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.  

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)