Will food policies flatten the Saudi soft drinks market

The Saudi soft drinks market has witnessed significant growth in the past spurned on by several key factors. Saudi Arabia’s prohibition on alcoholic drinks has removed the sector’s main competitor. The year-round hot climate in the country makes soft drinks appealing to consumers, and a growing population of young people has buoyed the market. However, this rapid growth has slowed in the past decade, with increased regulation stifling the beverage industry and creating uncertainty in the market.

Regulation on the soft drinks industry can be traced back to 2014, when food policies were implemented that prohibited advertising and established new labelling guidelines for sugary drinks. The Saudi government would go on to impose a “sin tax” on sugary products – including a 50% excise tax on soft-drink and sweetened beverages, and a 100% tax on energy drinks. In 2022, the Saudi government announced a Kingdom-wide ban on soft drinks in schools.

Although sales volumes have managed to sustain an upward trajectory post-regulation, the speed of growth has significantly waned. Increased tax rates have spearheaded the decline in annual growth.  Notably, the sin tax resulted in a surprising 57% decline in sales growth within its first year.

The latest food policies aimed at the soft drinks market are examples of the Saudi government’s long-term goal to improve health standards. The reduction of sugar consumption has been identified as a primary target by the ongoing Saudi Health Transformation Programme, which looks to clamp down on unhealthy habits.

In line with the rising health and wellness trends, a growing number of soft drinks producers are continuing to develop their portfolios to include healthier variants, such as sugar-free beverages, lower-calorie drinks, natural ingredients, and organic alternatives. These products may become essential for market growth as conventional soft drinks are phased out.

Navigating food policies and regulations is critical for most food and agribusinesses as they seek to maintain legal compliance, satisfy customers, and grow their brands. The ever-changing regulatory landscape can present serious challenges to those in the food and beverage industry.

As governments continually introduce new food policies and regulations there is an increasing need for businesses to implement region-specific food and beverage strategies that help clients identify and leverage market trends, improve product quality, drive process efficiency, and identify areas for investment.

At Farrelly & Mitchell, our food and beverage consultants provide tailored services that support your strategic goals and add value to each step of your product development process as you look to develop new products, differentiate your offerings, improve operational efficiency, drive growth, and offset competition.