Refreshing approach for an established brand

DRC has consolidated its lead in the region’s soft drinks sector by investing heavily in IT and distribution.

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By  Roger Field Published  August 6, 2006

|~||~||~|As the sole franchisee and distributor of Pepsi Co products for the UAE, Dubai Refreshments Company (DRC) has been at the forefront of the country’s soft drinks sector since its inception in the late 1950s.

Furthermore, the company, which was the first to introduce soft drinks to the UAE, has also made key investments to build on its number-one ranking among soft drinks suppliers in Dubai and Northern Emirates.

Alan Salem, CEO of DRC, told RNME about how the company has maintained and built on its market leading position, and how it plans to continue its expansion in an increasingly competitive market place.

RNME: How and when was the company formed?

Alan Salem: DRC was one of the first consumer goods companies in Dubai and that goes back to the late 1950s. It was established as a limited liability company in 1959 by Decree of His Highness The Ruler of Dubai. It was the first to business in the UAE become a joint stock company. In July 1994, the company amended its status to a Public Shareholding company.

RNME: Has DRC always been market leader in the UAE?

Alan Salem: Pepsi itself had a lot of popularity in the UAE and this was supported by the absence of competition for almost 50 years. When you’re alone in a business you’re attitude is different. When competition appeared we had to re-evaluate the way we operated.

Competition gained some share between the late 1980s and late 1990s and we restructured our management structure around 2001, with the introduction of new management and a new board of directors. We moved the focus from centralisation to functionalisation.

To achieve this we created seven departments: sales, marketing, IT, finance, HR, fleet and plant, with each managed by a high calibre functional head with authority, responsibility and accountability to their respective function.
We aligned on a company vision and introduced operating goals and standards supported by the latest IT tools available.

Since then DRC has been the leading beverage company in the lower Gulf and we want it to go from an organisation that is seen as merely a soft drink company to one viewed as a comprehensive beverage company.

We made the first step towards that goal in our restructuring exercise of 2001 and 2002. We invested heavily in people and we divided the business in units headed by a manager who was well equipped, which goes from sales manager to marketing manager to IT manager, finance manager and others.

Different aspects of the company are now run at departmental level. The whole objective is to get close to our customers. We have to empower people by providing them with the right systems and tools to sustain that closeness. We have to know the market better than anybody else does.
We invested in a lot of our key systems of which the biggest project is the ERP business solution and the integration of hand held end delivery systems. We are now in the final stages of integrating those systems.

The ERP system also brings a number of benefits to the business. For example , it gives us critical data availability at our finger tips, allowing us to make decisions and formulate strategies based on accurate and up to date information for sales and finance.

RNME: Tell me a bit more about the investment made in ERP?

Alan Salem: People are the driving force of our business. Having the right people without the right systems is not going to get us very far, so we have invested heavily in people and in IT systems, specifically the ERP system. We are in the final stages now. Alongside the ERP we introduced hand held terminals which will basically match up the orders with customers and sort our financial control, invoices and other data.

RNME: How big is the production plant here?

Alan Salem: We have 123,000 sq ft of floor space. Today we’re running running 24 / 7, which is part of our investment strategy.

The DRC plant is capable of producing up to 1.8 million servings a day. We employ 1000 people here in Dubai across our main production plant, our distribution centre in Sharjah, and sites in Ras Al Khaimah and Khorfakan.

RNME: What significant developments have their been in terms of introducing new products?

Alan Salem: In 2003 we bought the franchise rights for 7-Up which was filled by an independent company called United Refreshments. We added this to our portfolio and then in July 2003 we added our own water to the portfolio, so we made the first steps towards our vision of stepping out from purely soft drinks to beverages. Geographically we expanded outside Dubai into the other emirates and Oman with 7-Up and Aqua Fina water.

