$500 million investment shows belief in Pakistan’s economic future’

Interview with John Galvin, General Manager Coca-Cola Beverages Pakistan Limited (CCI Pakistan)

BR Research recently sat down with John Galvin, General Manager CCI Pakistan to discuss the carbonated soft drinks market in Pakistan and the company’s rising presence in the local market. John joined CCI Pakistan in July 2015 and has held top managerial positions at companies operating in Europe and Asia. He was previously the Managing Director at Diageo, Indonesia where he led the group activities which included three local manufacturing sites and an import portfolio across multiple routes to market in a complex and dynamic external environment.

Below are edited excerpts of the interview.

BR Research: There are various estimates of the size of the carbonated soft drinks (CSD) market in Pakistan. The Pakistan Bureau of Statistics (PBS) puts it at Rs52.2 billion whereas Euromonitor has a different number. What do you think is the actual figure?

John Galvin: I can’t provide a specific number. But generally the figure is underreported in most services you look at. I would put it a bit higher than the number you just mentioned. But it’s a fast growing industry. Whatever the estimates may be, year-on-year growth is in high single/low double digits. When it comes to Coke, our CAGR has been 16-17 percent for the past five years.

BRR: What factors are behind this impressive double digit growth for the industry?

JG: There are positive consumer dynamics at play with high demand for the CSD segment and the investment story is also there. This is mainly because of the emerging middle class in Pakistan which has increased discretionary spending. There is also rising urbanization which also contributes to market growth for our industry. Coca-Cola is a well-known brand and is nicely positioned to capitalize on these positive consumer dynamics.

BRR: Do you see the emergence of any Chinese or local players in Pakistan’s CSD market?

JG: There is a vibrant market with a lot of smaller players in the market place. It’s a very local industry and you must set up a footprint to be effective in this market. For example, CCI Pakistan has five manufacturing plants across the country.

So if there is a potential of new entrants, they must participate at a similar scale. There are a number of smaller players which is good for the industry. Typically, they are B-brands which play at a lower price point and focus on rural markets. They generate category growth in these segments which is valuable for the entire industry as these consumers then transition to more premium brands.

BRR: There has been rising awareness when it comes to the health aspects of carbonated soft-drinks. In particular, you see government authorities such as the Punjab Food Authority (PFA) taking a hard stance with a recent ban on the sale of soft drinks in educational institutions citing health concerns. As a major player in the CSD market, how are you approaching the matter?

JG: We offer our consumers a wide choice of products fit for every lifestyle and occasion. Product safety and quality remains our top priority. Our Way Forward approach is how we are changing our portfolio to meet the changing needs and preferences of people and to help them consume less sugar – through sugar reformulation, smaller package sizes, more drinks that focus on less sweetness. We are also continuing to work to help provide the right options and information so that people can make better, more informed decisions about their sugar intake.

We are working closely with PFA and will comply with any specific guidelines. We are committed to providing funds for community wellness programs – we have done that for years and will continue to do so. As a business, we are also trying to create awareness amongst legislators, policy makers and government officials on how proposed legislations and policies would impact our business, employees and consumers.

BRR: Apart from this, what kind of regulatory hurdles is CCI Pakistan facing at the moment?

JG: For us it’s really about the taxation and investment story. On the taxation side, we’ve seen continuous increases which impact consumer price and will eventually cause the industry to slow down significantly if they continue in the same trajectory. What we would like is a level playing field across categories.

If the government wants to tax consumer goods, then it should do so on a broader base. That’s the best way for them to collect more revenue without punishing one category within the consumer space. Then there should also be a level playing field within our industry where everyone should be taxed at an equal rate. On the investment side, we’ve obviously invested and continued to invest significantly. So regulatory stability with no additional unexpected regulatory duties will be beneficial for us. Just a clear operating business environment. That’s what we’re looking for.

BRR: How much has the company invested in Pakistan in the last five years?

JG: In the past five years the Coca-Cola system has invested $500 million in the Pakistan market and we’ve just signed off on our plans for the next three years which is also a significant amount.

BRR: If you were to put a number on the employment generated by this investment, what would it be?

JG: We have almost 3,000 direct employees and when you include indirect employees and our distributors, the figure is close to 20,000 people. If you further add allied industries and the associated workforce, the total employment generated is about 275,000 people across the entire country.

As far as the investment multiplier goes, CCI Pakistan did a study with the Institute of Business Administration (IBA) in Karachi and Lahore University of Management Sciences (LUMS) which puts the output multiplier at 4.9 on our investments. So for the $500 million investment, there is almost $2.5 billion economic impact.

BRR: What do your future investment projects include?

JG: We’re currently building a plant in Faisalabad which will be operational by the first quarter of this year. Then there is an additional plant on KPK/Punjab border and expansion within existing plants as well. There will also be investment in market infrastructure such as coolers, warehousing and other supply chain segments.

BRR: Can you tell us the market share of your various products and which are the more popular ones?

JG: Coca-Cola is by far the biggest both for us and in the industry. It also provides more than half of our revenue stream. In fact, it’s the biggest consumer goods brand in Pakistan by pretty significant margins. But we also have Sprite and Fanta. Then we have the water brand, Kinley, as well as some juice brands including Cappy which we launched recently.

BRR: Any plans to increase your product portfolio in the coming years?

JG: When it comes to product range expansion, it’s all about timing. Eventually, we’ll have a much larger portfolio. But that depends on consumer expectations and acceptance and as a brand; we see both of these evolving over time which will result in new product offerings from our side as well.

BRR: How do you see the role of Coke’s marketing efforts when it comes to its image building in Pakistan?

JG: Investment in our consumer marketing has led to the creation of some really good assets such as Coke Studio which is a decade old now. People have become big fans and the show has gained a huge following. Coke Studio is again a reflection of how our brand connects with consumers and allows us to become a fabric of the society.

BRR: What are your thoughts when it comes to Pakistan’s economy?

JG: We are very positive on Pakistan. Pakistan has a young and talented workforce with an emerging middle-class. Being a Turkish-based company, we have been encouraging other Turkish companies to invest in Pakistan and become part of the future growth story of the country. Pakistan has a resilient economy and investments in the past as well as future investments are a testament to our belief in the future of this country. The government has taken great strides in strengthening the energy infrastructure which has immensely helped industrial companies. Pakistan’s economy is positioned well to capture from further growth if the regulatory stability maintained and security situation for foreign investment is improved.