retail industry as well as the alcohol industry will remain resilient on the back of a growing on-the-go breakfast culture as well as the alcohol industry's exposure to export markets. In his 2016 budget speech, Finance Minister Pravin Gordhan announced that a sugar tax will be levied with effect from 1 April 2017. A sugar tax has been mooted to help curb the tide of obesity in SA.

10 Sweetened Sugar Beverages (SSBs) include the following: still and carbonated soft drinks, fruit juices, sports drinks, energy drinks and vitamin waters, sweetened ice tea, lemonade, cordials and squashes (Fin24, 2016). The purchase of sugar drinks does not form part of a consumer's staple food, and can thus be avoided by low-income consumers, while higher income consumers would be relatively less price-sensitive. Nevertheless, there is likely to be a negative effect on South Africa's carbonated soft drinks industry in 2017. The table below shows South African beverage sales from 2008 forecast to 2020.