TBY talks to Tarek El Sakka, General Manager of Dubai Refreshments, on the company’s partnership with PepsiCo, commodity prices, and new production facilities.
TBY How has the business expanded since it was first established?
TAREK EL SAKKA Dubai Refreshments is over 50 years old, and we were one of the first industrial companies in the UAE. The company has the license from PepsiCo to manufacture and distribute products in Dubai and the Northern Emirates. Dubai Refreshments is a public shareholding company with over 100 shareholders. Generally, our shareholders do not sell their shares. Many of our investors have been with us since the very beginning, and our shareholders include many of the UAE’s most well-known business families. We are outgrowing our current facilities, and we are anticipating a move to our new factory in 2013. Dubai has grown very rapidly, and our business has grown in the same way Dubai has.
Do you produce a full range of Pepsi products?
Dubai Refreshments has a contract with PepsiCo, one of the leading companies in the world with a large portfolio of food and beverages. The range of products that we produce depends on what the market needs. If there is significant demand, new products can be sourced from the PepsiCo portfolio for local launch, but this is done after a careful feasibility study. Our featured products from PepsiCo are carbonated beverages such as Pepsi, Diet Pepsi, 7-Up, Diet 7-Up, Mountain Dew, Miranda, and Shani, as well as products such as Aquafina and Lipton Iced Tea, which we import and distribute. We are also looking at a variety of other products that could potentially be distributed or manufactured in Dubai. In 2011, our turnover was about $270 million, and we are constantly seeking opportunities in the market. However, it is difficult for us to operate in small niche sectors. We are looking for categories where we can leverage our vast manufacturing and distribution capabilities.
How have the prices of commodities such as sugar and plastic affected your operations?
Although we managed to keep the price of Pepsi the same for more than 30 years, we were forced to increase it in 2011. This choice was driven largely by increases in commodity prices, particularly sugar. International sugar pricing is led by Brazil. The Brazilian economy has grown tremendously in the last 10 years, and the local currency became much stronger as a result, which has helped drive sugar prices to historically high levels. Sugar is a significant element in our total production costs. Other elements such as energy and basic metals are also witnessing cost increases. These factors have contributed to the rising cost structure, which we eventually had to recover.
Where will your new operations be located?
We have a plot of land in the Dubai Investment Park, which is roughly 1.4 million square feet in size. Our current facility only has about 18,000 square feet of space, so we are expecting a large improvement in space. This transition is driven by the future expected growth of the UAE and of Dubai Refreshments, as well as our desire to be able to continue providing our customers with quality service and to offer our employees a healthy working environment. The move is also based on our aim to enter new markets, which will require additional production facilities and logistics space. We are working to become a regional player, and we want to have the infrastructure that allows us to operate on a wider basis.
How well placed are local FMCG companies in competing with global giants entering the market?
People have grown up with Pepsi, one of the oldest and largest brands in the UAE. We have a large market share in the carbonated soft drinks category, and Pepsi-Cola is perceived as a local company with an international flavor. Few companies can match Dubai Refreshments in this regard, but we do see an evolution in the market, with many smaller producers becoming serious players. There were very few products in Dubai 20 years ago, with carbonated soft drinks dominating the beverage category. Today, there are hundreds of products including flavored water, juice drinks, sports drinks, flavored milks, and malt beverages. There are a multitude of flavors, packages, and different concentrations of juice content for each product. In today’s market, the consumer has a wide range of choices and that is where we see competition. This variety of drinks led people to experiment with new products. We must evolve with the market if we want to continue to be successful.
Have local consumer tastes changed over the past decade?
Consumer tastes are evolving with people trying new varieties of beverages. Many consumers are cola drinkers that venture out into other categories once in a while. Around 20 years ago, consumers may have tried a different product three times every 10 times they purchased a beverage. Today, consumers are experimenting much more frequently and are trying products such as tea, juice, and flavored water drinks, simply because of their wide availability and variety.
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