Beer price increase a reaction to pricing 'abuse'

File photo: Delta Beverages

Published: 08 October 2013

IMARA Edwards Securities speculates that the review of beer prices by Delta Beverages is a reaction to the 'abuse' by retailers on pricing due to shortage of coinage.

Delta reviewed the wholesale and the recommended retail prices (bottle stores and supermarkets) for some of its beer products.

The price increase range from 10.0% to 20.0% for lager beer. The price increase for non-returnable glass for main stream brands is approximately 11.1% while for 'premiumised' offerings is around 10.0%. There were no price changes for imported products as well as for most of Chibuku products save for a 9.1% increase on Shake-shake.

In a note to investors, Addmore Chakurira of Imara Edwards Securities said, "...we speculate this is a reaction to the "abuse" by the retailers on pricing due to the shortage of coinage. We note that there is approximately a 25% margin allowed on the RRP (recommended retail prices) for the wholesalers. In our view, the price review is unlikely to have a significant negative impact on volumes as the prices for most brands are unlikely to change significantly for the end consumers due to the issues around coinage.

"We believe that the price review may add a few percentage points to group margins given the higher increases effected on the mainstream brands. In our opinion, management strategy of growing value ahead of volume remains intact. We expect Delta to release a trading update for the interim period to 30 September 2013 around 17 October 2013 and to publish the interim financials around 13 November 2013," added Mr Chakurira.

Delta has a dominant position commanding approximately 96% of the beer market and about 92% of the sparkling beverages. The company states that for every 1% growth in GDP, Delta's volumes can grow by a factor of 3x - 4x.

Chakurira advise investors to buy Delta Beverages for long-term investment.
- businessdaily