Soft Drinks in the United Arab
Emirates
Executive Summary
Stable Volume Growth in Spite of Rising Inflation
In spite of high
inflation, soft drinks volume growth in 2008 was in-line with that posted
during 2007. Hot weather conditions, high per capita income levels, and the
rising number of tourists and expatriates all continue to fuel demand.
Functional drinks was the fastest growing category in 2008 due to the novelty
of such products amongst consumers, the launching of value adding healthier
brands, and the growing popularity of such products as substitutes for
alcoholic drinks among Muslims. In spite of stable volume sales, rising unit
prices resulted in higher value than volume growth in 2008.
Rising Health Awareness Fuels Demand
Increasing
consumer health awareness, partly as a result of government health campaigns,
is gradually shifting demand from carbonates to healthier segments like
fruit/vegetable juice and bottled water. The Ministry of Health continues to
highlight the fact that carbonates are one of the causes of obesity among
children – a subject which is highly significant in the UAE which has one of
the highest obesity rates in the world.
Multinationals Increase Their Value Shares
Whilst domestic
manufacturers lead sales within fruit/vegetable juice and bottled water, multinationals
dominate within carbonates, concentrates, functional drinks, RTD tea, and RTD
coffee. Carbonates giant PepsiCo Inc, through its local subsidiary Dubai
Refreshments Co (DRC), accounted for a staggering 36% of soft drinks total
value sales in 2008.
Masafi Stimulates Demand Within Flavoured and Bulk Bottled Water
Although Danone
had already introduced flavoured bottled water to the UAE, the launch of Masafi
has been instrumental in establishing the flavoured bottled water segment in
the UAE and has encouraged a number of other manufacturers to enter the
category. In addition to flavoured water, growing demand in the UAE for bulk
still bottled water – four and five gallon bottles – prompted Masafi to launch
the UAE’s first single-use recyclable bulk water bottle.
Convenience Stores Close Gap on Small Grocery Retailers
Increasing
demand for functional drinks and bottled water has been felt especially
strongly within convenience stores and garage forecourts. Whilst this fact can
be partly attributed to the significant increase in the number of convenience
stores over the past decade, the appropriateness of such drinks for impulse
consumption has also helped to fuel sales within these channels.
Increasing Sales of Healthy Soft Drinks Products
All soft drinks
categories are expected to continue to record high volume and value growth over
the forecast period, with sales being fuelled by the booming tourism industry
and increased marketing and advertising expenditure. In addition, rising
consumer health awareness is expected to result in growing demand for healthier
products whilst the fact that soft drinks are increasingly becoming part of
consumers’ weekly shop should ensure that off-trade value sales outpace
on-trade value sales over the forecast period.
Carbonates in United Arab Emirates
Headlines
·
Carbonates grew by 3% in total
volume terms and recorded total volume sales of 529 million litres during 2008
·
Extensive brand advertising and
new product development drove sales during 2008
·
Mixers was the fastest growing
category in 2008, with total volume growth of 5%
·
Value growth was higher than
volume growth during 2008 due to rising inflation
·
Dubai Refreshments Co (DRC)
dominated sales in 2008, with a retail volume share of 73%
·
Carbonates has a projected
forecast period total volume CAGR of 3% and expected 2013 total volume sales of
618 million litres
Trends
·
Competition between Pepsi and
Coca-Cola continues to intensify, with both companies engaging in extensive
brand advertising, price discounting, new product development, and regular
promotions. The two brands are represented in the UAE by Dubai Refreshments Co
(DRC) and Coca-Cola Middle East respectively.
·
Carbonates volume sales reached
529 million litres in 2008 – a 3% increase upon 2007. Volume growth was
slightly lower than that recorded in 2007 and was the lowest of the entire
review period. This declining trend can mainly be attributed to increasing
consumer health awareness and obesity rates in the UAE, especially among
children and young people who are the main consumers of carbonates. Hospitals
and clinics in the UAE are reportedly treating a large number of children for
heart disease and diabetes, both conditions which are directly related to
obesity. According to an annual survey by the Ministry of Education, 10% of all
15 year olds in UAE public schools are obese.
·
For the past two years, mixers
has been the fastest growing carbonates category in the UAE. Mixers total
volume sales reached 1.4 million litres
in 2008, a 5% increase upon 2007, while value sales reached AED7.2 million, a
9% increase upon the previous year. The segment’s dynamic growth can be
attributed to the fact that it is still in an early stage of development as
well as increasing demand for alcoholic drinks.
