When Coca-Cola trickled into the Middle East in 1945, Saudi soft drinks giant Aujan Industries had already been trading for four decades. Chairman Adel Aujan talks mergers, new markets and taking aim at the multinationals.
In the battle of the beverages, Pepsi and Coca-Cola have been duking it out for decades. From Atlanta to Azerbaijan, the ‘cola wars’ have been a two-player concern, where sales spelt success. Now, in the Middle East, a new contender is kicking its can into the ring and Adel Aujan, chairman of Aujan Industries, is serious when he says their soda sales are in his sights.
“Multinationals? We’re equal to them. We have the skills, the financial muscle, the creative marketing, the corporate governance,” he ticks them off on his fingers; “and on top of that we have the local knowledge.” He shrugs. “There’s no question we can compete.”
When Coke first trickled into the Middle East in 1945, Saudi-based Aujan had already been trading for four decades. Today, courtesy of its brands Rani, Vimto and Barbican; it’s the largest drinks firm in the GCC; a sprawling multimillion-dollar concern with more than 2,500 employees and roots in 26 countries. Its top moneymaking markets, Saudi, Iran and Iraq, generate some 50 percent of sales; the rest are drummed up in countries as diverse as Singapore and Zimbabwe.
“Probably about 50 percent of our sales volume comes from Rani, which has the biggest reach around the world,” Adel says. “The rest is a 25:25 split. We’re always the number one or number two [brand] in any of our markets;” he pauses to grin. “Number two, but striving to become number one.”
A seller of small pleasures, Aujan rode out the recession in style. While other Gulf firms put their tail between their legs and fled home, Aujan was muscling into new markets. The firm saw a more than 20 percent rise in revenue in 2009, and is expecting a matching hike this year.
“We’re in the one-riyal business,” says Mr Aujan. “It’s anti-cyclical. We do better in recessions than upturns. People don’t buy expensive things in a recession, but buy more of the low-priced items to compensate.”
Aujan’s century of trading hasn’t dulled its fizz. Despite sitting pretty in the Gulf’s biggest soft drinks market — Saudi’s thirsty residents guzzle down SAR10bn in beverages a year — it hasn’t lost its taste for new borders. It was one of the first to hustle for business in Iraq in 2003 in the wake of the US-led invasion, and has been up and running in Iran for nine years, unfazed by sanctions or revolutions. Aujan’s juice brand, Rani, is the Islamic republic’s bestselling beverage.
In 2008, the drinks firm nailed its target to deliver $500m in revenue twelve months ahead of its five-year schedule. Next on its game plan is churning out $1bn in sales by the end of 2012 — on paper, an easy task for a firm that has tripled its sales since 2004 and is on track to double them again by 2014.
“The trick is staying ahead of the demand,” says Adel. “That means expanding our existing plants and building new plants to keep up with supply. The challenge is to stay ahead in terms of capital, distribution and human capital.”
It’s a juggling act that falls largely to the crisply suited Kadir Gunduz, Aujan’s recently appointed president and CEO. An industry veteran, with more than two decades at Coca-Cola under his belt, the pressure for Gunduz is on. Not that he shows it. “We’re operating in a very fragmented market, from both a segment and geographic perspective,” he explains.
“The challenge is finding the right triggers for the local consumers to really keep them connected with our brands.”
Top of his list is ensuring Aujan’s supply stays a nose ahead of demand. The firm currently has three plants, in Saudi, the UAE and Iran, with a further two on the cards in the next two years. Politics permitting, one is slated for Iraq where Aujan’s drinks are pouring in at a rate of several hundred shipping containers a month, and are lapped up so fast they barely make it to the stores.
“The volume is huge,” Adel says. “The arithmetic demands a plant but [Iraq’s] got to stabilise first. As soon as it does, we’ll move on it.”
In the last few years, the firm has splashed $50m on ramping up supply at its facilities. Aujan’s $150m Iran plant is already running at capacity, less than twelve months from its launch. A $12m expansion is earmarked for the end of this year. (Before the plant opened, Adel says, the firm was shipping a huge 400 containers a month to quench its customers. “It was a logistical nightmare.”)
A whopping 60 percent of Aujan Industries’ generated profit is each year ploughed back into the business.
“We’re always in competition with the multinational brands which pushes us to be a low-cost operator without compromising on quality,” Gunduz says. “It’s good competition to have, but it helps to be first in the market. In Iraq, we’re number one. And by a long way. It’s not an easy market, but the fact we were first helps.”
Aujan is also thirsty for a gulp of the giant Indian market, where Rani is already a household name. Its in talks with a slew of local operators for a potential joint venture, all keen to leverage its brand muscle. And what about Egypt?
“What about North Africa?” Adel shoots back. “It’s not just about Egypt; it’s about the markets we can serve from there.”
Aujan is mulling the merits of a joint venture, a merger, going it alone or franchising its brands out. Either way, Adel says, a deal is in the pipeline.
