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Executive
Summary
Consumer
brands, such as Coca-Cola and CNN, are leaders among Georgia's
diverse global merchandise and service exports.
Atlanta-based Coca-Cola is first place in the 2004
InterBrand Global Brand
Scorecard.
However, U.S. regional policies have presented new
challenges, forcing Coke and others to change the way they
market consumer brands to the Arab market in general and Saudi
consumers in particular.
Saudi
imports currently provide just under 5,000 service and
manufacturing jobs in Georgia.
Coke's regional strategy shifts may signal the way toward
greater success for other top U.S. consumer brands struggling
for relevance and market share in a changing market.
Atlanta Exports
to Saudi Arabia
Georgia's
major export categories to Saudi Arabia have fluctuated over
time to accommodate changing demand.
During the years 1999-2003, transportation equipment as a
percentage share of total exports to Saudi Arabia grew to just
under 35%, while exports of other machinery vacillated.
Paper products, electrical equipment and beverage and
tobacco product sales faced varying but reliable demand over the
same period. (See Exhibit #1)
Exhibit
#1 Georgia/Saudi
Arabia Export Categories
(Source: U.S. Department of Commerce and IRmep 2004)
ADD Exhibit 1
2004
revenues from Georgia merchandise and service exports to Saudi
Arabia should reach well over a quarter of a billion dollars.
(See Exhibit #2) A
substantial portion of Georgia's exports are driven by growing
consumer market demand. While
Saudi consumer demand for merchandise and services is strong, it
is not yet completely clear how Georgia will benefit from this
demand over the next 10 years.
Exhibit
#2 Forecast Georgia Merchandise and Service Exports to Saudi
Arabia
(Source: IRmep 2004)
ADD Exhibit 2
Understanding
the market evolution and unique Saudi consumer market is
critical to marketers. In
2004, Interbrand’s global brand ranking found
Atlanta-headquartered Coca-Cola to be the world's top brand,
with a global market value of U.S. $67 billion. Understanding
recent "Islamic cola" market challenges faced by the
Atlanta-based beverage juggernaut inside and outside the region
is a case study no exporter should ignore.
Coca-Cola
in Saudi Arabia
Atlanta
pharmacist John S. Pemberton created Coca-Cola in 1886 as a
secret recipe soda fountain beverage flavored with cola nut
extracts among other ingredients.
Today, Coca-Cola concentrate is still one of the world's
most closely guarded trade secrets. Concentrate is manufactured
in a limited number of specialized production facilities in the
United States and abroad for shipment to bottlers around the
world. The
concentrate is added to a syrup of sugar and purified water that
is subsequently carbonated.
Total
Coca-Cola plant infrastructure in Saudi Arabia by the end of
year 2000 reached U.S. $100 million.
Primary bottling plants are located in Riyadh, Jeddah and
Dammam. Production plant personnel and management "Saudization"
was a key goal of Coca-Cola Saudi Arabia chairman of the board
Khaled Ibn Ibrahim Al-Baraheem.
Coke also strives to be a "good citizen" by
participating in charitable acts during Ramadan.
Company employees volunteered around 1,000 hours of free
time during an eight-day period to distribute beverages.
Up to 850,000 bottles and cans have been distributed to
needy families during one Ramadan at mosques and charities.
The
company set out to win 30% of the light beverages market in
Saudi Arabia, with flexibility and innovation driving product
marketing. In
2003, the newest Coke bottling facility, the $20 million plant
in Riyadh, was closed to reengineer production for water and
fruit juice production.
The Saudi
Beverage Market
Saudi
Arabia's weather can be counted on to generate strong demand for
cold drinks. The nation's foundation in Islam bans alcoholic
drinks, enhancing demand for carbonated drinks, waters and fruit
juices. According
to Euromonitor, the total size of the market is expected to
reach 3.5 billion liters in 2004. Compound average growth rates
for beverages in volume and total monetary value have reached 6%
annually, ranking the market among the fastest growing in the
world. This has not translated into an easy market for Coke or
any other American beverage brand.
