Over the 2018 festive season, many of you recall that Delta Beverages had to cease production at most of its plants. The major cause for this was the widespread shortage of forex which is a key factor in the sustainability of their operations. The fact that the beverage titan had arrears owed to suppliers of over USD40 million made things worse. As if that wasn’t enough, the company has gotten to a point where making dividend pay-outs to external shareholders had become a tall order. In January it announced it would be charging its products in USD.
The Rationale Behind The Announcement
Delta Beverages obviously has a marked need for foreign currency. For instance, it was indicated that Delta requires at least USD2 million monthly to purchase concentrates and granules used in packaging material from Swaziland. They also cited that they weren’t getting exclusive forex allocations from Treasury like other players. The announcement then elicited a meeting with VP Chiwenga and RBZ where RBZ committed itself to provide Delta with forex allocations. Whether the announcement was sincere or a calculated move meant to cause the government and RBZ to act is a topic of discussion. If you recall the commitment by RBZ even sparked outrage at how government prioritized Delta Beverages yet doctors were on strike at the time demanding salaries in USD.
Delta’s Forex Needs
Delta dominates the local manufacture of beverages as you well know. For them to operate optimally they need as much as USD100 million annually. This is the foreign currency required for the importation of raw materials. An interesting thing to note is that half of that money goes towards sourcing concentrates and packaging material.
Anyways, Sales In RTGS$ Are Back
Delta has indicated that there’s been a significant increase in their access to forex on the interbank market. This has made them revert back to sales in RTGS$ which is a welcome development. So according to a formal communiqué issued on the 4th of June that’s when they announced the news. They pointed out that their operations had somewhat improved due to increased access to forex. They remarked at how the last time they accessed substantial amounts of forex from commercial banks was 3 years ago. This RTGS$ pricing has since taken effect and shall apply to all returnable beer or soft drinks glass packs. They even went a step further to emphasise that wholesalers and retailers alike must adhere to prices as stipulated in their price schedule. They indicated that their sales personnel always formally communicate in that regard.
Retail Prices Set To Go Down
So on average, it cost around RTGS$10 for one to purchase a 660ml bottle of beer from drinking joints. The pint was now placated on average at RTGS$6. However, now with the new policy in place, the 660ml bottle is projected to go down to RTGS$6 whilst the pint will go down to RTGS$3. This will be good for both Delta and the consumers alike. Actually, last year Delta alluded to a drop in consumer spending (due to waning buying power) as one of the reasons they realized less than expected sales. This drop in consumer spending was so intense in the final quarter of 2018.
Recently the RBZ announced they had started drawing down on the USD500 million Afreximbank facility. This has somewhat led to a scenario where customers are now holding onto their RTGS$s. This then gives rise to the situation whereby RTGS$s can be hard to come by. This is a challenge that the United Refineries CEO recently cited.
There’s no doubt as to how big Delta Beverages is which somehow validates why the government would prioritize their forex needs. Regardless, there are still many who feel that the government should also look into other critical industries such as health. There are those who feel that prioritising the affordable availability of a beer or a soft drink is misplaced. However, if Delta is neglected there are other undesirable consequences that can result from that. A decline in performance for the beverages titan can send shock waves across the economy.