Will UAE soft drink brands go flat thanks to Excise Tax?

Starting October 1, the prices of carbonated beverages and sugary drinks have increased following the implementation of the Excise Tax – so does this signal an early end of the cola boom in the UAE?

If a recent report by Euromonitor on the soft drinks market in the UAE is any indication, residents might soon kick their cola habit.

“Cross-category shifts are indicative of the changing mindset with regards to sugary soft drinks in the country, with demand generally shifting towards 100 per cent juice and functional products,” observes the report, titled Soft Drinks in the United Arab Emirates: Key Trends And Developments.

Last week, the UAE Federal Tax Authority (FTA) announced the new Excise Tax will be imposed on carbonated drinks by 50 per cent, tobacco products by 100 per cent and energy drinks by 100 per cent and will go into effect from October 1, 2017.

Go healthy

The report notes: “Health and wellness are having an impact in terms of shaping demand for soft drinks in the United Arab Emirates…and the rising incidence of obesity and diabetes have been a cause for concern for the UAE government for some time.”

“This [health awareness] has sparked many a campaign to educate consumers about the dangers of excess sugar consumption and alleviate the situation,” it adds.

This increased awareness, coupled with the increase in price (a soft drink can that cost AED1.50 just a few days back will now cost AED2.25, for example), is a definite double whammy for soft drink companies, as people now have two reasons to consume fewer Cokes and Pepsis.

So what must such companies do to change their marketing strategy and capture renewed market share away from fizzy and carbonated drinks?

Bursting the bubble

According to the report, companies in this F&B segment have already changed track: “Consumers are becoming more aware of the importance of limiting sugar intake and this has led companies to respond by focusing on health and wellness as a key aspect of their product ranges,” it notes.

Consumers, it continues, are becoming more aware of the healthy options that are available in soft drinks and they now often expect healthy choices to always be available. As a consequence, understanding and connecting with this new consumer base is becoming a key brand strategy across numerous soft drinks categories.

Marketing shift

So how should the soft drinks manufacturers/retailers in the UAE market their products more aggressively?

“Tactically, there will be a long-term strategy to push higher margins through smaller packages. In the current climate, while it is true that heavy media investments will result in an uptick in volume sales, large marketing expenses will strain operating margins,” maintains James George, analyst at Euromonitor.

The smarter move strategically, he says, would be to go down the route of investing in experiential marketing.

“This means that companies would have to establish strong emotional consumer connections to ensure a continued habit persistence on their part. Personalised bottles and leveraging the power of individualism on social media can also have an impact on sales,” he explains.

“They have already started on this path here in the GCC and investing in media spend around marketing their products this way would have a positive net benefit,” he adds.

Alternatively, he continues, these manufacturers might also focus on promoting ‘guilt-free’ versions of their portfolio, such as sugar-free, lower sugar or premium products, for a cleaner consumption conscience.

“Ultimately, it will be a combination of brand strength, realigning product portfolio, innovation and communicating this through strong marketing that will reduce the impact of selective taxes,” he concludes.

– By Sunil Kumar Singh

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