InterBrand cautioned in a 2004 global assessment that,
"little innovation beyond its flagship brand and poor
management has caught up with Coke."
2002
and 2003 were challenging years for Coke in Saudi Arabia.
The market entrance of colas with "Islamic"
branding sought a social and market confrontation to displace
Coke. (See Exhibit
#3)
Exhibit
#3 "Islamic" Cola Marketing in Saudi Arabia
(Company
Statements)
ADD Exhibit 3
The
Saudi distributor of Iran based Zamzam Cola imported four
million one-liter bottles in August 2002.
Demand was so great, country manager Al-Majarah ordered
several million more. "The campaign of boycotting American
products and the good quality of Zamzam Cola have given us
excellent sales," stated general manager Firas Khawaja.
Islamic Values
and Rebranding
While
Coke has not faced competitors positioning a brand based on
religion, it is no stranger to satisfying cultural identity and
meeting local market demands. Coke's
annual report to shareholders clarifies the central role of
local innovation:
ADD Exhibit 4
"Consumer demand determines the optimal menu of Company product offerings.
Consumer demand can vary from one locale to
another, and can change over time in the same locale.
Employing our business strategy, and with a special
focus on Coca-Cola, our company seeks to build its
existing brands, and, at the same time, to broaden its
historical family of brands, products and services to
create and satisfy consumer demand locale by locale."
Coca-Cola
has reacted to changing demand across the globe through branding
campaigns and product attributes appealing to unique local
market tastes. (See Exhibit #4)
Exhibit
#4 Coca-Cola Global Market Adaptations
(Source:
Coca-Cola Annual Reports, Company Statements and IRmep
2004)
ADD Exhibit 4
Ironically,
Iran's entrance into global and Saudi soft drink markets with an
Islamic cola was met by Coke's simultaneous success entering
Iran's 70 million strong market.
Although unilateral U.S. trade sanctions prohibit U.S.
companies from doing business in Iran, former President Clinton
made an exception for exports of foodstuffs in 1999.
Coca-Cola renewed ties with local Neysan-e-Sharq to
compete head-to-head with Zam-Zam's own 16 bottlers in Iran.
Coke is understandably subdued in discussing its growing
success in Iran. However, 2002 trade statistics from Ireland,
where the Coke concentrate is made for shipment to Iran,
revealed that drink mix shipments climbed to 57 tons in the
first five months of 2002, up from 18 in the previous year.
Most of this increase was Coke concentrate.
Nevertheless, Coke's strategic reaction to changing consumer
demand in Saudi Arabia could signal the way forward for other
top consumer merchandise and service exporters, including
Atlanta neighbor CNN.
Brand
Repositioning in Saudi Arabia
The
value proposition made to Saudi consumers by the purportedly
"Islamic" colas is communicated through labels and
slogans. Mecca Cola
markets with a derisive slogan, "No more drinking stupid,
drink with commitment."
The major market strategy of these products is
displacement. By channeling and ascribing negative attributes of
imperialism and U.S. regional policy onto Coke's brand, they
hope to capture consumers.
In
reality, Coke is among the world's most diplomatic global
corporations. It
operates across a delicate 200 country matrix of bottlers.
Confrontation and conflict are not values inherent in a
company holding together complicated commercial relationships
and oftentimes minority equity stakes in partners from Riyadh to
Ramallah.
Coke
insists that it is "not affiliated with any religion or
ethnic group" and does not engage in politics.
Empirical data bears this out.
Coke's local market foundation support for outreach and
charitable works is generous and not just in Saudi Arabia.
Also, Coke's political action committees in Washington
resemble Coke's country market foundations -- they give to
political parties but are even-handed.
Coke's principles of non-affiliation and identification
by ethnicity, politics or religion also means that Coke won't
likely attempt to mimic competitors with an overtly Islamic
brand of its own.
