Soft Drinks: Qatar and UAE set to head growth among GCC countries

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Among the six GCC (Gulf Cooperation Council) countries, Saudi Arabia is by far the largest soft drinks market, but the UAE and Qatar are forecast to show the most rapid growth over the coming five years. David Edwards of Dubai-based IMES Consulting looks at what the future holds for the soft drinks markets across the GCC states.

While the GCC (Gulf Cooperation Council) nations are often seen as one homogenous bloc, there are significant differences between the six nations when it comes to their soft drinks preferences, and, moreover, considerable contrasts in the projected growth rates for the various countries, according to data from Dubai-based IMES Consulting.

As the largest country by some measure, Saudi Arabia will continue to dominate soft drinks consumption in the GCC going forward, but according to IMES, consumption in both the UAE and Qatar is set to double over the next five years, boosted by strong population growth and high economic development rates.

The UAE currently represents around 18% of the 14.4bn-litre total GCC soft drinks market, while Qatar only accounts for 2%. Saudi Arabia by contrast accounts for almost 65% of overall GCC beverage consumption.

The differences between the UAE and Saudi Arabia underline the contrasts that exist between the different GCC countries. Some 75% of the UAE population is made up of expatriates with a diverse range of preferences, whereas 75% of the Saudi population consists of locals with much more uniform consumption patterns.

Perhaps unsurprisingly, water is the most commonly consumed drink. What may be less widely known is that some 60% of water is now sold in bulk sizes, in particular the 19-litre re-usable bottle for dispensers, while smaller bottles make up the balance. Per head, bottled water consumption in the UAE is nearly double that of any other GCC country. Nestlé Waters is the market leader in Saudi Arabia, and is forecast to strengthen its position in the bottled water segment going forward.

The second most popular drink across the region is tea, with Oman having the highest per capita consumption. In fact, two thirds as much tea is drunk as water, although there is undoubtedly a small element of double counting here, as bottled water is used to make tea in areas where there are doubts about the quality of tap water.

Despite recent criticism on health grounds, carbonated soft drinks are still the third most popular beverage in the GCC, being twice as popular as juice products in spite of the latter being seen as more healthy. Bahrain leads the GCC in per capita consumption of carbonated beverages. Interestingly, the GCC is one of the few regions of the world where Pepsi massively outsells Coca-Cola. Pepsi's share of the market is 73%, compared to Coca-Cola's 23%; Pepsi has clearly gained significant first-mover advantage over Coca-Cola, which only entered the GCC markets in the early-1990s, having faced a boycott because of trade with Israel for many years.

Liquid milk and laban (a cultured milk drink) have experienced relatively stable growth rates over the past five years. However, with some consumers in the region railing against 'Americanisation' and with a growing Arab consciousness, a distinctively local product such as laban is increasingly being considered a 'fashionable' drink in many parts of the GCC.

Other significant soft drinks categories in the region include dilute drinks (powder and liquid), malt beverages (non-alcoholic beer), iced tea, energy drinks and sports drinks. Dilute drinks are the most significant in terms of volume, but a general decline has been noted in the liquid dilute drinks category in the past few years. This product is viewed as old-fashioned by consumers, and is now used largely during the month of Ramadan when traditional products are more favoured. Even leading brands like Vimto earn almost 50% of their annual income from Ramadan sales while lesser brands just disappear from the market for the rest of the year.

While the energy drinks market is quite small, it has achieved an average annual growth rate across the GCC of nearly 48% over the past five years. Consumption in Saudi Arabia has grown particularly strongly, at an average of almost 88% per year, for the past five years.

Interestingly, while the more mature categories are mostly led by international brands like Lipton (tea), Pepsi (carbonates), and Tang  (powdered fruit drinks), the dominant players in faster growing segments are local companies such as Saudi Arabia's Almarai in juice products and dairy beverages and Aujan (Rani, Barbican) in juice products and malt beverages. Even in the fastest growing segment, energy drinks, the global market leader Red Bull trails far behind local company Abuljadayel's Bison in the key Saudi market.

Tea is a rather mature product in the GCC, and growth is only likely to be parallel to the population growth rates. Nevertheless, ready-to-drink (iced) tea, which is relatively new to the market, is forecast to be one of the stronger growing segments.

Despite also being a relatively new and small segment, energy drinks seem to have the most growth potential in the beverages category. The major players Red Bull, Powerhorse, and Bison need to be ready to face stiff competition from newcomers continually entering this lucrative segment. It will be interesting to see which company takes the lead in this category.

Looking forward, IMES forecasts that nearly all beverage categories will continue to grow over the next five years, with energy drinks showing the fastest growth. IMES expects juice products to grow at a higher rate than carbonated soft drinks, but growth in sectors such as hot tea and dilute drinks will by much slower.

Sectors: Soft drinks, Water

Companies: Nestlé Waters, Red Bull

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