South Africa’s beverage industry

Media Release

August 2024

South Africa’s beverage industry: a thirst for growth and innovation

By Brendan Grundlingh, Sector Head CPG and Beverages

 This article was publised by Business Day (businesslive) on 29 August 2024

South Africa’s dynamic beverage industry offers a diverse selection of alcoholic and non-alcoholic options that appeal to a wide array of consumers. This sector is not just a major contributor to the country's GDP; it is a cornerstone of economic growth, fuelled by evolving consumer habits, urbanisation, and a rising population. The industry's impressive performance has drawn attention from both domestic and international investors, positioning it as a key player in the nation’s economy and paving the way for further consolidation in the future.

A booming industry

In recent years, the beverage industry has outpaced the broader consumer packaged goods sector. The industry's contribution to GDP is evident through direct manufacturing, job creation, and the robust distribution networks that sustain both the formal and informal markets. As consumer spending patterns shift and urbanisation continues, the beverage sector demonstrates significant potential for growth.

Investments by global giants underscore this potential. Heineken's R13.6 billion direct investment, and Varun Beverages Limited (VBL)'s R3 billion acquisition of BevCo, the Pepsi bottler in South Africa, highlight confidence in the market. As the industry expands, further consolidation is likely, leading to a more competitive and innovative marketplace. 

Alcoholic beverages: tradition meets innovation

The alcoholic beverage market in South Africa is dominated by beer, and the market has experienced steady growth driven by competition between AB InBev (SAB) and Heineken. Heineken’s acquisition of Distell caused a notable shift in market share among premium and mainstream beer brands, with consumers gravitating towards brands like Amstel Lager, Heineken, Castle Lite, and Stella. Challenger brands like Devils Peak are gaining presence in select establishments, further diversifying available options.

There is also growing demand for lower-alcohol options, particularly in the ready-to-drink (RTD) category. This shift has revitalised the cider market and created a surge in consumption of session-able RTDs. Major players are aggressively targeting this space, but South Africa is also home to innovative smaller producers like Chateau Del Rei, House of BNG, Brooks, Cape Spritz, and Kix Spritzer, offering consumers increased choice in this evolving market.

The spirits category, while smaller in volume compared to beer, has seen substantial growth due to changing consumer preferences and international trends. Despite the dominance of global spirits brands, local players like Edward Snell, RGBC, DGB, KWV, Halewood, Truman & Orange, and CLM, are capitalising on these trends and driving growth. Pernod Ricard recently sold its Red Heart Rum brand to KWV as the global wine and spirits group focuses on its 17 global brands. Diageo is injecting new energy into the gin category after regaining full ownership of the Gordon's brand, while Pernod Ricard is promoting its global gin brand Beefeater alongside local brand Inverroche, which continues to lead in the Cape botanicals gin segment.

Premiumisation, affordability and availability are central themes in the spirits industry. As brands seek to meet consumers' preferences across different price points, the industry is poised for continued growth, particularly in the whiskey, brandy, gin, and rum categories. This focus on availability and affordability is expected to drive consolidation within the local distributor network, creating new opportunities.

Non-alcoholic beverages: a kaleidoscope of change

South Africa’s non-alcoholic beverage industry has undergone a dramatic transformation, evolving from a market dominated by sugary sodas to a vibrant sector that emphasises innovation, health consciousness, and taste. Foreign direct investment has been crucial in this transformation, with VBL acquiring BevCo and private equity firm Alterra Capital purchasing Chill Beverages, the maker of Fitch & Leeds.

The modern non-alcoholic beverage market is a kaleidoscope of flavours, from sparkling waters infused with exotic fruits to plant-based protein drinks. The energy drink segment has become a powerhouse within the industry, attracting both local and international players. While global brands like Red Bull and Monster Energy continue to dominate, local brands such as Switch, Score, Reboost, and Dragon are challenging the status quo by focusing on affordability, availability, and innovation in flavour. Energy drinks are currently the fastest-growing subsector within carbonated drinks, although this growth raises concerns about health and wellness.

In the broader non-alcoholic space, Coca-Cola Beverage Africa (CCBA) and PepsiCo, through VBL's BevCo, are introducing a range of sugar-free and low-calorie options to cater to health-conscious consumers. At the same time, startups like Pura Beverage Company are gaining significant traction with their better-for-you offerings, which appeal to consumers looking for healthier options for themselves and their children. This shift towards health-conscious beverages has spurred the growth of functional drinks fortified with vitamins, minerals, and antioxidants. Kombucha, once a niche product, is now widely available, and plant-based dairy alternatives are increasingly popular.

The industry is also responding to environmental concerns by embracing reusable packaging and implementing recycling initiatives. This aligns with growing environmental consciousness among consumers and the broader beverage trade. As the industry seeks to balance affordability with sustainability, significant investments are being made to reduce plastic waste, minimise water usage, and support environmental targets. Sustainability-linked funding initiatives by banks are also becoming more popular across the sector and often align with global parent targets in larger organisations. These initiatives are not only good for the planet, but also resonate with consumers who prioritise sustainability in their purchasing decisions.

The future of South Africa’s beverage industry

As South Africa’s beverage industry continues to evolve, one thing is certain: the days of traditional, unremarkable drinks are over. The industry’s thirst for innovation, coupled with its responsiveness to changing consumer preferences and environmental challenges, is driving a refreshing new era in the sector. With continued investment and a focus on sustainability, South Africa's beverage industry is well-positioned for a bright and dynamic future.

Ends