• Thursday, March 28, 2024
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We will transform Chi products into billion-dollar brands— Coca-Cola president

Peter Njonjo

Coca-Cola Company recently completed a 100 percent acquisition of Chi Limited’s juice, dairy, snacks, ice tea, and retail segments. ODINAKA ANUDU had an exclusive interview with Peter Njonjo, president of West Africa business unit of Coca-Cola, after the deal. Njonjo shared the details of the transaction with him.

 Congratulations on this transaction. How much change should we expect in Chi Limited?

You have to look at what it is that we have acquired. One is that we have acquired the talents—the talents that exist in Chi. You know there is something they are doing right that makes the company successful. The second thing that we acquired is the brands. So far, the brands have resonated with the consumers and they have developed relationships with the brands. So, if you acquire a business and you start significantly changing the brands, there is a risk of you not deriving the benefits that you set out to achieve as a result of acquiring the brands. In companies where we have been successful globally, we acquired the business and, to a great extent, let it continue running. We then figure out what we can get from the Coca-Cola Company that is relative to the new organisation and we just give them that. We do not try to change them, because when you try to change them, you lose why you acquired them. That is, for us, our commitment. You will not see much change from the products standpoint. But you will see a lot more investments going into Chi, focusing on distribution and how we work with our customers. We will train people more, because if you are to grow fast, you will invest in talents. So, we will invest in people. There will be a lot of investments that will come to Chi, but that change will not translate into something that the consumer will see as a distinct difference.

Having acquired Chi, what will now be Coca-Cola’s share of the Nigerian beverage market?

I try to be very philosophical when it comes to market share. I see market share as a zero-sum game. We want to think about the market with the way we grow the pile. And the way we want to grow the pile is, if you think about how much Nigerians spend every day, N310 billion, you will get what is called personal consumption expenditure. Out of that, 60 percent is food and beverage. Commercial, non-alcoholic and ready-to-drink is less than 1.5 percent. The objective is, instead of talking about 1.5 percent, we can grow this number to two percent. And how much of that incremental growth can we capture? Because then, there is actually expansion on the usage of our brands. That is the way we are thinking about market share. I think about it from the growth standpoint.

Can you tell me the financial details of this deal?

In all honesty, for us, we enter into mergers and acquisitions (M&A) across the world. What you will find is, between two parties, there are normally requests or covenants. For us, as we entered into this conversation, TGI being a private company would want the transaction to remain silent. As a private entity in this part of the world, we would also want the transaction to remain silent. Does that mean we are keeping it away from regulators? That is impossible because we will have to get certificate of capital importation and how do you get that if the CBN does not know how much is involved? We need to have LCC approval and you will have to disclose the details. Everyone who needs to know in government knows how much has been transacted.

How will this acquisition impact your margins?

We have a very high exposure to commodities. Juice is a commodity; milk is a commodity, and sugar is a commodity. So, when you have huge exposure, it is about how you manage it. That does not mean it is a less profitable business, but it means it is a different business. It is like somebody who has been selling bicycles buying a car company. If you ask him to estimate his margins, he may not be able to do so immediately. That is why we want to maintain them as separate companies. NBC is a franchisee of the Coca-Cola Company, and Chi is a subsidiary of Coca-Cola Export Corporation. All these are distinctions that are very clear.

Having finished acquisition of Chi, which other company are you eyeing in Nigeria?

After acquiring Chi, I don’t know how many other opportunities will be there in the beverage industry that can give us the synergy that Chi gives us. I think the most important thing is, how can we drive the success of Chi in Nigeria? As we mentioned, Nigeria is a huge market. Right now, there has been a lot of focus on Lagos, but how do we go outside Lagos and reach other parts of the country? And how do we get to other parts of the continent? For example, if you think about the Vietnams of this world, it is very similar in terms of population dynamics with Nigeria. So, the key question is, what can we do to be successful in Nigeria and then build these brands and push them to other parts of the continent? As we mentioned, our objective is to ensure that Chi and Hollandia become billion-dollar brands. For us to achieve that, you need to have a different mind-set. We are already in South Africa and we are already launching in Democratic Republic of Congo (DRC). We will be launching in Ghana. In Ghana, we are already exporting from here. We have trucks driving up and down in Accra. For us, it is a huge commitment.

What specific investments should we expect in Chi from Coca-Cola?

We are active in the process doing due diligence. Immediately we have an understanding of what we need to invest, we will let you know. Investment is determined by lots of things. For example, last year was a tough year because of issues around naira devaluation and pricing. Of course, demand was not very high last year. But now, we are beginning to see a lot more growth happening. We will not be shy to make sure we make the right investments. At a point when we will have more clarity, we will share with you.

Let me ask you, how much Coca-Cola do Nigerians drink?

We do not usually look at the market from that aspect. We look at the market from the standpoint of per capita consumption. When you look at per capita consumption, it is low. What Nigeria makes up for is the number of people who consume. There is a lot of wealth concentrated in Lagos. You will find out that a lot of manufacturing and distribution happen in Lagos, and outside of Lagos, it is down a little bit. With Coke, there is an opportunity, but there is a lot to do.

How much local input sourcing should we see with this acquisition?

Actually, right now, there is not much local material sourced locally— even in oranges. This is down to the fact that we don’t have large-scale agricultural projects that can competitively produce some of them here. One of the things we want to do is to pursue partners that we can work with to start developing some of these large-scale projects that allow us to source these materials locally. Right now, if you look at Chi and what we do with NBC, we have a decent critical mass to start thinking about local projects. Some of these projects are long-term commitments. They involve getting the right partners, putting down infrastructure, and ensuring that off-take agreements are well structured. It is quite a bit of work that needs to go in on that space. On the dairy side, it is a lot more longer term, because you need to have the animal with the right yield in terms of milk, which can survive in the Nigerian environment. So, there are many challenges that we will have to overcome. But one of the things that we have to do is to work with government and private sector in some of these projects. We also have development partners that we can work with to finance some of these projects.

What is the likely impact of this acquisition on the Nigerian economy?

I would look at it from different perspectives. From the employment standpoint, we will even maintain the workforce that we have in Chi today. The key thing is that as business grows, we may continue to create jobs. We also look at jobs from indirect standpoints. If you think about expanding distribution outside of Lagos, it means that our new partners will hire people and buy goods. The retail side of it is, we increase what we have and this will have a lot of impact. From the tax standpoint, our intent is to pay more taxes. We have been very committed to payment of more taxes. As revenue and profitability grow, so will our contributions to Nigeria from tax standpoint. From the Foreign Direct Investment standpoint, Chi may not have the cash-flow. So, there will be some investments that will come in from outside of Nigeria that will support the growth aspirations that we have. Again, it will have an impact in the area of investor confidence. Imagine a situation where investor confidence is going down, and a company like Coca-Cola comes in and invests in Chi. It simply gives impetus to investors and they will begin to see positives in Nigeria.