AJEAST Nigeria Limited, a subsidiary of AJE Group, a Peruvian soft drink producer, with footprints in 20 countries and last year, was ranked 21 of all soft drink makers globally by Euromonitor, with sales of about $2bn, made its debut in Nigerian in October.
At the launch of the BIG Cola brand and its variants (Cola, Lemon, and Orange) at their production facility in Agbara Industrial Estate, Mr. Theo Williams, Country Manager for AJE said, “The focus is about consumers, AJE in Nigeria is to offer BIG for everybody, we are giving more for less. We want to ensure that consumers get something affordable that they can share with families and friends.
“We are on a line, where we produce the bottles; we do the wrapping and packaging. Our aim is to offer more for less, while other soft drinks of 50cl are being sold for N100, we say no, giving 65cl for N90.
“This truly, is giving the consumers ‘More value for Less’. BIG truly is, democratizing soft drinks consumption in our great country Nigeria, where everyone can afford to enjoy a BIG COLA because it is affordable.”
Anyone who has never heard of AJE before, which is probably most Nigerians, may say “Good luck, Mr. Williams, because you are up against formidable foes in the Nigerian soft drinks market – in the likes of Coca-Cola, Pepsi cola and La Casera brands.
Nigerian CSD Market
The carbonated soft drink market in Nigeria is dominated by the world’s biggest soft drink manufacturers, Coca-Cola, bottled by the Nigerian Bottling Company (NBC) with its Fanta, Sprite, and Schweppes brands. Coca-Cola has been in Nigeria since 1951, approximately 65 years. Over this period, the company has expanded its bottling operation to 13 plants spread across the country. The company also has 57 distribution depots and over 600,000 distribution and retail partners. Coca-Cola’s share of the CSD market is about 50 percent by some estimates.
Coca-Cola’s distant rival is Seven-Up Bottling Company, the Nigerian bottler of PepsiCo brands (Pepsi, Mountain Dew, Mirinda, among others). Seven-Up has a long tenure in Nigeria, having being here since 1960. Seven-Up has nine bottling plants and a well-established distribution covering the entire country. Its brands are house-hold names in the country.
A smaller, but nonetheless a rival is La Casera. The company which goes by the same name as the drink has been in the country for 15 years. La Casera has had unprecedented growth in the market because it is a non-cola carbonate soft drink and has a popular Apple flavour variant that appeals to Nigerian consumers. Beside this three, there are other fringe players in the market spread across the country.
So, knowing all these, the questions becomes why would a relatively unknown enter a market, where competition is fierce, margins are low and profits have been declining for some time due to macro-economic headwinds and shifting taste of consumers away from carbonates due to health implications? The answer may lie in AJE’s success in Indonesia, a country similar in population size as Nigeria.
Indonesia, like Nigeria, has a large population. World Bank data puts the population at 254.5 million with 66.2% of the population falling between 15-64 years age group. Total median age is about 27.9 years. A 2014 figure on people living below poverty puts the number at 11.3% of the population.
Similarly, Nigeria’s estimated population is put at 177.5 million, with 50.3% of the population falling between 15-64 years age group and the median age around 18.2 years. A 2014 revised World Bank Poverty headcount puts the number of Nigerians living below poverty line at 33.1%. Prior number showed 46% poverty rate.
AJE’s secret to success is in serving less affluent consumers, the lower rung in the society or bottom of the pyramid. To understand why they chose this formula, we have to go back to how the company started.
AJE had its humble beginning in Peru. Interestingly, the company owes its foundation to an insurgency movement in that country in the 1980s called the “Shining Path”. The Ananos family was driven out of their farmland in the countryside. In a bid to survive and with the soft drink major brands also out of the country, the family (4 brothers and a sister) began making an orange flavoured beverage they called Kola Real. Initially bottled in recycled beer bottles and sold to neighborhoods residents, it soon caught on. By 2000, the AJE Group began an international expansion. First, they entered neighboring Venezuela, Ecuador and then Mexico. Once they had made significant inroads in Latin America, they turned their sights to Asia. By 2010, they were in Thailand, and soon after, in Indonesia.
AJE’s strategy is to serve less affluent consumers, a demographic group that exists in large numbers in emerging markets, and to a large extent in Nigeria. The company’s strategy is essentially keeping costs low and by that, offers lower prices to its customers (25% lower than the competition).
AJE is able to keep costs low by paying close attention to its entire value chain, stripping costs aggressively wherever possible. For example, AJE manufactures its own pet bottles and soft drinks instead of relying on private packaging companies and independent bottlers like Coca-Cola and PepsiCo does.
Additionally, to manage costs effectively, AJE partners with micro-entrepreneurs who use their own transport to distribute AJE’s brands. It is estimated that about 92% of AJE’s sales are through such partnerships, with only 8% coming from wholesalers who are more expensive.
The distribution model not only help AJE keep costs low, but enables them to penetrate deep into its markets, going to underserved locations. It also enables them to reach new markets faster. So while the major brands rely on their extensive plant operations and distribution centers, to reach distributors and consumers, which come at a cost, AJE does it on a shoestring.
AJE’s other strength is in adapting to local market needs. For example, Indonesia has had its share of economic headwinds, where there was a partial subsidy removal on fuel price and a weakened currency. To stem market loss, AJE repacked its BIG Cola brand in 300ml packs which were priced at Rp2000 Rupiah (approx. N29.4) to remain attractive to its target consumers.
Just four years after entering Indonesia, AJE has captured by some estimates, 42 per cent of the local carbonated soft drinks market, prompting Coca-Cola Amatil, the Australian Bottler of Coca-Cola products in Indonesia to seek a cash injection of US$500 million from The Coca-Cola Company (the Atlanta parent Group) to fend off the competition.
What lies ahead for the CSD market in Nigeria? It is difficult to predict what the major brands will do as they begin to see their market share challenged. Analyst say the majors may not directly respond to the entry of Big Cola in the market but may increase their advertising spend and product promotion to sustain market share. Would that be enough or will they have to alter their business model? It remains to be seen.