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Local brands like Cola Next and V7 see surge in demand

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Boycotts driven by politics, history and U.S. support for

Israel

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Coke and Pepsi invest in local markets despite setbacks

By Ariba Shahid, Jessica DiNapoli and Farah Saafan

KARACHI/CAIRO/NEW YORK, Sept 4 (Reuters) - Coca-Cola

and rival PepsiCo ( PEP ) spent hundreds of millions of

dollars over decades building demand for their soft drinks in

Muslim-majority countries including Egypt to Pakistan.

Now, both face a challenge from local sodas in those countries

due to consumer boycotts that target the globe-straddling brands

as symbols of America, and by extension Israel, at a time of war

in Gaza.

In Egypt, sales of Coke have cratered this year, while local

brand V7 exported three times as many bottles of its own cola in

the Middle East and the wider region than last year. In

Bangladesh, an outcry forced Coca-Cola to cancel an ad campaign

against the boycott. And across the Middle East, Pepsi's rapid

growth evaporated after the Gaza war started in October.

Pakistani corporate executive Sunbal Hassan kept Coke and

Pepsi off her wedding menu in Karachi in April. She said she

didn't want to feel her money had reached the tax coffers of the

United States, Israel's staunchest ally.

"With the boycott, one can play a part by not contributing

to those funds," Hassan said. Instead, she served her wedding

guests Pakistani brand Cola Next.

She is not alone. While market analysts say it is hard to

put a dollar figure on lost sales and PepsiCo ( PEP ) and Coca-Cola

still have growing businesses in several countries in the Middle

East, Western beverage brands suffered a 7% sales decline in the

first half of the year across the region, market researcher

NielsenIQ says.

In Pakistan, Krave Mart, a leading delivery app, has seen

local cola rivals like Cola Next and Pakola soar in popularity

to become 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 Pakola, which is ice-cream soda flavored, made

up most of the purchases before the boycott. He declined to

provide figures for Coca-Cola and PepsiCo ( PEP ) sales.

Consumer boycotts date back at least as far as an 18th

century anti-slavery sugar protest in Britain. The strategy was

used in the 20th century to fight apartheid in South Africa and

has been widely wielded against Israel through the Boycott,

Divestment and Sanctions movement.

Many consumers shunning Coca-Cola and PepsiCo ( PEP ) cite U.S.

support of Israel over decades, including in the current,

ongoing war with Hamas.

"Some consumers are deciding to make different options in their

purchases because of the political perception," PepsiCo ( PEP ) CEO

Ramon Laguarta told Reuters in a July 11 interview, adding that

boycotts are "impacting those particular geographies" such as

Lebanon, Pakistan and Egypt.

"We will manage through it over time," he said. "It's not

meaningful to our top line and bottom line at this point."

PepsiCo's ( PEP ) total revenue from its Africa, Middle East and

South Asia division was $6 billion in 2023, earnings releases

show. The same year, Coca-Cola's revenue from its Europe, Middle

East and Africa region was $8 billion, company filings show.

In the six months following the Oct. 7 Hamas attacks on

Israel that triggered the invasion of Gaza, PepsiCo ( PEP ) beverage

volumes in the Africa, Middle East and South Asia division

barely grew, after notching up 8% and 15% growth in the same

quarters of 2022/23, the company said.

Volumes 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 ( CCHBF ), which bottles there. In the

same period last year, volumes rose in high single digits.

Coca-Cola has said it does not fund military operations in

Israel or any country. In response to a Reuters request, PepsiCo ( PEP )

said neither the company "nor any of our brands are affiliated

with any government or military in the conflict."

Palestinian-American businessman Zahi Khouri founded

Ramallah-based Coca-Cola bottler National Beverage Company,

which sells Coke in the West Bank. The company's $25 million

plant in Gaza, opened in 2016, has been destroyed in the war, he

said. Employees were unharmed, he said.

Khouri said boycotts were a matter of personal choice but

didn't really help Palestinians. In the West Bank itself, he

said, they had limited sales impact.

"Only ending the occupation would help the situation," said

Khouri, who supports the creation of a Palestinian state

alongside Israel.

Israel's government did not respond to a request for

comment.

HISTORICAL TARGETS

The big soda companies are no stranger to pressure among the

Muslim world's hundreds of millions of consumers. After Coke

opened a factory in Israel in the 1960s, it was hit by 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 ( PEP ), which entered Israel in the early 1990s, itself

faced boycotts when it purchased Israel's SodaStream for $3.2

billion in 2018.

In recent years though, Muslim-majority countries with

young, rising populations have provided some of the soda giants'

fastest growth. In Pakistan alone, Coca-Cola says it has

invested $1 billion since 2008, yielding years of double-digit

sales growth. PepsiCo ( PEP ) had similar gains, according to securities

filings.

Now, both are losing ground to local brands.

Cola Next, which is cheaper than Coke and Pepsi, changed its

ad slogan in March to "Because Cola Next is Pakistani,"

emphasizing its local roots.

Cola Next's factories cannot meet the surge in demand, Mian

Zulfiqar Ahmed, the CEO of the brand's parent company, Mezan

Beverages, said in an interview. He declined to share volume

figures.

Restaurants, Karachi's private schools association and

university students have all taken part in anti-Coca-Cola

actions, eroding goodwill built through 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 left the company after 28 years

in 2020, said V7 was now sold in 21 countries.

Sales in Egypt, where the product has only been available

since July 2023, were up 40%, Nour said.

Paul Musgrave, an associate professor of government at

Georgetown University in Qatar, warned of long-term damage to

consumer loyalty due to boycotts.

"If you break habits, it's going to be harder to win you back in

the long run," he said, without giving an estimate of the

financial cost to the companies.

BANGLADESH BACKFIRE

In Bangladesh, Coke launched advertising showing a

shopkeeper talking about the company's operations in Palestine.

After a public outcry over perceived insensitivity, Coke

pulled the ad in June and apologized. In response to a question

from Reuters, the company said the campaign "missed the mark."

The ad 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 ( MCD ) and Starbucks ( SBUX ), 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

protests have been more visible against the widely-available

sodas.

As well as boycotts, inflation and economic turmoil in

Pakistan, Egypt and Bangladesh eroded consumers' buying power

even before the war, making cheaper local brands more appealing.

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's fell to 10.4% from 10.8%.

FUTURE PLANS

Coca-Cola and its bottlers, and PepsiCo ( PEP ), still see the

countries as important areas for growth, particularly as Western

markets slow down.

Despite the boycotts, Coke invested another $22 million

upgrading technology in Pakistan in April, it said in a press

release at the time.

Coca-Cola's bottler in Pakistan said to investors in May

that it remained "positive about the opportunity" the world's

fifth most-populous country offers, and that it invested in the

market with a long-term commitment.

In recent weeks, PepsiCo ( PEP ) reintroduced a brand called Teem

soda, traditionally lemon-lime flavored, in Pakistani market, a

spokesperson confirmed. The product is now available in a cola

flavor with "Made in Pakistan" printed prominently on the label.

The companies are also still injecting the Coke and Pepsi

brands into the fabric of local communities by sponsoring

charities, musicians and cricket teams.

Those moves are key to Coke and Pepsi keeping a toehold in

the countries long-term even as they face setbacks now,

Georgetown's Musgrave said.

"Anything you can do to make yourself an ally or presence, a

part of a community," helps, he said.