Aqua Fina, has grown by more than 100% a year. It’s from a natural source in Dibba, although a lot of people think it’s desalinated. Diversification into markets such as water and juice is essential. For example, the water market is growing faster than soft drinks.

Between 2001 and the annual report of 2005, we more than tripled our sales and revenues. We tripled our profits and our market share went from 44% to 72%. The latest addition to our portfolio is Lipton Ice which we gained in January 2006. We’ll be entering the juice segment with Tropicana Juice in the near future.

The target to launch Tropicana is mid 2007. Tropicana is a world-leading brand from the USA and the UAE should be no different. In terms of soft drinks, it’s just two global players in the Middle East. It’s us and you know who. In this part of the world there’s no one close to Pepsi.

RNME: How much of your business does the core soft drinks market account for?

Alan Salem: It’s still running at about 90%. We’ve been encountering a 30% plus increase in soft drinks each year for the past five years but soft drinks are by no means stagnating or declining. With Lipton Ice and water it has been exponential growth from the launch phase.

RNME: What do you put these levels of growth down to? Is it mainly because of population growth in the UAE?

Alan Salem: I think it’s a combination of factors. The population has a lot to do with it because the more consumers you have, the more drinks you sell. But if you don’t have the right distribution and systems in place you will not capture that growth.

We invested in our fleet, we went from having about 52 trucks in 2001 and now we have about 200 delivery trucks. We invested heavily in infrastructure. It’s very difficult to get consumers to drink a soft drink that’s not cold so we also invested heavily in coolers.

RNME: How much will the fleet increase boost business?

Alan Salem: In terms of our fleet, we are growing by focused strategy. The focus is not only on satisfying the clients needs. We’re talking about a fleet that is capable of taking on the expansion plans that we have. It’s always an advantage to have more space on your top brands.

Today we’re having about 90%…but bench mark 85%. Over the last four years we’ve invested more than US $30 million just on infrastructure, and that’s not including warehouses…just pure operations – trucks and coolers.

RNME: Which channels are your drinks sold through mostly?
Alan Salem: The trade segment is in what we call conventional trade and organised trade. Conventional trade is the parlours and the small pop shops, which contribute about 59% of the trade in the UAE. However, within the organised trade, the supermarket channel is growing extremely fast and within five years it’s grown from 11% to about 25% with stores such as Carrefour and Geant.

RNME: What kind of involvement do you have in the marketing side of things? Is that mainly done from the top level of Pepsi?

Alan Salem: Even though Pepsi is a global company, we think globally but we act locally so we have a big marketing department that works in synch with PepsiCo’s marketing department. Most of the brand equity and media platforms have been created by PepsiCo. However the promotions, promotional activity and local marketing activity are handled by DRC. Our direct marketing team consists of about 14 people, but DRC in total is about 1000 people.

RNME: Is the soft drinks sector quite seasonal?

Alan Salem: We used to think so actually. It used to be a lot more seasonal than it is today. Again, the temperature has a lot to do with the consumption of soft drinks. We live in a country where temperatures do not go down very much so you have that thirst throughout the year. It used to vary, in the four months of the summer it used to represent 70% of our sales. These days, it represents about 50%.

RNME: Where do you see the sector going in the next few years? Do you see the non-soft drinks sector taking off further?

Alan Salem: If you look at other markets, you see the more developed markets where soft drinks growth slowed down to single digit growth, while the non-carbonated beverages grow a lot faster, ie juices, water, sports drinks. We see growth coming from soft drinks, but the bigger growth will be coming from non-carbonated soft beverages.

RNME: Are there plans for expansion into other areas?
Alan Salem: We believe in synergies and we have geographical growth plans as well as brand portfolio growth plans. Regionally we’re looking at several local operations and we’re also looking at several neighbouring countries.

We have a very big appetite for making acquisitions and we’re onto quite a few mega projects and we expect some of them to materialise by the first quarter of 2007 and others in 2008 probably. These include drinks producers in the UAE.||**||

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