Market Plan for Sparkling Water in Ethiopia - Research Paper Example

Market Plan for Sparkling water in Ethiopia Name Institution Abstract The following is a report based on a new product( Sparkling water) that is to be launched in the country of Ethiopia. The report entails the market audit of the region and the preliminary market plan. Ethiopia was chosen due to its high popuation and the performance of the economy over the last ten years. The soft drink, or bevarage industry is expected to grow in the country, and a healthy alternative such as sparkling water could be a preference amongst the residents. Keywords: sparkling water, soft drink, target market Contents Introduction 4 The market- Market Audit and Competitive Market Analysis 8 Preliminary market plan 13 Conclusion 19 Appendix 20 References 22 Introduction Ethiopia is the oldest independent country in the African continent. It is a land that is rich in cultural and historical diversity, and is home to more than 100 different ethnic groups[Gis07]. The Ethiopian population was estimated to be 96 million by the first half of 2014, and this accounts for 1.3% of the entire global population[Wor15]. Although the country is still dependent on foreign aid, adoption of a new constitution in 1994 saw the economic and political situation of the country stabilize. Ethiopia has been recognised as a country of survivors and has the potential to compete in the world economy due to its previous past[Gis07]. From a socio-economic viewpoint, the country has taken significant steps towards market-based reforms, such as privatization, trade regulation and `` agricultural development-led industrialization``. Pie chart and Distribution chart of the population of Ethiopia Figure 1 Ethiopia, with nearly 95 million inhabitants, is the continents second –largest land area. Although the country has large reserves of minerals, hydrological resources and agriculture, it is still one of the poorest states in Africa. 70% of the population suffers from periodic famine and poverty due to agriculture that is highly dependent on climatic conditions.[Ber14]. Since 1990`s the state of Ethiopia consists of nine diverse regions and two city administrations. The country can be characterised by a north-south gap, and ethnic groups are differentiated by language, education and the state of economic development. The Amharai and the Oromoi are the most predominant groups in the country with Christianity and Islam being the most common practiced religions. Ethiopia is a country rich in culture and history, but the same could not be said about the economic condition of the country. Bar graph of Ethiopian Population Figure 2 The country is sub-Saharan Africa`s fifth largest economy, and various foreign investors have been seeking investment opportunities in the largest landlocked country in Africa[Wan141]. From an economic standpoint, the country`s economic growth is attributed to the immense government projects aimed at achieving its development goals of being a middle-class economy by 2025. The GDP between 2013 and 2014 was 10.6% that is by far better than other members of the East African community. Financial growth is projected at 11% per annum as the country expects to keep up this rapid growth. Ethiopia has seen an increased contribution from sectors such as textile, sugar, cement and leather products[Wan141]. In the fiscal year of 2012/2013, the country`s economy grew by 9.7%; this was the tenth year in a row of healthy growth. In 2012, the country was the 12th fastest growing economy in the world, and the average growth rate for the last ten years was 10.9%. This momentum is expected to grow in the 2014/2015 fiscal year. The government has pursued a tight monetary policy to control the level of inflation, and this has seen the consumer price inflation drop from 15.6% in November 2013 to 7.9% in November 2013[Afr15]. Bar Chart of Ethiopian GDP Figure 3 If the country were to keep up the current population would grow by 3.02%, the population will double in the next 20 years and by 2050, it could even reach 300 million. Most of the worlds, population growth in the next 50 years is expected to come from Africa, and Ethiopia will be a large part of this growth. The country had seen an increase in the number of foreign investors unlike 20 years ago when the country heavily depended on foreign aid[Ven14]. The poverty rate has also declined from 65% in 2002 to the current rate of 40% in 2014[Nie14]. The market- Market Audit and Competitive Market Analysis The effervescent nature of Carbonated water makes it a healthy alternative to sugary water. It also provides various benefits with fewer consequences[Col14]. Carbonated water is plain water that has been infused with carbon (II) oxide. The process of creating this drink does not add sodium, caffeine or sugar. Hydration is important to the health and carbonated water provides just as much hydration as water and is said to increase concentration, decrease constipation, improve heart and kidney functions and regulate temperature regulation[Col14]. Carbonated is a good alternative for people who don’t like the still taste of still water and want to stay hydrated for the day. Club soda, Tonic water and mineral water are all types of carbonated water, but they have added vitamins, sodium and sweeteners. While carbonated water is more acidic than still water, it is not acidic as sodas and