Soft drinks’ prices up 20% on sugar cost

The surge in international sugar price is contributing about 20 percent increase in the retail price of some carbonated soft drinks in Nigeria such as Coca-Cola, Pepsi, Bigi and others, now selling at N120 from N100. In the last five years, producers had thrilled consumers in a quantity war that saw bottle content increasing but prices remaining the same.

However, the increase in the price of soft drinks might now be a win for producers in terms of turnover from sales, after struggling to maintain old prices despite increasing production costs. Not certain, but volumes may be impacted if consumers consider the increment can impact on their wallets.

“Sugar is the main reason for the increase because it is a bigger part of the production of soft drinks,” noted Ibrahim Ahmed, an inventory manager at Coca-Cola Nigeria. The high cost of Foreign Exchange (FX) has made the cost of importing raw materials expensive, and all the big players in the soft drinks industry had agreed to increase their prices at the same time, he said.

Soft drinks are popular beverages consisting primarily of carbonated water, sugar and flavourings. Sugar, the second main ingredient, makes up between 7 and 12 percent of a soft drink.

According to the Food and Agriculture Organisation (FAO), the sugar price index averaged 100.2 points in February 2021 from 94.2 points in the previous month, marking the second consecutive monthly increase and registering its highest level since April 2017.

From the index report, the latest hike in international sugar price quotations was prompted by continued concerns over tighter global supplies in 2020/21, following production declines in key producing countries and a strong import demand from Asia.

“It is not possible for prices to remain stagnant with the naira devaluation that we are experiencing. The cost of producing the syrup for some of these sugar products have gone up significantly considering the dollar impact, so they need to increase prices,” said Ayorinde Akinloye, a consumer analyst at United Capital plc.

Over the past five years, soft drink makers have been competing for sales by increasing the quantity of products without increasing their prices due to weak consumers’ purchasing power.

Between 2014 and 2015, Bigi Cola garnered patronage from consumers because the product introduced a bigger (60cl) bottle that cost N100. The increased patronage for Bigi made it tough for Pepsi, Coca-Cola and other drink manufacturers in the market.

The step by Bigi gave room for more competition, making Coca-Cola and Pepsi to increase their quantity in 2017 and 2016, respectively. Later, other drinks in the market started to increase the quantity of their drinks without increasing the price.

With time, sustaining the volume at same cost became challenging. In September 2019, Coca-Cola reduced the volume of its 60cl pet drink, which was sold for N150 to 50cl for N100 and it also increased its 35cl pet drink to 50cl for the same price of N100. Then earlier in 2020, Pepsi responded by reducing its 60cl drink that was sold for N100 to 50cl, still at the same price.

“I don’t expect the N20 increase to really affect consumers. At the initial stage, there will be that slow reaction to the increase but overtime people will re-adjust their spending to buy it,” Abiola Gbemisola, consumer analyst at Lagos-based Chapel Hill Denham, said.

The carbonated soft drink market commands a unique hold on the food and beverage sector in the Nigerian economy. Nigeria’s fast-growing population brings with it a continuing demand for soft drinks, especially as the climate is quite hot.

According to Euromonitor International, a global market intelligence publisher, the country ranked fourth globally in the volume of soft drink sales recorded in 2016.

In 2019, Nigerians households spent N551.2 billion on non-alcoholic drinks, N205.5 billion on sugar, sweets and confectionery, and N150.3 billion on alcoholic drinks, a National Bureau of Statistics report shows.