Juice and water benefit as Gulf bubbles fall flat
David Edwards assesses the soft drink market in the countries of the Gulf Co-operation Council (GCC) and discovers a market where health and price are opening the doors to newer beverage sectors at the expense of the traditional carbonates.
Lying between the Red Sea in the West and the Arabian (or Persian) Gulf in the East is the Arabian Peninsula. Six of the peninsula's countries together form the Gulf Co-operation Council (GCC), a sort of fledgling European Community, bound together by its Arab identity and devotion to Islam. By far the largest of its members is Saudi Arabia, the subject of an article in the March 2002 issue of Soft Drinks International. But the other five countries, though smaller in population, merit some consideration, not least because consumers in four of them are wealthier than their Saudi counterparts. These vital statistics are outlined in Table 1.
Table 1: Basic Data For GCC Countries (plus the UK for comparison)
|Country||Population (M)||Per capita GDP (US$ purchasing power parity)|
|United Arab Emirates||3.3||17,000|
Source: IMES Consulting based on official data
These markets also share certain other characteristics which add to their attractiveness to soft drink producers:
• Without exception, they are hot, particularly in the summer months. Peak daytime temperatures routinely exceed 40º Centigrade (104 º Fahrenheit).
• Alcoholic drinks are either banned entirely (the case in Kuwait) or restricted in distribution (e.g. to hotel bars and restaurants used mainly by Western expatriates as in the UAE).
• The population structures are heavily skewed towards the young, with as much as 50% of nationals under 18 years of age. This age group is, of course, more attracted to modern, attractively packaged soft drinks than to more traditional alternatives such as tea or coffee.
All of these factors translate into high per capita consumption levels for soft drinks, as illustrated by Table 2.
Table 2: Annual Per capita consumption of soft drinks in five GCC countries, 2001.
|United Arab Emirates||202|
Source: IMES Consulting Ltd, 2002
As defined here, 'soft drinks' includes carbonated soft drinks, juices and juice drinks, packaged water, dilute drinks (from liquid or powder) at single strength equivalent, malt beverages (non-alcoholic beer) and new age drinks (such as sports and energy drinks).
Interestingly, some common themes emerge when the fortunes of the different beverage categories are compared across the five countries.
Carbonates continue to be the most important product overall, although volumes of bottled water are higher in Qatar and the UAE. Carbonated drinks represent between 31% (UAE) and 51% (Bahrain) of soft drink volumes. But carbonates are in retreat, at rates in excess of 5% per annum, except in Kuwait where slow growth continues. This can be attributed to two main factors:
• Levels of diabetes and obesity are high throughout the Gulf, and the need to react to this is driving consumers to choose alternative soft drinks, which are perceived as healthier. The feeling that carbonates might be unhealthy is reinforced by total or partial bans on their sale in schools; such bans are in place in all of these countries except Bahrain, arguably the most liberal country here. Yet even in Bahrain, the Government has introduced legislation forcing fast food restaurants to offer alternative beverages to carbonates (e.g. juice, water or milk) as part of their 'meal packages', such as Kid's Meals. This move attracted considerable media attention, with considerable negative comment about carbonates.
• At least as important, in terms of short-term market changes, was the end in June 2001 to aggressive price promotions on 2-litre PET bottles by both Coca-Cola and Pepsi-Cola. This promotion, which had run since mid-1999, had seen the price of carbonates fall below that of bottled water on a litre-for-litre basis, and was simply unsustainable in the long term. However, after such a long period many consumers had come to regard the promotional price as the correct price, and unsurprisingly reacted negatively to a price hike of as much as 100%. That sales have continued to grow in Kuwait, at around 2% per annum in real terms (after adjusting for population growth), reflects the fact that prices in that country have remained unaltered.
Two products seem to have been the main beneficiaries of the decline in carbonates: juice products and bottled water.
Volumes of juice and juice products are growing substantially in all of the countries considered here, as can be seen from Table 3.
Table 3: Growth in consumption of juice products in five GCC countries , 1999-2001 (litres and percentage change over previous year).
|Country||1999||% change||2000||% change||2001||% change|
Source: IMES Consulting Ltd, 2002-04-23.
The market was developing steadily, just ahead of the natural rate of growth driven by population increases, up until 1999. The sudden surge in the market was then brought about by the confluence of several factors:
• The previously discussed increase in health awareness, which adversely affected carbonates.
• The advent of vigorous promotional campaigns by major juice suppliers. In particular, two of the main Saudi dairies - Almarai and Al Othman - pushed exports of their juices into Bahrain and Qatar, while Oman National Dairy and Kuwait Danish Dairy each became more active in their respective home markets.
• Changes in the distribution structure, with modern supermarkets equipped with chiller cabinets increasingly taking trade from smaller traditional stores, have facilitated the spread in short life juices.
In parallel to this expansion in juice sales, has been one of similar magnitude in bottled water volumes. Once again, the most significant growth, of 32% in 2001, was recorded in Oman, although this figure is distorted by an exceptional order placed by the British Armed Forces, which spent much of summer 2001 undertaking a major exercise in the Omani desert. An increased requirement from the US Army in Qatar following September 11 similarly contributed to the exceptional growth there. Even stripping out these factors, however, all five countries saw double-digit growth in 2001.
Once again, leading suppliers attribute this trend to consumers searching for healthier products, although significant price reductions certainly underpinned growth in Kuwait and Oman, where prices fell by 15% and 22% respectively. These reductions were largely driven by competition from imported brands, coming from Saudi Arabia in the case of Kuwait and from the Emirates in the case of Oman.
In the midst of all this activity, it would be easy to overlook the smaller products. Yet dilute drinks (whether made from powder or liquid concentrates) have for the most part continued to grow at modest rates, buoyed by their particular popularity during the Muslim holy month of Ramadan. And where declines have occurred, such as happened to powder drinks in Kuwait in 2000, prompt and forceful action on behalf of market leading brand TANG has succeeded in reversing the trend and renewing growth.
The availability of 'real' beer rather undermines the viability of malt beverages in these markets, and volumes remain tiny and stagnant. Kuwait, where alcoholic drinks remain banned, provides an interesting exception to this pattern, because a long-standing ban on malt beverages was finally lifted in February 2000. Sales volumes have since grown to a small but respectable 2m litres annually, and this is felt to reflect consumers deriving an illicit pleasure from drinking a formerly banned product.
Finally, 'new age drinks', a catch-all grouping for sports and energy drinks, exotic fruit-based drinks, iced tea and fruit juice/milk blends have seen considerable marketing activity in the last couple of years, notably with the roll-out of Red Bull (launched in all these markets except Qatar). But consumer take-up has generally been disappointing and the sectors remain small.
David Edwards is managing director of IMES Consulting Ltd which specialises in analysing food and beverage markets internationally. Data is taken from "Soft Drinks Arabian Gulf 2002" which is also available in individual country volumes. For more information on this or other IMES reports contact David Edwards; E-mail dje@ imesconsulting.com, Tel: + 44 20 891 5144 or, visit the company's website: www. imesconsulting.com .
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