does not damage the tooth enamel[Spe14]. The only issues with carbonated water are that people get gas and burp when they drink it very fast. Like other competing products, the carbonated water, or sparkling water, can be consumed with other edible products at any time of the day. Although the sparkling water process may seem complex or sophisticated, the process involves infusing normal water with carbon (II) oxide gas. The product however could involve various flavours according to the different tastes and flavours according to the segmentation of the market. It is important to note that a sizeable amount of the world population is obese, and many people have shown concern towards their lifestyles that includes their beverage choice[Law05]. Pie chart shoeing the cold beverage industry market share Figure 4 Challenges such as drought and unpredictable floods have forced most of the citizens to be poor farmers who depend on crops and animals to feed themselves. Since the economy depends mostly on agriculture, natural disasters such as drought cripple the economy leaving many individuals to starve. Such harsh economic conditions end up affecting the performance of private companies. This is because; residents are most likely to prioritize on primary needs rather than secondary needs when the economy hits a recession. The high levels of illiteracy in Ethiopia could affect the supply of labour for the supply chain. Ethiopia has a literacy of 42.7%, this implies that only this proportion of the population above 15 years of age can read and write. This is a dreadful rate as compared to other neighbouring counties in the region. Due to the extreme poverty, most of the children are forced out of school and into the streets of Addis Ababa to participate in petty trading. Although Ethiopia is one of two countries in Africa that weren’t colonized, corruption and poor governance have contributed to the rampant poverty in the country. A sizeable number of politicians in Ethiopia have no experience and are very corrupt; the poor governance has also driven investors away. However, since the end of the war with Eritrea (a neighbouring country) in the year 2000, the political situation in the country has stabilised. The soft drink market in Ethiopia is expected to reach a100 million crates per year within the next couple of years[Sid14]. This has seen investments by major corporations such as Pepsi, who could try to edge out any entry in the soft drink market. Coca-Cola, on the other hand, embarked to build a $60 million plant in the country to quadruple its current production to meet the needs of the fast growing market[Muc12]. The product which will be branded as spring sparkling water, will be marketed throughout the region of Ethiopia especially the urban regions. The urban population in Ethiopia is growing faster than the rural population, and half of the population is under twenty years[Nie12]. During the first five years, the product will be mainly be marketed in Addis Ababa, Adama, Desse, Dire Dawa, Gondar, Bahir Dar, Jimma and Mek’ele. The product will be manufactured in Australia and have to be shipped to the ports of the Djibouti port. Over the years, Djibouti and Ethiopia have worked together to share a railway line without any interruptions[Akl06]. Since Ethiopia is a landlocked country, it has to rely on the port of Djibouti for any importation of goods. The goods will be shipped from Australia through the sea and rail transport the goods to Ethiopia. The supply chain network will involve road networks to supply the product to various parts of the country. Radio and TV being the most popular media will be used for advertisement. Ethiopian Television is very popular across the entire region while radio is more popular in certain regions. 60% of the population is classified into three consumer segments that is, Evolving juniors, balanced seniors and Trendy Aspirants[Nie12]. The Trendy aspirants (17%) are willing to pay more for quality, they are young, the educated and are moderately wealthy. This group offer a good opportunity for growing or launching brands. The Evolving juniors (25%) are mostly students who live in per-urban areas. They love to spend time with friends and availability, and affordability is the best way to reach this target group. Balanced seniors (16%) are religious and family –oriented. They are open to recommendation and value affordability. Buyers tend to shop in kiosks and open markets rather than other channels. Trendy aspirants prefer supermarkets and companies have to navigate their way through price controls set by the government. Food and groceries represent up to 40% of the shopping done in the majority of the households. Consumers tend to consider mostly affordability when it comes to purchasing, and their methods are habitual. Trendy aspirants tend to try out new products and to penetrate such a market could be profitable especially where the interest is high. Almost half of the product will be advertised in supermarkets and general merchandisers in various urban areas. 20% of the product will be circulated in food service and drinking places. 