But it would be a mistake to believe that Aujan’s roving eye means its domestic markets have fallen flat. With more than 200 million aged 20 or under, the Gulf’s bright young things are a soft drink brand’s sweet dream.
The Saudi market alone is set to grow by 29.48 percent by 2014, with headline sales of SAR13.22bn, and the brand battle is on for its tastebuds. Aujan is going to have to fight an army of syrupy upstarts for every drop of new business.
The firm’s first line of attack has been brash, quirky ad campaigns that leverage its local roots. In this, Aujan has an edge. Its Vimto drink has, incredibly, been pepping the market since 1928 and is the closest thing the Gulf has to a national drink. Whether you’re sixty or six, it’s a brand you know.
The purple giant has a near-monopoly in the holy month of Ramadan, when Gulf Arabs guzzle eight months’ worth of Vimto sales in eight weeks. A maverick marketing campaign in Ramadan 2007, built around the slogan “Hurry up! They’ll finish it all!” showed a world in panic at the threat of Vimto running out. In one scene, a bottle was snatched from the hand of a man on this deathbed.
“It’s our edge. We are a 100 percent regional company; 100 percent owned by regional shareholders. Our brands are all owned by us,” says Adel. “We’re not a franchise, dictated to by a multinational head office thousands of miles away.
“Our marketing decisions take minutes. If [the marketing department] says they want to spend another $2m from tomorrow… I’ll tell them yes. There’s no month of waiting for an answer.
“But the growth story isn’t over for us in the Gulf — the area has a long way to go. These are still priority markets for us.”
The battle for shelf space is further complicated by the rise of organised retail. What was a landscape of small-time ‘mom-and-pop’ stores, is now increasingly dominated by hulking hypermarkets; Geant, Carrefour, Al Azizia Panda. Some 36 percent of soft drinks in Saudi Arabia, for example, are now sold through Big Retail.
To stay in the game, says Gunduz, Ajuan has to bolster its distribution and get more efficient at hitting retailers via its truck routes. “Moving to modern trade changes everything. You’re moving from low drop sizes to bulk deliveries, and that changes everything down to your fleet configuration,” he explains.
“[Retail] consolidation comes with its own challenges. If we manage them, we reap the benefits of… much more effective and cost-effective distribution. But you need to almost redesign your route to market.”
Which brings us back to the clout of the cola twins. In Saudi Arabia, Pepsi’s core brands account for a giant 70 percent of all volume sales. The Middle East is one of the few global markets where Pepsi outstrips the Big Red growth machine, thanks to a complicated mix of pop politics that has kept Coke down. But with sales like that, is Pepsi too big to topple?
Not necessarily, no. Last year, amid skyrocketing sugar prices that brought parts of the drinks industry to its knees, Pepsi and Coke doubled the cost of their cans in Saudi Arabia, up to SAR2 ($0.50). Aujan’s canned Vimto, a direct competitor, clung on to its one riyal price tag and mopped up the fallout from belt-tightening consumers.
What this shows, argues Adel, is that by being smaller and nimbler, Aujan can nip and tuck its costings and strategies to outmanoeuver its lumbering rival.
“We saw a huge surge in sales that has continued to today,” he says. “The one riyal price point is a huge advantage. How long we can continue is a different matter, but the fact that we don’t have just one price point means we can be more flexible.”
Add to the mix its Arabic appeal, its strong foothold in the tougher Middle Eastern markets and Aujan is a contender.
“More and more you’ll see this; regional companies coming in with the same skills and financial muscle that the Pepsis, the P&Gs, the Unilevers have. They don’t have a monopoly on that. In fact, they don’t have a monopoly on anything,” Adel says. “Home-grown companies are emerging and they’re on a par.”
But Aujan is under no illusions this is a David vs Goliath tale. Scale matters. As the soft drinks market heats up, the Saudi firm will need more bulk to barter with.
“We need to build scale, negotiating power and financial muscle. Aujan needs to consider opportunities for mergers and acquisitions to drive its competitive advantage,” Adel says. “Regional companies have to develop to compete. They need to consolidate. We can’t go on like this, with everyone putting up a little factory here and a little factory there.
He pauses. “Guys, get together and start competing internationally — go out there and compete with the multinationals on their own ground.
“We are always investing in our company, our risk management, our corporate governance, our audits, because we want to be the business partner of choice. If the opportunity for a joint venture, a merger, an IPO arises, we’re ready for it.”
In 2007, Aujan put on hold a planned IPO to raise up to SAR800m ($213.3m) because of plunging market conditions. Does this mean a listing is back on the cards?
Adel smiles. “It’s timing. It’s always in the plan, but do we merge first and become a bigger company, and then take it out to the market? Difficult. Do we go right now in the next year? No. But if in two years the market improves…” he trails off.
With new markets, new mergers and multinationals in its sights, Aujan Industries is playing for the long game.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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