Saudi Arabia smacks energy drinks with new fines

03-May-2016 - Last updated on 04-May-2016 at 08:33 GMT

'In Saudi Arabia they have huge restrictions on energy drinks – in summary, you can do nothing – you can’t do tastings, advertising, sponsorship, nothing,' says one brand in the region. © iStock.com / lowkick

Saudi Arabia has announced further restrictions on energy drinks, with fines to be levied against outlets serving the beverages, but the impact will be minimal, according to Euromonitor.

The kingdom revealed plans to fine or charge “fees” to restaurants and outlets serving energy drinks last month, with local media reporting the Ministry of Commerce and Industry would implement the new rules at the request of the Ministry of Health.

In a separate move last month, the Ministry of Health banned the sale of all soft drinks, sweets and junk food at government hospitals.

No surprises

These latest restrictions on energy drinks follow a ban on the marketing or promotion of the drinks in Saudi Arabia, spurred by the deaths of a number of people, purportedly from over-consumption of the beverages.

But according to Fatemah Sherif, senior analyst at Euromonitor International, the new rules did not come as a surprise.

“This move was expected, especially since the advertising bans implemented already since 2012 on major players such as Red Bull. The government is looking to take on stricter measures following their initiatives to continue promoting healthier consumption of drinks in the country,” said Sherif.

She added that the fines would only affect a small segment of the market: “Food-service sales make up 3% in value terms in 2015 of the total energy drinks market of US$453m, while off-trade represents 97%.

"While food-service according to Euromonitor International does not include institutional sales. Hence the impact is expected to be minor, as the majority of the market’s consumption is through off-trade.”

Along with the marketing ban and the new fines, Saudi Arabia announced further plans to crack down on energy drinks, as part of its new economic plan to move away from an oil-based economy.

Among other measures, the Saudi government said it planned to levy taxes on energy drinks, as well as other soft drinks – although it did not reveal any details of the taxes.

Saudi still valuable

Despite the Saudi government’s overt hostility to energy drinks, the kingdom remains a key market for producers in the region, being the largest economy in the GCC.

Mohammed Awada, managing partner of Dubai-based FoodCo, producer of Moto energy drink, which had its mainstream launch at Gulfood this year, said it was a major challenge to enter the Saudi market.

“In Saudi Arabia they have huge restrictions on energy drinks – in summary, you can do nothing – you can’t do tastings, advertising, sponsorship, nothing.

"But you can use social media. You can still sell it, but it’s very difficult to enter the market – you have to have a committee of a thousand people or something before they give you the licence. So it’s a challenging market,” said Awada.

Despite this, he said Moto would be for sale in Saudi Arabia, with both its original formula and a “health” version containing vitamins and minerals.

Euromonitor’s Sherif said that even with the restrictions, the Saudi market would remain fast-growing.

“Over the last five years the energy drinks market has grown by 11% value CAGR following the strong youth population, and perception of energy drinks as a substitute to alcohol due to the high caffeine content.

"This category is expected to grow by 9% value CAGR over the forecast period of 2015-2020, growing from a low base as well as due to the continued bans and limited distribution that is expected over the next five years.”