UAE, DUBAI - Industry
CEO, Dubai Refreshment Company (DRC)
Tarek El Sakka is a 27-year veteran of the FMCG business and is well known in the Middle East beverage industry having spent over 20 years in various locations and positions within the PepsiCo system. In 2008 he joined DRC, PepsiCo’s largest independent bottles in the Lower Gulf, and since he has led a major transformation in the company that has made it one of the most successful turnaround stories in the Dubai Financial Market, increasing its market cap by over fivefold. Prior to DRC, he was the General Manager of Jordan Ice and Aerated Water Company and worked for Pepsi Middle East and Procter & Gamble in Switzerland and Saudi Arabia.
Moving to our new site gave us the capability to start producing two new products—Aquafina and Lipton Ice Tea. It also enabled us to produce our product range in significantly larger quantities. Another benefit is that with newer equipment, we can produce more efficiently, using less energy and water. The new infrastructure also allows us to open up new lines of business. For example, we signed an agreement with Froneri Ice Cream Egypt in 2017 to distribute Nestlé ice cream. We are continuing to expand and are in talks with several parties to add further lines of business.
We are always interested in the beverage segment. Our partner is PepsiCo which has a wide product portfolio, and we have ongoing discussions with PepsiCo to expand the range available in the UAE. On the food side, we focus on packaged products where we have synergies with the products we sell for PepsiCo. One of the things we recently launched is a range of snacks called Snack Time that sell in the same channels where we sell our beverages. We look for new products that maximize the synergies with our existing product portfolio and that we can sell through the distribution channels in which we are already strong.
Innovation comes in different forms. Sometimes it is in the new products and packages that we launch. There is also innovation in terms of how we go to market. There can be things that are less visible, such as efficiency, services, or logistics and storage. Often for an industry, innovation is more about these types of operational improvements rather than just about launching new products. It is important for us to improve our level of service through innovation; for example, we have programs that improve our distribution routes. We also innovate in our manufacturing processes to use fewer and more lightweight materials to save money. We innovate in terms of quality control to ensure that every product our customers get is of exactly the same high quality, with no failures. We have even incorporated innovation into the building and its management. We are currently awarding the job of installing solar panels over 60,000sqm of roof, which will generate almost 4MW of power. This will be one of the largest solar installations of its kind in Dubai.
We have some tremendous advantages in terms of both manufacturing and distribution. DRC is one of the strongest distribution companies in the UAE in terms of coverage breadth and depth. We perhaps reach more customers in our territory than anyone in the FMCG business. Moreover, we reach customers more frequently than anyone else which help us deliver a superior service level. We can also execute marketing activities in a way that companies with more limited capabilities cannot. DRC is certainly one of the top companies in the UAE in terms of distribution and execution. In terms of manufacturing, we represent a tremendous opportunity for companies coming from Europe, the US, and other places that currently have their supply chain coming out of their home countries or regions. Generally speaking, these big markets do not have the flexibility to produce specifically for the Middle East market. Often by the time products arrive to the UAE, a significant portion of the shelf life has expired. Hence, supplying Middle East from the US or Europe add many complications. DRC can do the job here; our infrastructure is ready and we are plug and play. We can set up a customer-designed manufacturing process quickly, efficiently, and at great value for money We are happy to sign long-term contracts with serious partners.
DRC currently exports to over 30 countries, though we do not have on-the-ground support in other countries. We look to continue expanding our exports, despite the fact it is becoming more challenging. As other countries build their own capabilities there are less opportunities for exports of soft drinks. What we can do is expand the range of products we offer them. I expect consolidation to happen in the soft drinks industry in the Middle East, as a result of the introduction of excise taxes in October 2017. The tax has had a tremendous impact on the industry, with the industry size decreasing dramatically. Profitability has been impacted for all soft drink suppliers. The reduced industry size will lead to consolidation despite many challenges that face these efforts.
We are looking at all kinds of beverages where we see a significant market opportunity, not specifically health-oriented drinks. We are primarily interested in significant business opportunities we can go after, and if healthy products present this we will go after them. People with a more international outlook like to talk about healthy products and trends, though the heart of the matter is what consumers want and they want indulgence. We have a range of healthy products, such as low-sugar and diet drinks, water, and tea, though many people still prefer full-sugar products. We have no lack of healthy products offerings, and if we see an opportunity we will increase our offering in this space.
In general, the UAE is extremely competitive when it comes to services, infrastructure, and trading facilities. However, it is not particularly competitive as an industrial hub. The cost of doing business in the UAE is high, which is not great for manufacturers. DRC has been here for a long time and will continue to expand and to benefit from, government policies, from great infrastructure and from the safety and security in the UAE. These factors are all huge benefits, which help offset the high cost of doing business. We are also moving from a mostly unregulated economy to a regulated system and from a basically tax-free system to a new tax environment These are significant changes that need to be managed well in order to succeed over the long term.
The first thing we have to deal with is the new tax regulations. It is important we reset our business model to deal with this. This is a significant and adverse development. Secondly, we have to start moving relatively quickly to build new businesses. For 60 years, we basically had one business—soft drinks. Now, we are diversifying our business to soften the impact of the tax changes. We are looking at beverages, new products and new business relationships.
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