Never mind Pepsi, Canada’s Cott Corporation is the latest threat to Coke in South Africa, reports Teigue Payne
CANADIAN housebrands company Cott Corporation has captured a sizeable slice of the supermarket own-brand cola market. Yet its techniques could be extended to many other products — and could be copied by other entrepreneurs.
Cott, which has been supplying an increasing number of supermarket customers via sub-contracts with outside bottlers, has recently announced that it will set up its first South African plant in the Cape.
Cott’s first venture outside Canada was into South Africa in 1993, when it landed a contract to supply cola to Makro. It has since spread rapidly into Britain and Australia.
In South Africa, it has captured the own-brands soft drink contracts for most of the country’s major retail and wholesale distributors — Makro, Metcash, Shield, Nation Sorghum Breweries, Pick ‘n Pay, Dion and Woolworths. The brands it has formulated include American Cola, World Class Cola, The Nation’s Pride and Pick ‘n Pay’s Choice. Only Shoprite/Checkers, OK and OK Hyperama have not been signed up.
So successful has Cott’s strategy been in north America that its turnover has rocketed from Can$66-million in the year to end-January 1991 to Can$665-million in the year to end-January 1994. Its earnings and the share price have also multiplied.
Cott’s winning technique begins with design of product. Brand design, packaging and promotional materials are done with great care — in contrast to the often-shoddy sallies into own-branding by South Africans in the past.
The appearance of the brands, packaging the below-the-line material, is in no way inferior to that of major brands like Coca-Cola. Among Cott’s businesses in Canada is a leading production house.
The colours in which the Cott brands are packaged are similar to those of Coke. In Britain, after threats of legal action, J Sainsbury, which uses a Cott brand, changed its red and white cola packaging. In South Africa, Coke brought a complaint to the Advertising Standards Authority about the packaging of Makro’s American Cola.
An aspect of Cott’s winning formula is extensive research of its cola — and orange, lemonade, soda and other carbonated soft products. This is done through target market tasting. The products are designed separately for each supermarket chain, so they differ.
Fundamentally, Cott’s strategy is to package the entire product from design to delivery with quality. The focus is on pleasing the customer in every way. Marketing and retail intelligence support continues, as do promotions and below-the-line material.
Cott has also focused only on a small segment of the market. Its customers are only the major distributors and the product is only sold in non-returnable containers which these major customers prefer.
This focus means that, for the moment at least, Cott is not striking at the largest section of the soft drink market. According to a Cott newsletter, South African sales are targeted at Can$45-million (about R120-million) in 1994, and double that in 1995.
Though Cott claims that in its existing customer base, its colas are selling at one-to-one or better against Coke, it really offers no volume threat to the major soft drink producers. The South African soft drink market is worth about R3,5-billion a year — predominantly in returnables.
But Cott is a threat on price. With lower overheads, especially because the focus is on non-returnables, Cott’s price is well below that of the soft drink majors. This means distributors can make a larger margin and discount. As the brands are a growing asset owned by the supermarkets, their passion for them tends to exceed their passion for Coke or Pepsi.
The soft drink majors appear to be responding to Cott by raising prices less than in the past. They are also apparently trying to steer consumers away from temptation at the major distributors and rejuvenating general trade in cafes, township outlets, service stations and informal outlets where Cott does not yet operate.
Cott is likely to focus on capturing more of the distributor market. It is unlikely to enter the returnables market. It believes the whole market will expand because of its competition. Coke is on record as saying about the same. But that expansion could be at lower prices.
In South Africa, Cott’s management says it is likely to stick to its knitting in carbonated soft drinks. However, Hein Bruyns, managing director of Retail Brands, Cott’s representative in South Africa, says the local company is doing deals to export local food products to be used elsewhere under Cott-formulated brands.
In Canada, Cott is expanding rapidly into other consumable products using the same supermarket own-branding methods as in soft drinks. So far it has also entered the snacks and pet foods market and, more recently, beer brewing.
For entrepreneurs, perhaps the most interesting aspect of the Cott phenomenon is this: if Cott has so successfully copied the successful big-brand colas, can’t its techniques also be successfully copied?