·
Mixers accounted for just 0.3%
of carbonates total volume sales in 2008. However, sales continue to grow
rapidly as a result of increasing demand for alcoholic drinks, especially in
Dubai where the night scene is booming. Alcoholic drinks are sold through
off-trade channels to non-Muslim expatriates and through on-trade channels to
all consumers above the legal drinking age of 21 years old.
·
Standard low calorie cola grew
significantly faster than standard regular cola in total volume terms during
2008 (5% vs. 3%). This good performance can be attributed to increasing
consumer health awareness and rising obesity rates. Sales of low calorie cola
are particularly high amongst women since they tend to be more concerned with
health and wellness issues.
·
Historically, small grocery
retailers have dominated off-trade soft drinks sales in the UAE. However, such
outlets experienced a decline in retail volume share from 42% to 37% over the
review period due to the increasing popularity of supermarkets/hypermarkets
which experienced a 10% increase, from 29% to 39%, in retail value share over
the same period. Leading supermarkets/hypermarkets such as Carrefour, Union
Cooperative Society, and Spinneys continue to expand throughout the country and
are popular with consumers due to their ability to provide convenient one-stop
shopping, their large product ranges, and their frequent offering of discounts
on regular products such as soft drinks.
·
Fountain beverages accounted
for approximately 6% of total on-trade volume sales in 2008. Fountain total
volume sales reached 3.8 million litres in 2008 – an increase of 3% upon 2007
and a slight decline upon the review period average. This declining trend can
be attributed to the impact of rising price inflation, which reached 12% in
2008 and has forced many households, especially within the large Asian
immigrant population, to cut down on dining out. However, the number of
on-trade outlets is expected to continue to increase over the forecast period
due to the growing popularity of fast food outlets and shopping malls.
·
Standard regular cola, standard
low calorie cola, non juice based lemonade/lime, and non juice based orange
carbonates dominate carbonate fountain sales in the UAE. DRC leads fountain
sales thanks to its alliance with American Group which operates Pizza Hut, KFC,
and Hardee’s franchises in the country. In addition, DRC also signed a 10-year
agreement with Emirates International Restaurants in 2006 as a result of which
all Chili’s and Pizza Company restaurants now serve DRC carbonates. On the
other hand, Coca-Cola is the provider of all of McDonald’s fountain carbonates.
·
Fierce competition between DRC
and Coca-Cola Middle East means that carbonates unit prices have remained
stable since 2005 at AED3.80/litre.
·
Carbonates are consumed by
people from all age groups and are especially popular amongst teenagers and
young people. Household expenditure on carbonates is high in the UAE, with many
consumers consuming such beverages with each meal throughout the day. In
addition, carbonates continue to increase in popularity amongst women due to
the increasing availability of low calorie brands like Diet Pepsi, Pepsi Max,
Coca Cola Zero, Diet Coke, 7 UP Free, and Sprite Light.
·
Carbonates are consumed both at
home and within on-trade channels. In the home, carbonates are typically
consumed with lunch or dinner while within on-trade channels such beverages are
often consumed with a meal or separately.
·
Carbonates are often purchased
in bulk alongside bottled water for household consumption. Whilst smaller
households usually buy 6*330ml formats, larger families tend to opt for larger
24*330ml packs.
Competitive Landscape
·
Dubai Refreshments Co. (DRC),
the distributor for PepsiCo Inc in the UAE, led sales in 2008, with a retail
volume share of 73%. Pepsi’s dominance in the UAE and throughout the
Middle-Eats can be attributed to the boycott of its archrival Coca-Cola which
lasted from 1967 to 1988. In addition, the company’s significant investment in
new product development and advertising is also helping to fuel sales.
·
Despite strong competition from
Coca-Cola, DRC increased its retail volume share during 2008 due to the
popularity of new product developments such as Pepsi Max and extensive brand
advertising. In response to rising consumer health awareness, DRC launched
Pepsi Max in June 2007. The launch of healthier products such as Pepsi Max has
helped DRC to stave off growing criticism of the healthiness of carbonate
products.
·
Carbonates sales are dominated
by Dubai Refreshments Co and Coca-Cola, accounting for a combined retail volume
share of 98% in 2008, with domestic sales remaining negligible. Although a
number of imported products, such as Gaza produced Star Cola, are available,
sales of such brands remain very limited.
·
In order to better target its
main customer base, comprising teenagers and young adults, DRC re-launched a
number of Pepsi products in innovative designs appealing to current youth
trends. The campaign was implemented across the Middle East as part of Pepsi’s
efforts to better connect the brand with the modern lifestyles of its main
customers.
