Thomas White Global Investing
MENA Region
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September 14, 2012
A Postcard from the Middle-East & Africa
MENA Region: Happy hour for the alcohol business?

Alcohol Bottles

Over the past ten years, liquor sales in the Middle East have shot up 72% compared to the average global rise of 30%.

Across the Middle East, a heady new trend is brewing, though you may not find many raising a toast in acknowledgement.

Statistics indicate a surprising but clear spike in alcohol consumption in the Muslim-dominated region. Between 2001 and 2011, liquor sales there shot up 72%, according to London-based market research company IWSR. This is an astonishing surge, considering that the average global rise during the same period was 30%.

Sample these figures: In Abu Dhabi, liquor sales are growing 28% a year, according to the Financial Times (FT). An increase in alcohol purchases has also been noted in Qatar and Lebanon, not to mention ‘party central’ Dubai, which has comfortably returned to its pre-recession annual sales growth of 26%. Sales at the Dubai Airport alone, reports FT, touched a record $1.4 billion in 2010.

Islam advises against the consumption of alcohol. Yet, why is it happy hour for the industry in the Middle East and North Africa (MENA) region? The reasons are complex and many.

Drinking in MENA countries like Iran, Libya, and Saudi Arabia is punishable by law, but this has never prevented people there from having a tipple, albeit secretly. Libya has a thriving black market for spirits, Iran is well known for its home-brewed liquor, and though Saudi Arabia’s punishment for drinking is public lashing, industry observers estimate that more than half of the liquor bottles the Middle East imports end up being smuggled into Saudi Arabia. In fact, a bottle of whiskey can be sold for as much as $150 in the country – such is the demand.

That alcohol is quite popular in the region has been an open secret for some years now. But no one is willing to talk about it. Even in countries such as Egypt, Lebanon, and Turkey where drinking is legal, people take a swig behind closed doors or do so only in ‘posh’ hotels due to socio-cultural compulsions.

Nevertheless, analysts believe the spurt in alcohol consumption in the MENA region is largely a result of swelling tourism, especially the influx of business travelers, with the opening up of Middle-Eastern economies. A large community of expatriates and a rising population of youngsters is another reason for the alcohol industry’s jolly outlook in the region. But The Economist argues that the trend cannot be attributed to “non-Muslims and tourists alone.” The newspaper contends that though only about 5% of Muslims in the region publicly admit to drinking, alcohol is the new status symbol for many locals. Imported liquor is used to impress guests in many Gulf countries, and in Beirut, people do not hesitate to brag about the quality of their local wines.

Unsurprisingly, major alcohol producers, such as the European companies Heineken and Diageo, are making spirited attempts to penetrate these new markets, which have little competition besides a growing pool of consumers. From sponsoring prestigious sports events to targeting the rich and famous, the firms are employing every trick in the book to rake in the profits. For instance, Dubai, seen by many as the most liberal city in the region, has a Diageo spirits and champagne sampling area in its airport. A similar outlet at the Qatar airport is in the offing. Heineken, on the other hand, has been reaching out to consumers through grand sports sponsorships.

These alcohol producers have also been successful in enhancing ‘brand recall’ among consumers by introducing non-alcoholic alternatives, which have become popular among the youth. No wonder Diageo expects its sales to easily double in the MENA region over the next five years. In fact, it is likely that for these European companies, profits from sales in the Middle East have made up for any losses they might have suffered in recession-hit Europe.

Nonetheless, as a region where alcohol is largely considered taboo, the Middle East still has a long way to go before it becomes a significant market for alcoholic beverages. To put this into perspective, the annual per capita consumption of alcohol in a small country like Hungary is 16.27 liters while the comparable figure in Egypt is merely 0.37 liters.

Indeed, multi-national alcoholic beverage firms may have seen some success in the region lately, but it is best to keep the bubbly on ice, for now.

 

Image Credit: Bella_189 on Flickr under a Creative Commons License

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