Comment – Soft Drinks & Bottled Water - Strong Potential in the Middle East

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In the latest of his monthly columns for just-drinks, Ray Rowlands from Drinksinfo Ltd turns his sights on the Middle East, giving a synopsis of soft drinks trends plus a review of recent and forthcoming events affecting the region.

The Middle East may only be home to some 300m to 400m people (depending on geographical definition), but the region is not an area of the world that forward-looking soft drinks companies can afford to ignore. And, that's not just because of the limited presence of competing alcoholic beverages.

Half of the region’s inhabitants are estimated to be under 25 years of age. Such a young population not only tends to drive market trends but also reflects high spending ability. Moreover, the region as a whole has seen the soft drinks category make steady progress in recent years, even during the recession and episodes of civil unrest, whilst demand in Western countries has faltered.

Considering the low ground-water reserves across the region it is unsurprising that bottled water constitutes a large part of the Middle East soft drinks market. Yet, it is CSDs that remain the top choice in a number of countries. Egypt and Saudi Arabia absorb the most volume. CSDs are is by far the most popular soft drink sub-category in Egypt, where nine out of every ten litres is either a Coca-Cola or PepsiCo product. Coca-Cola, for one, obviously still sees huge potential here. Last month, the company announced its intention to establish a plant between Cairo and Alexandria for carbonated drinks and bottled water production. It should go online in 2015. Coca-Cole also intends to expand production at existing plants, such as its concentrate factory in Cairo. 

The dominance of the two multinationals isn’t quite so great in Saudi Arabia. Although PepsiCo holds a major share of the Saudi CSD market, its main rival isn’t Coca-Cola but a domestic player. MS Beverage Industry, which only commenced operations around ten years ago, has climbed into second place behind PepsiCo, primarily thanks to its affordably-priced B Cola brand. However, the sweet tooth of Saudi consumers is under threat from growing health awareness. Indeed, bottled water is already the first choice of many in the kingdom.

Saudi Arabia may be the largest Arab state by land area (after Algeria in North Africa), but it is home to fewer than 30m inhabitants. Yet, according to regional media sources, these inhabitants are responsible for consuming more than 2bn litres of bottled water a year. This equates to more than a quarter of the region’s total bottled water market. Like so many Middle Eastern markets, the category is driven by the dry, hot climate. Temperature readings of over 50° C in Saudi Arabia are not that unusual.

The UAE has a population that is less than a third of the size of Saudi Arabia’s, yet it, too, is one of the largest bottled water markets in the region; hence, it also has one of the highest per-capita consumption levels. Again, demand has been driven by the sheer heat and humidity within the country. Ground water is such a precious commodity here that, in 2012, the country introduced a ban on all water exports due to a prolonged draught. Until this point, the water had been sold in a number of neighbouring countries, such as Kuwait. Saudi Arabia had introduced a similar export ban at the end of 2011.

Most energy drinks consumption in the Middle East tends to take place in Saudi Arabia, where the category has become something of a status symbol amongst the young. However, the role and popularity of energy drinks in the Kingdom is all set to change. Effective from this month, Saudi Arabia has stopped all energy drink advertising. Energy drink companies and their representatives are now banned from sponsoring any sporting, social or cultural event. Restrictions on product distribution and sale have also imposed and, in future, energy drink packs will be forced to carry health warnings.

These measures are likely to have a decimating effect on category sales. The UAE had already put some restrictions on the sale of energy drinks with high levels of caffeine, in 2012. The big question is whether other Arab states will subsequently follow Saudi Arabia’s somewhat stricter ruling.

Whilst the new Saudi legislation comes as a serious blow to all those involved, energy drinks are not the most dynamic soft drinks products in the region. Though small in size, two of the most fast moving soft drink categories in recent years have been iced tea and sports drinks. Saudi Arabia is again a major contributor to iced tea consumption, where the drink is taken for its refreshment qualities, but Lebanon is now close behind in respect of volume sales. Lebanese demand has grown at a phenomenal rate as iced tea is viewed as a beverage of choice amongst younger consumers for casual consumption. The single-serve PET bottle is almost obligatory. Lipton claims leadership here and faces little competition. Nestea is conspicuous by its absence, but will no doubt gain visibility as demand for iced tea intensifies.

Sports drinks are benefiting from a number of issues in the Middle East. Government campaigns have encouraged people to take more exercise in the fight against obesity. This has stimulated interest in the category. Meanwhile, sports drinks, like energy drinks in Saudi Arabia, represent a status symbol to younger consumers who relate consumption, in this instance, with sporting personalities. A further boost has come from Qatar’s successful bid to host the FIFA World Cup in 2022, thereby increasing interest in soccer across the region.

Nonetheless, in terms of sheer volume and rate of development all eyes need to be fixed on the bottled water market, which has seemingly endless potential and will very shortly overtake soda as the number one soft drink choice across the region.

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