12% of the products will be circulated in convenience stores and petrol stations while 8 percent will cover other means of distribution. While these percentages may not represent the actual proportions of the required distribution outlets, they represent a general distribution strategy for most soft drinks. To reach the target market, radio and television will be the main sources that will be used to market the product to the Ethiopians. Radio is the most popular source of information and news in Ethiopia, especially the rural areas[Inf13]. Television is the main source of news and information in the urban areas. There are numerous newspapers in the country but their circulation is little, and they are only available in major cities such as Addis Ababa and other towns. Very few Ethiopians have access to the internet, but the number is steadily growing. The two main competitors in the soft drink market in Ethiopia are Pepsi and Coca-cola. Pepsi has various brands such as 7-up, Mirinda Tonic, Mirinda Apple and kool bottled products. Coca-cola on the other hand brands such as Fanta, Coke, Sprite and Krest. The average price of a Coke or a Pepsi ranges from $0.5-$one respectively. The products of the two competitors are bottled and or come in plastic bottles. Most of the glass bottles are found in kiosks and small supermarkets while the plastic bottles are found in most supermarkets and convenient stores. The two main competitors mainly focus on the Television and radio to advertise their product. Though there are some advertisements in the newspapers, they mostly advertise events that have been sponsored by these two companies, they also use strategies such as acquiring more shelf space in supermarkets and give quantity discounts to consumers. The most common distribution channels are through the use of wholesalers and retailers. Supermarkets and general merchandise form almost half of the distribution outlets used by the two competitors. The supply chains are not very long as compared to other fast moving products such as groceries. The Government of Ethiopia has a tight hold on the news and information system. The state controls a significant proportion of the broadcasting outlets, but there is also a number of private radio stations[BBC141]. The relationship between government officials and the press has deteriorated over the years and, as a result, the press doesn’t have the “democratic freedom” it so desires. It would, therefore, be important to be careful when advertising for any product in the nation of Ethiopia. Business people, who want to be involved in importation of good, must obtain a trading license from the Ministry of trade. Any purchases more than $ 5000 should be processed through a letter of credit. Importers, who use foreign currency, should use Ethiopian Shipping for shipping of goods. Preliminary market plan As earlier mentioned, there are three groups that are the main focus of the campaign that is, evolving juniors, balanced seniors and trendy aspirants. Although all the products will be similarly priced and packaged, different flavours and brands will be used to meet the needs of the three different groups. These three groups represent almost 60% of the population. More products could be designed to meet the other segment of the market which could translate to almost 30 million people. The expected sales for the year 2015 will be $ 43 million while the profit expectations will be around $ 15 million. This huge gap could be attributed to the accumulating costs that will be experienced when attempting to penetrate the market. Since Coca-cola and Pepsi are price leaders, prices have to be set around their margins. These firms have also been experiencing economies of scale ad can offer competitive prices for their products since their fixed costs are covered in the long run. Methods such as advertising and promotions have to be used to penetrate the market during the initial stages to make the consumer awarer. Ethiopia has a high population of Christians and Muslims. While the two religions may differ in various aspects, certain similarities such as avoiding harmful products bring the two religions together. To adapt to this market, the core component of the product will involve sparkling water with other flavours that are not harmful to the body. Packaging will also be done and additional health benefits such as “enjoy while being hydrated” will be added on the labels of the bottles. During certain holidays such as Easter, Eid-al-Fitr, and Christmas packaging could employ certain packaging that could promote the drink to the particular sector of the country. For instance, if a certain city has a high populace of Muslims, during Eid-al-Fitr packaging that sends a message of happy holidays could be dispatched to that particular segment with a high population of Muslims. Advertising always plays a major role in increasing the level of sales due to the increased awareness of the consumers[MSG15]. Constant advertising should aid the company meet the determined sales levels and if possible even more. It could also assist to help the company keep track of the competitors and determine what counter strategy to employ when the competition makes a move. In the long run, after further analysis of the market, launching a new product could be necessary for the company. Advertising could come in handy as consumers could become more aware of the product due to the advertisements. After reaching a mature age, advertising could enhance the loyalty of the customers of the product. Advertising will also be performed to improve the demand of the product to ensure it remains constant. A suitable media mix, to use for advertising, would