This month, Richard Corbett looks at the Middle East, a region that offers a wealth of opportunities to the soft drinks and bottled water category.

When Nichols reported its full-year results last week, the company highlighted the impressive performance of its flagship Vimto brand in the Middle East. Vimto enjoys a cult status among many consumers across the region and has strong associations with consumption during Ramadan. The company tailored their “Bring them Home” campaign with partner Aujan Coca-Cola Beverages Co specifically to appeal to young mothers during the period.

It obviously worked.

The advertising that soft drink players put behind their Christmas campaigns in Western markets highlights how important - and subsequently profitable - strong associations with annual religious events can be. Vimto's establishment as a Ramadan favourite is highlighted by claims that up to half of Nichols' annual sales in the Middle East come during the six to eight weeks during or around the annual Muslim fasting month. Having ‘ownership’ of this valuable drinking occasion is clearly worth a sizeable amount to the UK soft drinks operator.

As a result, the Middle East is a valuable part of the Nichols business and makes up around a tenth of the company’s sales. Nichols was quick to recognise the region's potential and can boast of its partnership with local player Aujan, which has been running for around 85 years. In fairness, there should be plenty of opportunities for soft drink consumption in a region with scorching temperatures and a consumer base that, on the whole, doesn’t touch the harder form of refreshment.

(Ironically, Vimto was original developed by founder John Noel Nichols, who identified a gap in the market with the rise of the temperance movement around 100 years ago. The abstinence of consumers must surely have been the main factor behind the company’s decision to export there in the early 1920’s.)

According to figures from Canadean, the potential in the Middle East and North Africa is steadily being realised by soft drinks companies. In the last ten years, volumes have nearly doubled and the litres-per-capita rate for soft drinks has now topped 80 litres. That level is dwarfed by the West European annual per capita of around 240 litres and North American consumption of more than 330 litres, pointing to substantial growth potential in the years ahead. 

At 215 litres annually, consumption is considerably higher in the affluent six countries that make up the Gulf Cooperation Council; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. But, the soft drinks market is expanding as quickly here as in the region as a whole. What is noticeable in these markets is that, despite what would seem to be considerable cultural variances, many consumers are adopting western consumption habits.

Demand for westernised products is in part fuelled by the rising ex-pat communities, but the locals are also enjoying food and drink tastes imported from the West. Such is the popularity of the likes of McDonald’s and Burger King that prices can be up to 10% higher in the region than the global norm. This all bodes very well for soft drinks and suggests that a diverse range of products will be able to capitalise in future years. Operators will not have to squander resources developing products tailored to complicated cultural and regional habits; they can put the same products they trade at home on the shelves and just fine tune the marketing.

The soft drink grandees have certainly seen enough evidence to dip into their pockets. In late-2010, leading bottled water supplier Nestle opened a new factory in Dubai for its Pure Life brand. PepsiCo, meanwhile, has formed a JV with Saudi company Almarai. International Dairy & Juice has been charged with raising the presence of PepsiCo's drinks brands in the region.

Coca-Cola Co is investing US$500m in Egypt, which will include building a new juice plant outside Cairo. The drinks giant will also be supplying much of the refreshment to what are expected to be very thirsty spectators at the FIFA World Cup in Qatar in 2022, and is building a factory to cater for the surge in demand that the tournament is expected to bring.

Once the bottlers set up stall in a region, then the ancillary industries soon follow. Carton player Elopak has joined forces with Yemen Dairy, while beverage can maker Rexam has recently purchased a 51% stake in United Arab Can Manufacturing. The overall level of investment in the Middle East is a major endorsement for the prospects for the region. 

It is probably the amount of money being spent here that contributed to the decision for Dubai to be the venue for the World Expo 2020. This prestigious gathering of the world’s business community is believed to be third only to the Olympics and FIFA World Cup in terms of the economic and cultural impact.

Nichols' sucess has demonstrated that soft drinks players can tap into some lucrative opportunities here, and that is certainly proving good news for them.