By Ariba Shahid, Jessica DiNapoli and Farah Saafan
KARACHI / CAIRO / NEW YORK (Reuters) – Coca-Cola and rival PepsiCo have spent hundreds of millions of dollars over decades to build demand for soft drinks in Muslim-majority countries ranging from Egypt to Pakistan.
Now, both sides face challenges from local sodas in the country due to consumer boycotts aimed at brands straddling the globe as symbols of America, and by extension Israel, during the war in Gaza.
In Egypt, Coke sales have cratered this year, while local brand V7 is exporting three times its own cola bottles to the Middle East and other regions than last year. In Bangladesh, protests forced Coca-Cola to cancel an advertising campaign against the boycott. And in the Middle East, Pepsi’s rapid growth evaporated after the Gaza war began in October.
Pakistani company executive Sunbal Hassan kept Coke and Pepsi off the wedding menu in Karachi in April. He said he did not want to feel that his money had reached the tax coffers of the United States, Israel’s staunchest ally.
“With the boycott, one can be a part of it by not donating the funds,” Hassan said. Instead, they served their wedding guests Pakistani brand Cola Next.
He is not alone. While market analysts say it is difficult to put a dollar figure on lost sales and PepsiCo and Coca-Cola are still growing business in some countries in the Middle East, Western beverage brands experienced a 7% sales decline in the first half of this year. region, market researcher NielsenIQ said.
In Pakistan, Krave Mart, a leading delivery app, has seen local cola rivals like Cola Next and Pakola rise in popularity to about 12% of the soft drinks category, founder Kassim Shroff told Reuters this month. Before the boycott, the figure was closer to 2.5%.
Shroff said that Pakola, which is an ice cream soda flavor, was the most bought before the boycott. He declined to provide figures for sales of Coca-Cola and PepsiCo.
Consumer boycotts date at least as far as the 18th century anti-slavery sugar protests in England. The strategy was used in the 20th century to fight apartheid in South Africa and has been widely used against Israel through the Boycott, Divestment and Sanctions movement.
Many consumers shunned Coca-Cola and PepsiCo citing decades of U.S. support for Israel, including in its current war with Hamas.
“Some consumers decided to make different choices in their purchases because of political perceptions,” PepsiCo CEO Ramon Laguarta told Reuters in a July 11 interview, adding that the boycott “affects certain geographies” such as Lebanon, Pakistan and Egypt.
“We will manage it over time,” he said. “It doesn’t make sense for the top line and the bottom line at this point.”
PepsiCo’s total revenue from its Africa, Middle East and South Asia division will reach $6 billion by 2023, the earnings release showed. In the same year, Coca-Cola’s revenue from the Europe, Middle East and Africa region was $8 billion, according to company filings.
In the six months after the October 7 attack by Hamas in Israel that triggered the invasion of Gaza, the volume of PepsiCo’s beverages in the Africa, Middle East and South Asia division barely grew, after notching up 8% and 15% growth in the same quarter of 2022/23, the company said.
The volume of Coke sold in Egypt declined by double-digit percentage points in the six months ended June 28, according to data from Coca-Cola HBC, which bottles there. In the same period last year, the volume increased at a single digit high.
In response to a Reuters request, PepsiCo said the company “nor our brand has any ties to the government or military in the conflict.” Coca-Cola says it does not finance military operations in Israel or any other country.
Palestinian-American businessman Zahi Khouri founded the Ramallah-based Coca-Cola National Beverage Company, which sells Coke in the West Bank. The company’s $25 million factory in Gaza, opened in 2016, has been destroyed in the war, he said. The employee was not injured, he said.
Khouri said the boycott is a personal choice but does not help the Palestinians. On the West Coast itself, he said, he had limited sales influence.
“Only ending the occupation will help the situation,” said Khouri, who supports the creation of a Palestinian state alongside Israel.
The Israeli government did not respond to a request for comment.
HISTORICAL OBJECTIVES
Big soda companies are no strangers to pressure among hundreds of millions of consumers in the Muslim world. After Coke opened a factory in Israel in the 1960s, there was an Arab League boycott that lasted until the early 1990s and benefited Pepsi for years in the Middle East.