be television and radio. Newspapers could also be used in urban areas since most of the population has access to them. To sell the product, the catchphrase “enjoy and hydrate” will be used to attract buyers. While giving a unique taste, the sparkling water will hydrate the bodies of the buyers. Sales promotion may used to keep existing customers especially if existing competitors are setting up in a nearby location. This drives away the attention from the competitors. Sales promotion will be used to clear inventory if other merchandise is expected for import. Sales promotions can be used to provide information to customers who get to understand the product more and get the chance to make future purchases. Coupons can come handy especially during tough economic times[Bou14]. They can be beneficial to the buyer who wants to get the best price possible, and to the seller who uses it as a cheap form of marketing. Since the country is vulnerable to harsh economic conditions that may cripple the economy of the country, coupons could come in handy at that particular time. An efficient coupon program entices the consumers to use the consumers. To this end, company representatives will be used to give coupons to buyers and consumers to entice them into buying the company’s products. Free premiums will be provided to the consumers who buy a certain quantity of the product. Consumers, who buy more than six bottles, get a free glass labeled spring sparkling water. This will also help boost the firm’s image and product which in turn will lead to consumer loyalty. The company will not use Self-liquidating premiums due to the nature of the product. The product will be produced in Australia, and road transportation will be used till the port of Brisbane. From there, ship movement will transport the goods from Australia to the port of Djibouti. The Ethio-Djibouti railway line will be used to transport the products from the port to the distribution centre in Ethiopia where road transportation will be used to transport the goods across the country. Road transportation is the main transportation means used to transport goods in Ethiopia and accounts to up to 95% of transportation of goods[Akl06]. The sector is highly encouraged as it creates employment for citizens and using could be a means to appeal to the government. The company can use it as a bargaining chip to show the government that it will create jobs in the region. However, poor governance in the transport sector causes inefficiencies such as congestion in major towns and cities, delivery time may lag in some of these areas. Rail transport has provided services for years without any major interruptions. Various problems have hit the railway line such the lack of proper locomotives, security issues along the railway line, financial storage and conflict by the railway employees in the past[Akl06]. The two countries decided to leave the maintenance to a private company from South Africa who could be in a better position to improve the situation of the railway line. Due to the risk in involved in importing the product, various insurance covers will have to be taken to prevent the stock from being stolen or damaged during transportation. Since the railway has its fair share of troubles over the years and the future management is not certain, insurance against theft, damage and other similar occurrences will be prioritized. AES cargo will be used as a freight forwarder agent to transport the goods from the port of Djibouti to the inland territory of Ethiopia. The ministry of trade regulates imports and obtaining a license from them has become an easier process as compared to the past. Importers also need to get licenses to secure the appropriate foreign currency if they are not using the local currency. Channels of distribution will highly depend on the area where the product is being distributed. In the urban areas where residents have access to retailers such as supermarkets and kiosks, these will be the main retailers. In the rural areas, however, kiosks and other small shopping centres will be used to supply this product to other retailers. Other retailers such as drinking and food service places will be used to supply the product. Although this move might require more effort since the existing competitors will try as much as possible to maintain the current market share, they have of these places. Vending machine operators could be placed in specific areas in the urban areas such as, hospitals, schools, police buildings and other institution. Convenience stores and petrol stations are also gradually coming up in the country. Considering the size and population of the country, these could be a major source of revenue in the long run. Less resistance could be expected in such areas since most of the competition could focus on large retailers and restaurants. If the product was to perform very well in the region, partnering with other local agents could see the movement of the product in other areas of the East African region. Wholesale middlemen will be used to ensure the delivery of the product into the rural setup. Most of the depots will be set up in major cities and towns around the country, the participating wholesalers will be expected to transport the product to the rural areas where most of the Ethiopian people live. AES Cargo Company will be used to import the goods once they have reached the port of