Just for the taste of it

Coca-Cola says it has stopped losing money in the region and is winning back market share.

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By  David Ingham Published  March 6, 2005

|~|gurtay.jpg|~|Gurtay Kipcak: “2004 was an excellent year in the region.” |~|Coca-Cola finds itself in an unusual position in the Arab Middle East: It isn’t the market leader. Given the company’s history in the region, that position is hardly surprising. Between 1968 and 1991, it was on the Arab boycott list and banned from officially doing business in Arab countries. Since being allowed back in, it has suffered from informal consumer boycotts of its products because of its association with all things American. Around three years ago, following a decision to relocate some staff from its Bahrain office (for security reasons, the company says), critics started the rumour that it was pulling out of the region. However, despite these setbacks, Coca-Cola remains committed to the Middle East and is investing more money than ever before, according to Gurtay Kipcak, public affairs and communications director for the Eurasia and Middle East division. The year 2004, he adds, was one of the company’s best for some time in the nine Arab countries that his office covers. “2004 was an excellent year in the region,” says the football-loving Istanbul resident, whose territory includes Turkey, the GCC, the Levant and Turkish-speaking CIS countries. “Our growth rate was double digit, over 10%, which we have not seen in quite some time.” Pushed on what that means, Kipcak says that he is referring to unit sales. “For example, if we sold 100 units in 2003, we sold 112 in 2004,” he explains. “This is a significant number because if you look at overall industry growth [in nine Arab countries], which is around 3%, that means we have grown more or less four times [more than] the industry.” In its core coke business, the company claims to have clawed back three or four market share percentage points. Retail News Middle East was not able to obtain market share or sales figures from any third party source. It is widely accepted, however, that Pepsi is the top selling coke brand in the region. The numbers appear to be positive, but perhaps most importantly, certainly from Coca-Cola’s point of view, it is no longer losing money in the Arab countries. This year, the company hopes to repeat last year’s double digit unit sales growth. As for what helped the company achieve its “excellent year”, the number one factor, Kipcak says, has been empowering Coke’s people on the ground in the region. “For the last two years, our business has been run in the region by local people. What I mean by that is people who’ve grown up with the culture, speak the language, know the region and know the people. We have confidence in those people and they’ve built their plans according to the needs of the region,” he says. This has led to big investments in marketing around music and sports, including signing up celebrities such as Lebanese starlet Nancy Ajram and Saudi Arabian singer Abdelmajeed as brand champions. In the field of sports, Coca-Cola has forged sponsorship agreements with the Saudi national football team, the Jordanian basketball federation, and two leading Lebanese football clubs. “We are not outside, but inside, the region with our activities. It all originates in Bahrain,” says Kipcak. Exactly how much Coca-Cola spends on its marketing activities, especially its star sponsorships, isn’t clear. Sources suggest that the regional marketing budget is in the US $30-50 million dollar range. The company won’t comment and answers questions about the amounts paid to Ajram and Abdelmajeed by saying, “it’s not expensive when you think of the return. We continue with the strategy because it’s helped us a lot in connecting with consumers.” In product terms, 2004 saw the relaunch of Coke’s bottled water in the region, under the brand name Arwa, and the introduction of caffeine-free coke in Saudi Arabia and the UAE. Quwwat Jabal, an orange drink designed exclusively for the Middle East, was introduced in Oman in 2003 and has now gone on sale in other Arab countries. The company says it will continue to introduce new products, but it believes that existing ones could be just as important as new launches in driving growth. Coca-Cola sees caffeine-free coke and Coke Light as particularly well placed to capitalise on the growing trend towards healthier lifestyles. “Light products are picking up everywhere and it is going to grow faster than any other soft drink,” says Kipcak. “That’s why you’re going to be seeing a lot more Coca-Cola Light activities.” The company claims that Coca-Cola Light is number one in its market segment in the UAE. Whilst it tries to drive consumer demand through marketing and new product introductions, Coca-Cola says it’s also been working hard to preserve and improve retailer loyalty. The company says it welcomes the emergence of hypers because of the opportunity to drive bulk sales. “Hypers are the new trend and they are going to boost our business,” says Kipcak. “It means people are shopping weekly and buying in bulk.” Key to working with hypers, he says, is relationship management and doing the right promotions and activities. “A hyper is not just a hole where you dump your products,” says Kipcak. “There are at least five or six promotions or activities going on in a hyper on a daily basis. Hypers are going to be a platform where, with some smart moves, you could really build some brand loyalty.” Coca-Cola is keen to show, however, that it won’t neglect the bikalas and neighbourhood grocers that account for around half of regional sales. One danger is that because hypers buy in bulk, they can get much better prices out of Coca-Cola than bikalas and pass that discount on to the consumer, thus hurting small outlets. Kipcak admits this has happened elsewhere, but says the company is determined not to let it happen in the Middle East. “If the price gap widens, groceries lose business,” says Kipcak. “Depending on the country, there are limits that this price gap [between hypers and bikalas] must be kept at.” One threat that has loomed over Coca-Cola and other major brand names is alternative products, whether it be supermarket own labels, local brands or, in the case of the cola market, so-called political colas. On products such as Qibla and Mecca Cola, which are targeted at consumers who dislike US foreign policy, Kipcak says, “When you look at the sales numbers, you’ll see that they are insignificant.” On own label supermarket brands, he does not believe they are a threat now, but they might be if regional food retailers ever decide to go into them in a big way. “It depends on availability,” Kipcak argues. “It’s a free market and competition is what keeps us on the move. I always say that you should make sure you look in your mirrors when you drive, but keep looking ahead.” It seems that the worst may be over for Coca-Cola in the Arab region. It may not be the number one cola brand, but it has stopped losing money and is reporting respectable market share and unit growth figures. However, the company insists that it will not pursue growth at all costs. “The important thing is that we care about a market share that is sustainable,” Kipcak says. “You can do promotions, you can spend money to gain market share for one or two months, but this is not something we are after. Everything we do has to have a long term vision.”||**||

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