Coke still lags Pepsi’s market share in Egypt and Pakistan, according to market research firm GlobalData.
PepsiCo, which entered Israel in the early 1990s, itself faced a boycott when it bought Israel’s SodaStream for $3.2 billion in 2018.
In recent years, Muslim-majority countries with growing young populations have provided some of the soda giant’s fastest growth. In Pakistan alone, Coca-Cola says it has invested $1 billion since 2008, resulting in double-year sales growth. PepsiCo has similar profits, according to a securities filing.
Currently, both are losing out to local brands.
Cola Next, which is cheaper than Coke and Pepsi, changed its advertising slogan in March to “Because Cola Next is Pakistani,” emphasizing its local roots.
The Cola Next factory cannot meet the increase in demand, Mian Zulfiqar Ahmed, CEO of the brand’s parent company, Mezan Beverages, said in an interview. He declined to share volume figures.
Restaurants, Karachi’s private school association and university students have all joined the anti-Coca-Cola action, undermining the goodwill built up through its sponsorship of Coke Studio, a popular music show in Pakistan.
Exports of Egyptian cola V7 have tripled this year compared to 2023, founder Mohamed Nour said in an interview. Nour, a former Coca-Cola executive who is leaving the company after 28 years in 2020, said the V7 is now sold in 21 countries.
Sales in Egypt, where the product will only be available from July 2023, increased by 40%, Nour said.
Paul Musgrave, associate professor of government at Georgetown University in Qatar, warned of long-term damage to consumer loyalty from the boycott.
“If you break a habit, it will be harder to win back in the long run,” he said, without giving an estimate of the financial cost to the company.
BANGLADESH BACKFIRE
In Bangladesh, Coke launched an advertisement showing a shopkeeper talking about the company’s operations in Palestine.
After public outcry over its insensitivity, Coke pulled the ad in June and apologized. In response to questions from Reuters, the company said the campaign “missed the mark.”
The ads made the boycott worse, said one Bangladeshi advertising executive, who declined to be named because he was not authorized to speak to the media.
Other American brands seen as symbols of Western culture, such as McDonalds and Starbucks, also face anti-Israel boycotts.
Market share for global brands fell 4% in the first half of 2024 in the Middle East, according to NielsenIQ. But the protest seems to be more against available soda.
Also boycotts, inflation and economic unrest in Pakistan, Egypt and Bangladesh eroded consumer purchasing power even before the war, making cheaper local brands more attractive.
Last year, Coke’s market share in the consumer sector in Pakistan fell to 5.7% from 6.3% in 2022, according to GlobalData, while Pepsi fell to 10.4% from 10.8%.
FUTURE PLANS
Coca-Cola and the bottler, and PepsiCo, still see the country as an important area for growth, especially as the Western market slows down.
Despite the boycott, Coke invested another $22 million in technology upgrades in Pakistan in April, said in a press release at the time.
The Coca-Cola bottler in Pakistan spoke to investors in May who remain “positive about the opportunities” offered by the fifth most populous country in the world, and who invest in the market with a long-term commitment.
In the past few weeks, PepsiCo re-introduced a brand called Teem soda, with a traditional lemon-lime flavor, in the Pakistani market, a spokesperson confirmed. The product is now available in cola flavor with “Made in Pakistan” clearly printed on the label.
The company also still injects its Coke and Pepsi brands into the fabric of local communities by sponsoring charities, musicians and cricket teams.
The move is key for Coke and Pepsi to stay in those countries long-term despite the current downturn, Georgetown’s Musgrave said.
“Anything you can do to create an ally or a presence, be a part of the community,” he said.
(Reporting by Ariba Shahid in Karachi, Jessica DiNapoli in New York, Farah Saafan in Cairo; Additional reporting by Mohamed Ezz in Cairo, Ali Sawafta in Ramallah, Steven Scheer in Jerusalem and Ananya Mariam Rajesh in Bengaluru; Writing by Jessica DiNapoli; editing by Vanessa O’Connell and Frank Jack Daniel)
