Food companies in East Africa can boost sales by introducing improved packaging that better cater to the needs of urban consumers, especially those at the lower-end of the market. One organisation with a good vantage point of the industry and changing consumer behaviour is global food packaging solutions company Tetra Pak. It operates a factory in Nairobi, serving mostly dairy and juice producers across 13 countries in the region. How we made it in Africa speaks to Hakan Soderholm, the eastern Africa managing director for Tetra Pak.
You have been quoted in the media saying you expect continued double-digit growth in East Africa. What are the factors behind this?
Today the average number of packs delivered in East Africa is only three per person versus a Tetra Pak global average of 30 packs per person. So the business potential for growth in the region is 10 times what we have today.
We see an increase in the demand for liquid milk, which can be attributed to the continued investments in dairy hubs, better animal breeding and improved farm management. We have been working with different stakeholders and governments supporting them to improve the quality and quantity of milk produced. The availability of milk is improving in some countries. However, not all the milk is processed. In Kenya, for instance, currently only 20% of the total commercial milk is safely processed and packed. This processed milk is also essentially available in the bigger grocery stores in Nairobi and some other key cities. With Tetra Pak’s technology to process and distribute fresh milk without the need for refrigeration, we are now seeing a much wider distribution reaching out to all consumer groups.
Beyond milk, the juice market in East Africa has also grown over the years, with the key drivers being convenience and functionality. Additionally, rapid urbanisation coupled with an emerging middle-class with rising purchasing power makes East Africa the place to be. This urbanisation and industrialisation means the need for processed and packaged food will increase and that is an opportunity for Tetra Pak. In 2014 we began increasing the production capacity of our Nairobi factory and we have now doubled it because we are getting more demand. We recognise that targeting lower-end consumers and making our products more affordable and accessible to this population, will be one of our avenues of growth.
What trends do you see in the packaging of milk and juice products?
Most of the dairy players are now investing in ultra-high temperature (UHT) packaging to be able to sell products that do not need refrigeration and have a longer shelf life. Remember, many households and small shops here do not own refrigerators and that is part of the reason why dairy companies now want to expand their long-shelf-life milk portfolio. Another change we are seeing is in pricing. Previously long-life milk was costlier but today most companies sell both pasteurised milk packed in plastic pouches and longer-shelf-life milk at a similar price point. So we are seeing tremendous growth in companies investing in our UHT packaging systems.
Although carbonated soft drinks are still popular, consumers are increasingly demanding other types of products, such as juices. Currently juice products are mainly sold in modern trade because they are always packed in large formats like one-litre packs, which are quite expensive. But what we are seeing changing in the juices and nectars market is the introduction of smaller formats. It makes sense because there is a big population of people aged below 15 and they can’t drink one litre of juice in one go. And if they open a one-litre pack and they don’t have refrigeration, then the produce will go bad. Smaller, more convenient packs with screw caps are now more ideal. So overall there are more nutritional, vitamins-infused juice products being provided in smaller packs and distributed to retail outlets that did not previously stock juices. The big opportunity here is in providing affordable products and selling higher volumes, not in providing luxury products.
Are local companies also keeping up with the packaging trends you describe?
Over the last two years we been involved in about 50 projects in various countries, including Tanzania, Burundi, Djibouti, Rwanda, Ethiopia, Somaliland, Kenya and Uganda. There is a very big interest among companies to invest in packaging that meets consumer demands and, yes, that includes local dairy and juice manufacturing companies. I give a round of applause to all these local companies in the region who are taking a lot of risk and investing into the future by adopting the latest technology and the latest food quality processes. I would say right now in East Africa it is not big multinationals that are making these investments – it is the local dairies and juice companies. Overall, the vast majority our business volume is coming from local companies.
What have you learned about the consumers here?
We have observed that consumers, regardless of education and income level, are as sophisticated in East Africa as in any fully-developed market. In fact, I would say that consumers in the region are even more informed and aware of what is good quality, as money is scarcer and people have to prioritise and choose the best value for their money. They need to spend their money in a much wiser way, therefore when a good product is available at a good value price they will buy it.