Beer Vs Fuel


Vanilla is a popular spice that is also a key ingredient in products such as chocolate and perfume. However, it is becoming increasingly harder to find. In fact, the global wholesale price of vanilla has reached around USD500 to USD600 per kilogram, when just a few years ago it fetched just a tenth of that.  The spice has been in high demand given the fact that Madagascar supplies 80-85% of the world’s natural vanilla (vanilla represents 20% of Madagascan exports, worth around USD600m). With an increased focus on “all things natural”, the demand for natural vanilla has surged and this has pushed prices up. Put plainly, there is a shortage of natural vanilla and supplies are currently insufficient.

In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. In Zimbabwe, one thing that has become scarce for consumers is fuel (petrol and diesel) as evidenced by queues at fuel stations. The retail price of petrol is ZWL18.28/litre whilst that of diesel is ZWL19.55/litre. Owing to forex shortages in the country, fuel queues have resurfaced in major cities in Zimbabwe. It should be noted that the country’s monthly fuel bill has increased owing to the increase in the number of car imports as well as energy demands from various sectors of the economy. Piggy feels that owning and running a personal vehicle will become increasingly expensive in Zimbabwe given the potential for further fuel price hikes, high maintenance and insurance costs. This means that fuel will compete for a share of the consumer’s wallet against consumer goods such as beer.

Frank Vincent Zappa, an American musician, composer, activist and filmmaker once said, we quote, “You can’t be a real country unless you have a beer and an airline – it helps if you have some kind of football team, or some nuclear weapons, but in the very least you need a beer.”  Zimbabwe has no nuclear weapons but has a somewhat, oftentimes disappointing football team (the Warriors), a struggling airline; Air Zimbabwe (indebtedness) and certainly has a number of local beer brands. Zimbabwe’s Delta has an established portfolio of local beer brands such as Eagle, Black Label, Lion, Zambezi, Golden Pilsener, Bohlingers, Castle Lager and Castle Lite.

Piggy would like to think that Castle is the most popular amongst beer drinkers in Zimbabwe just as Kilimanjaro and Serengeti Beer are in Tanzania or Mosi, Eagle and Castle are in Zambia. Castle is one of Africa’s most famous and authentic beer that began with the name of Charles Glass in 1886.  The Castle brew was distinguished by a somewhat dry, somewhat bitter, never sweet taste that appealed to the thirst of the early mining community in South Africa toiling for gold. In 1895, the Castle Brewery became the founding cornerstone of the SAB Limited Company. While Delta sells its beer brands in local currency, it requires some foreign currency to procure certain raw materials. The shortage of foreign currency has continued to disrupt the smooth operations of the business as evidenced by the periodic stock-out situation in the market. As a result, some outlets (hotels, retails shops, pubs and bottle stores), have been operating with limited stocks of beer brands. In recent times, queues have become evident at some of Delta Corporation’s depots.

Source: piggy

In its Q3 2020 trading update, Delta registered volume declines across all its divisions. Inflation-adjusted revenue for the quarter was up 27% (646% historical) and 2% for the nine months (346% historical). Lager beer volumes declined by 43% for the quarter and 46% for the nine months compared to the same period last year. Sorghum beer volumes were down by 41% for the quarter and 25% for the nine months. African Distillers (AfDis) volumes were down by 10% for the quarter while beverage volumes at Schweppes declined by 23% for the quarter due to an outage of key imported raw materials for both Mazoe and Minute Maid brands.

Overall, the volumes decline recorded by Delta is clear evidence that the consumer wallet is under strain. In Piggy’s view, there continues to be upside risk on fuel prices and further hikes may lead to less cars on Zimbabwean roads. Less cars will mean that consumers could allocate more money to other consumer goods and booze (beer) could be the winner. The habit-forming nature of alcohol (beer) and the ever-improving “night-life” in most Zimbabwean cities should also help sustain demand. Booze should likely be the winner and that would be good for the Delta share price!

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