In a show of confidence in the local economy, Pepsico South Africa has further expanded its local production in the country — one of the US food and beverage giant’s biggest operational growth regions globally.
PepsiCo South Africa bought Pioneer Foods for US$1.3 billion in 2020 and agreed to a raft of conditions imposed by the Competition Commission, including the provision of the equivalent of R8.8 billion in value for the benefit of its employees, agricultural development, education, the growth of the target company’s operations and local enterprise development programmes.
In keeping with its commitment to develop its local production and with an eye on growing its exports and revenue generated in the country, PepsiCo this month opened a new R75 billion Futurelife factory at Dube TradePort in KwaZulu-Natal, a special economic zone (SEZ ) adjacent to King Shaka International Airport.
Its subsidiary, Pioneer Foods, acquired the remaining half of the locally developed nutrient-dense breakfast cereals and snacks maker, Futurelife Health, in May, after buying an initial stake of the 14-year old-brand in 2020.
“We were previously manufacturing our products at our 4 000 sqm (square metre) facility situated at New Germany, KwaZulu-Natal, where most of our portfolio was produced and packed from January 2017,” PepsiCo CEO Riaan Heyl said.
“It has just been decommissioned and we have moved all the production lines to our new facility.”
At 8 500 square metres, the new facility is more than twice the size of the previous manufacturing site, and similarly, it has led to a doubling in production, he added.
“Futurelife originated in KwaZulu-Natal and holds a strong commitment to this province. We are dedicated to preserving our heritage and furthering our investments in the KZN economy and our local community.”
He said the product is a “growing and innovative” local cereal brand and “to continue this momentum and ignite further growth and innovation, investment was critical. Larger premises and increased capacity were a necessity to unlock our future growth.”
The SEZ has also provided the business with infrastructure and location benefits as it has easy access to the airport and other logistics nodes, like roads and the Durban Port.
South Africa is today among Pepsico’s largest seven operational areas in the world, including the United States, Mexico, Russia, Canada, China and the United Kingdom, from where it markets and sells a wide variety of beverages and convenient foods across more than 200 countries.
Operations outside the United States generated 43% of consolidated net revenue in 2022, with Mexico, Russia, Canada, China, the United Kingdom and South Africa, collectively, comprising approximately 23% of consolidated net revenue for the period.
Asked why PepsiCo had displayed huge confidence in South Africa, not least since its acquisition of Pioneer Foods is one of the largest deals the firm has ever made outside the US, Heyl said the company shared the same commitment as the target firm which also provided an opportunity for brand growth.
“When PepsiCo was considering its acquisition of Pioneer Foods, it found a company with a shared commitment to serving the people of South Africa by providing the highest quality food and beverage products while driving inclusive growth for its employees, its suppliers, and the community at large,” Heyl said.
“Its robust, locally relevant product portfolio expanded PepsiCo’s one, with strong positions in cereals, juices, and other nutritional food staples, including well-known, scaled brands like Weet-Bix, Liqui-Fruit, Ceres, Sasko, Safari, Spekko, and White Star. These, along with legacy PepsiCo brands such as Simba, Lays, Doritos, Nik-Naks and Fritos enables PepsiCo South Africa to offer a broad set of consumption choices for South African consumers.”
Pepsico South Africa, which is part of the Africa, Middle East and South Asia (AMESA) sector within PepsiCo is positioned for further growth.
“Along with our counterparts in the rest of Africa, Middle East, India and Pakistan we are considered a growth engine within the global company,” Heyl said.
According to PepsiCo’s 2022 annual report the business’s global “success depends in part on our ability to grow our business in developing and emerging markets, including Mexico, the Middle East, China, South Africa, Brazil and India.”
“There can be no assurance that our products will be accepted or be successful in any particular developing or emerging market, due to competition, price, cultural differences, consumer preferences, method of distribution or otherwise,” the company noted, while listing the raft of additional risks associated with these regions.
“Our business in these markets has been and could continue in the future to be impacted by economic, political and social conditions; acts of war, terrorist acts, and civil unrest, including demonstrations and protests; competition; tariffs, sanctions or other regulations restricting contact with certain countries in these markets; foreign ownership restrictions; nationalisation of our assets or the assets of our business partners; government-mandated closure, or threatened closure …”
Even with South Africa’s present risks: the energy crisis and battle against load shedding, the sometimes volatile political climate, upcoming 2024 elections, port, rail and road logistics challenges, risk of social unrest, inequality and poverty, PepsiCo remains somewhat confident of its local business prospects.
Said Heyl: “We are cautiously optimistic about the outlook, notwithstanding some of the enormous challenges we face as a country. We believe we have a winning product portfolio, and high calibre people working at PepsiCo South Africa to help us weather the storm.”
KZN MEC for economic development, tourism and environmental affairs, Siboniso Duma, speaking at the opening of the new facility, said it would play a major role in sustainable economic development in the province.
“We are cognisant of the fact that manufacturing is one of the sectors hardest hit recently. We experienced Covid-19 lockdown, followed by devastating floods. All of these resulted in thousands of job losses. Notwithstanding these challenges, as government we remain committed to work with the private sector to create more jobs and ensure the recovery of our economy.”
“The fact that Futurelife already sources 87% of its raw materials locally, gives local producers an advantage of future upstream integration,” Duma said.
Futurelife currently has a staff complement of 186 people and anticipates creating an additional 24 direct jobs over the next five years, as it seeks to grow 30% of its business into export markets in Asia, the Middle East, Europe, North America and the rest of Africa.