PepsiCo’s South African subsidiary Simba (Frito-Lay) is putting the squeeze on smaller competitors in the R1.7bn (US$191m) salty snack market at the foot of Africa, but its main competitor is fighting back.
Simba has a 55% to 60% market share, with its nearest competitor Willards at 20-25%.
Analysts believe PepsiCo is using the same strategy it has used in other markets to drive out competitors, but Frito-Lay Southern African President Tim Mes claims he is unaware of any price war.
He believes there is a healthy, competitive fight for market share where innovation, advertising and promotion are crucial.
Willards, which has the backing of National Foods, a subsidiary of the substantial Anglovaal Industries (AVI), believes there is a price war and is not going to accept defeat.
Analyst John Thompson from ING Financial Markets also believes there is a price war at present and says it will be an interesting tussle as both companies “have rather deep pockets”. Thompson said Mes adopted the same strategy when he headed the company’s Benelux operation.
“It was simply an increase in quality and introducing innovative measures into the market place, while keeping pricing constant in spite of spiralling food prices of up to 20% in South Africa.”
He said Simba kept its prices at below inflation, only going up 7%, while Willards went up 10%. Industry sources claim raw materials such as cooking oil went up 56% and maize 95%, while potato prices also rocketed.
By exerting this pressure on prices, Thompson felt Frito-Lay could prevent Willards from making a profit.
Frito-Lay entered South Africa in the mid to late 1990s, initially buying a 30% stake in Simba, but later assumed full control.
Simba/Frito-Lay is concentrating on growing per capita consumption. While relatively well developed at about 3,5kg a year, it is only half that of the UK, Mes said.
While Willards figures are open to the public, being part of the listed AVI group, those of Simba are not available for scrutiny, so transparency and profitability have become issues in this market.
Willards sold about R377m worth of snacks last year, but recorded a loss of R40m and R49m respectively over the past two financial years.
“We are not able to discern whether our competitors made a profit or not because their figures are not open to scrutiny,” said Cliff Sampson, MD of National Brands.