Sparkling future for Iranian soft drinks, if economy holds

By Eliot Beer

- Last updated on GMT

© iStock
© iStock

Related tags: Soft drink, Money

After several years of hardship the Iranian soft drink sector is heading back towards stronger growth – but remains under threat from economic uncertainty, according to a Euromonitor report.

Iranian consumers bought around 4.9 billion litres of soft drinks in 2015, with consumption set to rise to 7.1 billion litres by 2020, according to Euromonitor. The firm estimates compound annual growth between 2010 and 2015 at 4%, and says it will rise to 8% between 2015 and 2020.

Cheaper choices sought

But while the market has seen continuous growth, the 2012 financial crisis in Iran sparked a major shift in soft drink consumption, with consumers turning to cheaper alternatives and manufacturers cutting costs. According to Fatemah Sherif, senior analyst at Euromonitor, many producers cut the juice content of their beverages, while many consumers switched to concentrates, boosting growth rates in cheaper drink categories.

In contrast, expensive categories like not-from-concentrate juices recorded a significant decline in demand due to the issue of purchasing power. However, some other key factors continued to fuel growth among them low base of most categories and strong potential of the on-trade sales growth were very important​,” said Sherif.

She noted the Iranian soft drink market has gone through three key phases in recent years. “We witnessed significant growth due to low base of categories, young population and relatively high spending between 2008-2012. Wide range of new launches with general trend of more expensive products with numerous added values (like higher content of juice) can be considered as examples.

The second phase started from 2012-2015 in which consumers suddenly faced a decline in purchasing power. In response to this new situation, manufacturers put strategic focus on value-for-money products, and premium expensive products lost their popularity. The third phase started from 2015 when the general economic situation started to improve again​,” Sherif added.

Health trends to come

She said the expectation is that loosening sanctions will result in falling inflation and increased consumer purchasing power, boosting the soft drink market. But Sherif noted this may also result in a shift away from cheaper categories.

As consumers are becoming relieved from budget deficiency they will become more interested in other concerns like health and wellness which will make them ready to pay for more sophisticated or expensive items which can address these needs​,” she said, suggesting free-from 100% juice drinks and free-from nectars are likely to do well, while low-calorie carbonates will see more imports.

But Sherif said if economic indicators do not improve, the Iranian market could see very little in the way of new launches, poor performance for premium drinks categories and carbonates, and only very low levels of growth for juices and bottled water.

She said a lot depends on the state of international business relations. “American and European banks are still wary about working with Iranian institutions and individuals. However with the SWIFT system back in place, things should get better if Iran’s relations remain the same and improve between them and the US​.”

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