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Why Bralirwa’s soft drinks will cost more

Saturday August 27 2016

Bralirwa Ltd, Rwanda’s biggest soft drinks and beer company, has increased the prices of soft drinks by 16 per cent to ease pressure on its revenues. 

The slight increase in prices by Rwf50 on each 30cl and 50cl bottle of soda and 30cl PET bottles is expected to prop up the company earnings and share price.

However, market analysts said increasing prices may not shield Bralirwa’s share price, which has been losing ground for the past two years.

The company’s shares have tumbled by 63 per cent from Rwf440 ($0.55) to Rwf160 ($0.20) on declining profits.

“It’s a good move to increase prices of soft drinks, but not enough to convince potential investors,” said Davis Gathara, managing director of Baraka Capital.

The company profits are being wiped out by a combination of low purchasing power, servicing of a foreign debt and the growing competition in the beverage industry.

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READ: High debt financing costs nearly drink up Bralirwa’s profit

Bralirwa fixed the retail price of a 30cl glass bottle at Rwf350 ($0.44), 50cl glass bottle at Rwf500 ($0.63) and PET bottles at Rwf450 ($0.56).

Market analysts argued that the company should have also increased beer prices, which have remained unchanged for the past three years.

“It would be better to increase beer prices but that could shift preferences to competition,” added Mr Gathaara.

Bralirwa produces Coca-Cola, Fanta Orange, Fanta Citron, Fanta Fiesta, Sprite, Krest Tonic and a proprietary drinks Vital’O.

Expanded market

The volumes of these soft drinks expanded by 6.3 per cent. Combined, the company sold 888,000 hectoliters of both beer and soft drinks in the fast half of 2016.

“Though cost pressure and constrained consumer spending power will continue to be challenging to the bottom line, we will focus on innovation, strengthening of premium beer brands, as well as find ways to reduce costs that require hard currency and improve productivity,” said Jonathan Hall, the outgoing managing director of Bralirwa.

However, revenues will remain under pressure due to high raw materials and transport costs.

Bralirwa imports all its industrial sugar, colouring, preservatives, carbonated water and packaging materials.

The Rwandan franc has depreciated by 7 per between January and June, a cost increase that the brewer has to contend with.

Growing competition from Skol Breweries Ltd, a local brewer, and imported of East African Breweries products is also eating into Bralirwa’s market share.

In the fast half of this year, Bralirwa’s beer market share dropped by 2.2 percentage points from the 4 per cent recorded during the same period last year.

Since 2014, half year financial results show that Bralirwa profits have been falling from high of $6 million in 2014, $4.8 million in 2015 before dipping to $747,000 in the first six months of 2016.

The fall in profits follows on the back of the foreign debt the company acquired to invest in expanding the Gisenyi and Kigali plants.

By 2015, according to the company, the debt was Rwf39 billion ($47 million). The company borrowed $40 million.

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