The real deal

In the last few months focus has been on alternatives to Anerican cola giant Coke, but now the Atlanta-based soda company is attempting to fight off boycotts, rivals and bad press to preserve its regional standing.

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By  John Irish Published  September 2, 2003

|~||~||~|The word on the street is that Coca-Cola is struggling in the Middle East. Wars in Afghanistan and Iraq coupled with the ongoing Palestinian intifada are affecting American interests in the region. Arabs from Tangiers to Sanaa are looking to alternative products; soft drinks are one of those.

Rumours that Coke is part of a global Jewish conspiracy are spreading in the Gulf. Likewise, the growing movement aimed at exposing the effects of junk food on today’s kids is also turning its beady eye on Coke. Yet, while things may not be as rosy as Coke might wish, the ideological battle it finds itself immersed in is the latest conflict the US faces in the Middle East.

“We want to make it clear that based on untruths, a company like Coca-Cola, an international brand with 100% local credentials, should not be the target of negative attitudes. That’s an issue that we want to tackle,” explains Temuçin Tuzecan, corporate affairs and communications manager, Coca-Cola Eurasia Middle East.

That Coca-Cola has suffered in the region over the last few years is no surprise. Tuzecan acknowledges it has fallen behind its US rival Pepsi in the Middle East partly due to its close association with US society. US brands, considered trendy throughout the 1980s, are now often associated with sweatshops, income inequality and, particularly in the Middle East, linked to Israel.

As a result, unofficial reports suggest Coke sales in the Middle East & North Africa (MENA) have dropped 10% in 2002. Those unofficial estimates placed the 2002 sales drops even higher in Bahrain, Lebanon, Egypt and Saudi Arabia where boycotts were more widespread. The Atlanta-based giant recently announced that unit case volumes in the first quarter of 2003 had declined 1% in the Europe, Eurasia and Middle East region.

Like many corporate giants, Coca-Cola disassociates itself from politics and religion. It sees itself as a local player with an international brand name devoid of governmental ties. Nevertheless, with so many in the Arab world feeling that their voices remain silent as their governments allegedly pander to the West, the boycott is deemed a legitimate defence tool.

The US’s renaming of French fries to freedom fries after the recent Iraq war highlights that the Arab world is not the only region to politicise its food.
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No matter how these two cola brands are perceived in the region, any type of boycott ultimately may be more harmful to the boycotters than the targeted companies. For Coke, the region accounts for only about 2% of its global business.

While Arabs may feel better for boycotting the ‘American devil,’ it is the local economy and laymen that could suffer from such a policy. Whereas freedom fries will hardly upset France’s culinary economy, many western fast-food restaurants in the Middle East are locally owned franchises and their employees, naturally, are also local. The same goes for Coke.

“In the beginning Coca-Cola was a company with an international brand, but now it is strictly a local business. We have local bottlers, that we sign franchise agreements with and they produce our own brands. Those local bottlers earn money; employ local people in their plants and in their distribution network. That [aspect]will be stressed more in the coming weeks and months,” says Tuzecan.

Yet, unlike Pepsi, which could be considered equally as ‘American,’ Coke inexplicably riles the Arabs more than its American counterpart.
“I would say part of the reason is because we stayed out of Israel for 40 years,” explains a spokesperson from Pepsi.

“As for other reasons, maybe, it’s because red and white is more recognisable than blue and white. Who knows? It’s the luck of the draw, we’ve had our share of problems too,” he adds.

Coke’s Tuzecan is also unsure as to why things turned out this way. However, he agrees that the negative publicity stems back to the Arab league’s boycott of Israel and of companies trading with Israel. He asserts that although Coke had not invested in Israel, it refused to sign the Arab League’s forms denying any involvement with Israel.

“Coca-Cola could not fill the form due to American legislation because it would be taking part in a boycotting act. Coca-Cola didn’t have any investment in Israel; on the contrary, before 1967 it had investments in Muslim countries, including Saudi Arabia and the Gulf region.
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“The presence of Coca-Cola goes back 50 years, [but] it wasn’t until 1991 that we were removed from the boycott list, and even then we didn’t do anything to change our position.”

So where does Coke’s campaign to rebuild its image begin? On the one hand, it believes its role as a regional company in all but name has remained in the background for too long. Secondly, moving into alternative products such as the recent launch of the citrus soft drink Quwat Jabal (Strength of the Mountain, see page 55) in Oman is key to developing its regional business, particularly at a time when cola consumption is falling across the world.

The third factor is its political outlook. While not wanting to be part of the American-Arab political game, the nature of the Middle East means that its political image must be nurtured. Consequently, the recent renewal of its franchise agreement with local bottling plant, National Beverage Company (NBC), in Ramallah is vital in changing the regional mindset.

The ongoing Palestinian-Israeli conflict makes for an extremely precarious business climate for companies that deal with both sides.
The fact that America openly provides Israel with aid means that it is an easy target for boycott and false propaganda. Temuçin, stresses for example, that allegations linking it to Jewish charities and corporations are lies.

“Coca-Cola is a public company. Its shares are traded in New York, and anyone living around the globe can purchase them. That allegation [that it has ties with Jewish firms] needs to be cleared away from the scene. We know there are prominent Arabs in the region who own shares of the Coca-Cola Company,” asserts Tuzecan.

Despite these assertions, it seems that Coke is destined to face criticism in the region. The recent conflict in Iraq and the continued intifada in Gaza and The West Bank merely cloud over Coke’s investments in Ramallah.