·
In April 2008, DRC rolled out
its advertising campaign for Pepsi Max under the theme “MAX Your Life, 100%
Taste, 0% Sugar”. The launch was accompanied by a large consumer sampling
campaign. The fact that the product is targeted towards young consumers meant
that free samples were distributed within ‘youth hangouts’ like university
campuses, shopping malls, and coffee shops.
·
The advertising campaign also
included competitions, prizes, and commercials. In addition, a series of
television commercials with the theme ‘Things To Do Before 30’ were aired on
local and satellite channels.
·
Competition between Pepsi and
Coca-Cola continues to increase in intensity, with each company investing
extensively in advertising and promotional activities in a bid to increase
their consumer bases. For example, Pepsi commercials frequently feature
Egyptian pop star Amr Diab and Lebanese pop stars Elissa and Nawal Al Zoughby
whilst Coca-Cola launched a special Ramadan can which features a crescent moon
and a star in a bid to increase sales during the traditional Muslim fasting
month when sales typically decline.
·
Pepsi and Coca-Cola dominate
sales, receiving negligible competition from premium or economy brands. In
addition, there are no private label carbonates brands available in the UAE.
Prospects
·
Increasing consumer health
awareness will continue to have a negative impact on carbonates sales over the
forecast period. The Ministry of Health has declared carbonates consumption as
one of the leading causes of obesity among children in the country. As a
result, many consumers are shifting towards healthier alternatives and growth
rates are expected to decline for at least the first two years of the forecast
period. However, the introduction of low calorie carbonates should then help to
reverse the negative trend. An example of a new healthier carbonates beverage is
the Healthy Beverage Company’s Steaz Organic Cola brand which is made from
green tea and flavoured with Cola. However, it should be noted that sales of
the product remain limited.
·
Carbonates’ projected forecast
period total volume CAGR of 3% is significantly lower than the review period
average of 5%. This decline in growth can be attributed to increasing consumer
health awareness and the fact that a growing number of consumers are shifting
towards healthier alternatives such as fruit/vegetable juice, bottled water,
and RTD tea.
·
Increasing concerns over
obesity and significant media coverage on health issues will result in
declining carbonates growth over the forecast period. The increase in
availability of healthier alternatives such as fruit/vegetable juice and the
rising popularity of flavoured bottled water represent significant threats to
growth. However, the introduction of healthier low calorie carbonates products
should help to ensure that carbonates sales start to grow gain after an initial
period of decline.
·
Standard low calorie cola has a
projected total volume CAGR of 5% and will be one of the fastest growing
carbonates categories over the forecast period, with sales being fuelled by
increasing consumer health awareness. On the other hand, standard regular cola
has a projected forecast period total volume CAGR of just 3% - a significant
decrease in comparison with the review period average of 5%. Mixers, which has
a projected total volume CAGR of 6%, will be the fastest growing category over
the forecast period due to rising demand for alcoholic drinks.
·
On-trade sales are expected to
surpass off-trade sales over the forecast period (4% vs. 3% in total volume
CAGR terms), mainly as a result of the booming tourism industry and rising
consumer disposable incomes.
·
Unit prices are projected to
remain relatively stable over the forecast period, increasing from AED3.8/litre
in 2008 to AED3.9/litre in 2013, due to fierce competition. Carbonates are
already perceived as being relatively cheap in the UAE and are around
AED2/litre cheaper than fruit/vegetable juice products.
·
During the past two years, most
new product launches by PepsiCo Inc and Coca-Cola have been for low-calorie
brands as a result of rising consumer health awareness. For example, PepsiCo launched
Pepsi Max and 7UP Free, while Coca-Cola responded with the introduction of
Coca-Cola Zero and Sprite Zero. Such products are expected to drive demand
within carbonates during the forecast period and it is likely that the two
companies will extend their low calorie ranges with the introduction of
healthier versions of brands like Mirinda and Fanta.
·
Increasing consumer health
awareness and the success of low calorie brands will result in the introduction
of an increasing number of healthier products by other manufacturers over the
forecast period.
·
The long-anticipated Mecca-Cola
is expected to be launched in 2009, with the French manufacturer of the brand
hoping that the product will be able to compete with dominant American brands.
In addition to plants in Malaysia, Algeria, Morocco, France, Jordan, and Syria,
Mecca-Cola is also preparing to start production in Dubai. Mecca-Cola is
targeting a 5% carbonates retail volume share during the first two years of
operation and intends to secure a 10% retail volume share within 5-10 years.
The fact that many Muslim consumers continue to boycott US products means that
Mecca-Cola is likely to develop an instant, albeit small, consumer base.