Coke can,
however, effectively counter rivals through rebranding
strategies that communicate and brand Coke values that overlap
Islamic values. Key
Islamic values such as neighborliness, progress, peacemaking,
and understanding can be communicated referencing visible
corporate contributions Coke has made throughout the Middle East
market.
In 1998,
for example, Coca-Cola Company became the first multinational to
directly invest in a local Palestinian company. Coke signed a franchise agreement with the National Beverage
Company (NBC) to bottle and distribute Coca-Cola products
throughout the West Bank and Gaza Strip.
NBC's Ramallah bottling factory served 15,000 retail
outlets in the Palestinian territories to deliver Coke to nearly
3 million consumers. The
hundreds of direct and indirect jobs already provided by Coke in
Palestinian territories quantitatively provides more relief and
opportunity than Mecca-Cola's promised 10% donation likely ever
will.
Saudi
Arabia's consumer market is clearly open to both innovation and
honest brand positioning. Consumer market exporters in Georgia and across America
should consider how they can "tune in" to core Islamic
values and other local factors inherent to the market.
They can demonstrate their role as "solutions"
rather than contributors to regional problems to increasingly
sophisticated consumers.
Also
see:
ABOUT THE AUTHOR
Grant
F. Smith is Director of Research at the Institute
for Research: Middle Eastern Policy (IRmep) in
Washington, D.C. (http://www.IRmep.org).
Before joining the Institute, Smith served for 3
years as senior analyst and later program manager of
international research at The Yankee Group Research,
Inc., a Boston based research and consulting firm owned
by the Reuters PLC group. He worked closely managing business plan development and
financing due diligence with the International Finance
Corporation of the World Bank, Inter-American
Development Bank, and many consortium investors and
corporations on over $3.0 billion in investment projects
in over forty countries.
Preceding his
tenure at Yankee Group, Smith taught graduate level
finance and marketing courses for five years at
Colombia’s most prestigious business school, the
Colegio de Estudios Superiores de Adminstracion
(CESA). He coordinated executive seminars, exchanges, simulations and
programs between CESA and Harvard, Berkeley, and other
U.S. universities. He also served as president of Smith
& Sefair Zaher Ltda., a Bogota based technology and
management consulting firm.
While there, he consulted clients in the
insurance, banking, and industrial sectors on business
process improvement, business planning, and information
systems technology strategies.
Before that he was marketing manager at American
Express Financial Advisors corporate headquarters.
Smith received
his Master’s degree in International Management from
the University of St. Thomas in St. Paul, Minnesota. He has a B.A. in International Relations from the University of
Minnesota and has completed post graduate certificate
work in information systems at New York University.
ABOUT
IRMEP
The Institute for Research Middle Eastern Policy
(IRmep)
is a Washington D.C. based think tank working to
research, define, communicate and promote
America's real interests in the Middle East.
Founded in 2002, the Institute became an
independent non-profit IRS recognized tax-exempt
organization in 2003. IRmep promotes the peaceful
settlement of regional and international disputes
by returning the U.S. to a higher foreign policy
role: that of a just, secular, and development
oriented regional influence.
IRmep
produces research, publications, commentary,
focused policymaker educational events and
research tour programs to the Middle East. The
heart of the IRmep's work is academically, not
ideologically, driven research. The Institute's
network of analysts is composed of experienced
university research academics with reviewers in
the international business and diplomatic
communities.
The
majority of IRmep's base financial support derives
from the donations of concerned individuals who
are alarmed by the current direction and authors
of US regional policies. IRmep also receives
industry support from corporations that have faced
increasing barriers in developing their Middle
East consumer and enterprise markets in the
current policy environment.
To
access current research and learn more about
America's real interests in the Middle East, visit
http://www.IRmep.org
write us at info@IRmep.org
or call (202) 342-REAL (7325)
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