It provides jobs for Palestinians, has local Palestinian partners and indeed in the West Bank is not the target for anti-Americanism. But once out of the area concerned, that image disappears. Coke is not alone in facing the Jewish accusation.

Its main rival Pepsi has received similar scrutiny, though not quite to the same degree. One acronym touted in the region for Pepsi is ‘Pay Every Penny to Save Israel.’ An irony considering Pepsi was actually one of the multinational companies that refused to do business with the Jewish state during the 40 year Arab commercial boycott of Israel.

What has emerged from these boycotts are new cola companies aimed in part at cornering the anti-American market. The launch of Mecca Cola following the Israeli incursions into Jenin last year signalled the start of a whole range of European-based Cola companies. Whether it’s Mecca Cola, Qibla Cola or Muslim Up, the trend to introduce a new viable Muslim alternative to Coca-Cola is established.

Slogans such as ‘Liberate your taste’ are sufficient to see where these cokes are heading. Mecca Cola is now distributing throughout Yemen, Morocco, Syria, Lebanon, Sudan and Algeria and has just announced plans to open a bottling plant in the UAE, not to mention its steady expansion in Europe and plans for the Asian subcontinent.
Meanwhile, Qibla Cola, the UK-based coke, is heading to Canada.

“These guys are offering an alternative to just boycotting,” explains Ellen van der Helde, a regional advertising executive. “Its message is extremely powerful. Support your own brands instead of the States.”
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However, the new colas are also toning their language down. Tawfiq Mathlouthi, Mecca Cola’s CEO, told Arabian Business when his project launched over six months ago that the Arab and Muslim market was not its only target.

“Our market is everywhere people think that the Americans must stop this double standard in [their] foreign policies and helping criminals of the Zionist entities,” he said.

But six months on, at Mecca Cola’s launch in the UAE, the message was markedly different. Khaled Al Mahamed, vice-president and general manager of Mecca Cola Middle East, was quick to stress that the brand had no anti-US sentiments.

It was merely a new brand competing with all the rest. The paradigm shift suggests that, in a strange sort of way, what may be acceptable to the Muslim market in Europe may not be so easily welcomed in the Middle East. By removing the shock factor, Mecca Cola becomes a more localised brand without an underlying political objective.

This leaves these brands in a Catch 22. Their unique appeal is their Muslim flavour. Once the anti-US message disappears, however, will consumers really turn away from the established leaders?

A quick check around Dubai’s supermarkets highlights how difficult it will be for these products to grapple even a small share, particularly if there are several of them.

“The boycott is dying down. Everybody is buying Coke and Pepsi because that’s what people know. We have Virgin Cola as well, but people are just used to getting those two. If you had American hommous, would you buy it instead of the Lebanese one? They [Americans] make the best cola, so people buy it,” says Ahmed, a counter salesman at a Spinney’s supermarket in Dubai.

Ultimately, these drinks are more likely to cause a stir rather than eating into Coke and Pepsi’s 85% regional hegemony. Mecca and Qibla, essentially, are European companies, not regional ones. They donate a percentage of profits to local charities, use emotive appeals to entice buyers, but do not contribute hugely to the local economy.

In comparison, Coke and Pepsi play a prominent role in the local economy, be it through jobs, sponsorship or educational programmes. In Saudi Arabia, Yemen, and Egypt, for example, Coke pays its employees 15% more than local franchises do.

While the European-based Muslim cola firms may satisfy short-term resentment, Coke and Pepsi may find cola companies emanating from the edge of the region stiffer competition. ZamZam Cola, the Iranian cola drink, established shortly after the 1979 revolution, came about as a replacement for US soft drinks. Since boycotts on US products began, its factories have struggled to keep up with demand.

In the latter quarter of 2002, it exported 10 million bottles to Saudi Arabia, Bahrain and the rest of the Gulf with plans to establish a bottling plant in Saudi. ZamZam has established itself as the third way. Unlike, the more recent colas, however, ZamZam appears relatively pragmatic about its success, attributing it to the sudden boycott rather than a planned strategy to take the region by storm. It also does not play the Muslim card or a specific anti-American card.

Interestingly, while Coke’s media savvy response is to lump all the competitors under one umbrella, welcoming all competition as healthy, ZamZam appears a lot more scathing regarding the new players.

“These are only new brands, these are not experts in soft drinks,” Awal Hassani, export manager for ZamZam, told Arabian Business. “They don’t have the know-how or the technology. If you ask them [whether] the formula produces a new taste, they cannot do it. These brands, are going to make money because of the situation. They are commercial companies, they don’t care about the quality,” he continues.

Possibly following ZamZam’s footsteps is Cola Turka. As the name suggests, it was recently launched in Turkey as a result of frosty ties between the two Nato allies following the Iraqi conflict. The worrying thing for Coke is that while Qibla Cola or Mecca Cola may be riding the crest of a wave, Turkey’s strong nationalism, embedded within a secular state,opens the way for a possible Turkish ZamZam that could eat into its market share much like ZamZam has done to Pepsi in Iran.Unlike the new Islamic colas, Turka Cola has clearly outlined that it is targeting more than just the niche market.

Of Turkey’s 7.5 billion litres of soft drink consumed per year, it hopes to take 25% of a market dominated by the American big boys.
For the time being, however, Pepsi looks comfortable, while Coke is striking back in the Middle East market.

Although a plethora of new cola drinks are attempting to lure consumers away from the American giants, the impact seems fairly minimal. Likewise, the boycotts appear to have had merely a passing influence. While the region may criticise America for its foreign policy in the Middle East, ultimately, consumers are likely to opt for the established players, no matter how the new kids market themselves.
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