Comment - Soft Drinks & Water - Refreshment in Afghanistan
Despite the long-running turmoil in Afghanistan, both Coca-Cola Co and PepsiCo have made moves into the war-torn country
This month, Richard Corbett casts his eye in the direction of Afghanistan - a country of great danger, but maybe even greater potential, for the soft drinks and water producers among us.
As investment opportunities go, many might be forgiven for thinking that investing in Afghanistan at the moment would be up there with buying shares in a Greek bank or putting money into a new shopping mall in Dubai. Based on this assumption, many may have raised their eyebrows when PepsiCo announced towards the end of April that they had signed a bottling agreement with the Alokozay Group of Companies (they are best known for their specific brand of tea) for the manufacture and distribution of its drinks brands in Afghanistan. The US$60m project will see a new plant in Kabul operational by March next year, giving the good people of Afghanistan the chance to drink some of the world’s most iconic soft drink brand names.
To the east of Kabul, in the Bagrami Industrial Area, you will already find a Coca-Cola bottling plant established as long ago as September 2006. The significance of the event meant that the plant was opened by no less than the president himself, Hamid Karzai. Coca-Cola was the first major business to open since the Taliban Government fell. The high-profile occasion was seen as an opportunity to announce to the world that Afghanistan was open for business. (Prior to the Coca-Cola factory opening, Coke products had been imported mainly from Pakistan and Iran.)
The first observation to make is that, in the short term, there are reported to be around 140,000 foreign troops stationed in Afghanistan in often sweltering (and thirst-generating) conditions. That represents a considerable market in itself and, with the bulk of these soldiers being American, they will want to quench their thirsts with the tastes from home.
Per capita soft drinks consumption in the US is around 340 litres and, if you assume that military personnel mirror that level, then you already have nearly 50m litres of demand per year – a rather crude calculation, of course, but it does provide some indications.
In the longer term, we may have to glance next door to Pakistan to gain an indication of the sort of potential that exists among the remaining 30m or so of the population. Using beverage research agency Canadean’s global soft drink figures for Pakistan, we can gain a feel for just how much potential exists in the market. According to Canadean, soft drink per capita consumption in Pakistan is around 20 litres each (26 litres if you include bulk cooler waters) – more than half of soft drink consumption is made up of CSDs. Not surprisingly, in a hot marketplace with question marks over the quality of the municipal water, bottled water consumption is nearly three litres – if you include bulk cooler waters then it is more like nine litres. Much of the rest of the market is made up of cheap still drinks.
Based on these figures, one might expect Afghanistan's soft drinks market to come in between 500 and 600m litres per year - a not insignificant volume. There is, of course, more work needed to be done than just building a bottling plant: You have to get the drinks to the consumers. Work will need to be done to develope the logistics to achieve this and the cold chain to ensure the drinks are dispensed chilled to maximise the experience. Marketing strategies will need to be developed to promote consumption among a population who may be a little sceptical of paying for their beverage consumption.
You have to start somewhere, though, and it all begins with the bottling plant. Both Coca-Cola and PepsiCo have sown seeds in Afghanistan that should reach fruition some time further down the line. When the gunfire dies down, we may all be surprised at how quickly the country settles down into a stable and attractive marketplace, and it is the early pioneers that have the most to gain when it does.
Sri Lanka has shown us how quickly an economy can repair itself when peace breaks out; according to Guardian Money by Vanguard, the Colombo stock market increased by 128% in 2009 and more than 100% in 2010 following the end of the 25-year civil war. There are some estimates that suggest that the untapped minerals in Afghanistan are worth at least $3 trillion which could be the engine that raises living standards and provides the disposable income for people to pay for their soft drinks.
A scorching country where most of its population do not drink alcohol probably has more potential for soft drinks than people would imagine.
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