Djibouti. A one-year contract will be established with the company to see the performance and relationship between them and sparkling water Ltd. Extension of the contract will be purely based on performance depending on how swift the transportation of the goods will be. For storage of the product, renting of warehouses will be done for the first three years as profitability of the market is established. In the long run, various warehouses will have to be set across all the large cities and towns. Most of these warehouses will have to be set in areas close to Addis Ababa, Adama, Desse, Dire Dawa, Gondar, Bahir Dar, Jimma and Mek’ele. The warehouses will not only ensure that the products reach the consumer at the right time, they could be used when levels of demand and supply are unpredictable. The dependence of agriculture and natural rains could result in a poor performance of the economy, especially when the country has to depend on foreign aid as it has in the past. Operations will be easy to perform, costs on importation will be reduced and there can be efficient inventory control. Price determination will depend on the costs incurred by the company and the prices being set by other global competitors. The cost of the shipment of goods will be offered by AES Company as they will be involved in all the importation of the good. The company will be responsible for the shipment of the goods from Brisbane to Djibouti and then transportation to inland Ethiopia. After transportation has been done to the major warehouses, transportation will be conducted through the use of road transport to the other warehouses and other whole sales. Lorries, pick-ups and motorcycles will be deployed to ensure the transportation of these products to the desired destination. Support may be granted to wholesalers who might need help in transportation of the product. Handling expenses may be experienced in the warehouse where equipment such as carts& trucks, lift equipment, safety storage wrapping & packaging Equipment may be required. Insurance costs will be determined by the volume of the goods and the risk the goods are exposed to. Custom duties will also be established when the volume is quantified. The government taxes 30% corporate tax and foreign companies are liable to pay a 10% interest on borrowing. The companies are also supposed to pay 1% of the security deal, 2% of the value of the registry of title to property, and 0.5% of the lease value of the land 1% of the value of warehouse bonds. Custom duty ranges from 0-35% while the rate of VAT is 15%[KPM14]. Quantity discounts will be provided to wholesalers and large scale retailers who buy a certain amount of the product. And the retail price is estimated to be around $0.5-$1 for the bottle of spring sparkling water. Wholesalers and retailers are expected to make deposits in order to receive a certain proportion of the goods on credit. Failure to pay could result in legal action. Conclusion The main reason as to why Ethiopia was chosen is because of its high population that could serve as an important market in the soft-drink world, it is also one of the best performing economies in the world today. The soft drink industry is expected to hit 100 million crates in the next couple of years and havinga healthy alternative to sodas could prove to be a valuable product in the market. Appendix Years   2015 2016 2017 2018 2019 Income Statement Net sales $43,300 $67,900 $77,300 $80,200 $88,100 Cost of goods sold $24,100 $24,600 $20,800 $21,900 $39,500 Net Operating Income $19,200 $43,300 $56,500 $58,300 $48,600 Operating expenses $3,500 $3,900 $2,100 $3,000 $3,600 Net Income $15,700 $39,400 $54,400 $55,300 $45,000 Cash Flow Statement Beginning balance $14,500 $13,300 $15,500 $18,000 $20,000 Cash inflow $7,000 $7,600 $9,400 $9,900 $7,000 Cash outflow ($8,200) ($5,400) ($6,900) ($7,900) ($8,900) Ending Cash Balance $13,300 $15,500 $18,000 $20,000 $18,100 Balance Sheet Cash $13,300 $15,500 $18,000 $20,000 $18,100 Accounts receivable $17,600 $13,800 $19,800 $19,500 $21,800 Inventory $6,300 $8,200 $9,300 $9,400 $11,200 Prepaid expenses $5,700 $6,300 $5,800 $3,200 $2,700 Total Current Assets $42,900 $43,800 $52,900 $52,100 $53,800 Fixed assets $28,000 $30,500 $45,000 $43,000 $41,000 Total Assets $70,900 $74,300 $97,900 $95,100 $94,800 Accounts payable $6,400 $6,200 $9,800 $7,600 $8,200 Short-term notes $5,700 $5,500 $4,800 $5,400 $7,700 Accrued & other liabilities $2,300 $2,300 $3,000 $2,900 $2,700 Total Current Liabilities $14,400 $14,000 $17,600 $15,900 $18,600 Long-term debt $22,100 $23,700 $22,600 $21,800 $22,400 Other long-term liabilities $1,400 $1,800 $1,400 $1,000 $1,700 Total Long-term Liabilities $23,500 $25,500 $24,000 $22,800 $24,100 Shareholders' equity $33,000 $34,800 $56,300 $56,400 $52,100 Total Liabilities and Equity $70,900 $74,300 $97,900 $95,100 $94,800 References Gis07: , (Gish, Thay, & Latif, 2007), Wor15: , (Worldometers, 2015), Ber14: , (Bertelsmann stifung, 2014), Wan141: , (Wangalwa, 2014), Afr15: , (African Development Bank Group, 2015), Ven14: , (Ventures, 2014), Nie14: , (Nielsen, 2014), Col14: , (Collins, 2014), Spe14: , (Spector, 2014), Law05: , (Lawrence, 2005), Sid14: , (Sidel, 2014), Muc12: , (Muchira, 2012), Nie12: , (Nielsen, 2012), Akl06: , (Aklilu, 2006), Inf13: , (Infoasaid, 2013), BBC141: , (BBC News, 2014), MSG15: , (MSG, 2015), Bou14: , (Boundless, 2014), KPM14: , (KPMG, 2014), Read More