With alcoholic drinks prohibited under Islamic law, beer sales in the Saudi Arabian market are totally reliant on the non alcoholic beer category. The COVID-19 crisis led to a marked decline in non alcoholic beer sales in 2020.
The Saudi Arabian Government implemented a 15% VAT on all goods and services from 1 July 2020, up from the 5% that was initially implemented in January 2018. The decision to increase VAT was motivated by the need to shore up the country’s economy, which had been hit by the effects of low oil prices as well as measures introduced domestically to limit the spread of COVID-19.
Carlsberg A/S remains the dominant player in non alcoholic beer, the sole beer category in the Saudi Arabian market. The company’s pre-eminent position in the market can be attributed almost entirely to the enduring consumer appetite for its two very well-known brands, Moussy and Holsten, which hold the first and third largest volume shares in non alcoholic beer.
Pricing will be a key challenge for companies looking to drive recovery in non alcoholic beer in Saudi Arabia during the forecast period. The significant increase in VAT of July 2020 was introduced at a time when consumers’ confidence and spending power were being impacted by the considerable economic effects of measures introduced to curb the spread of COVID-19.
Many Saudi Arabian consumers returned to foodservice outlets soon after lockdown restrictions were lifted in the country and, in part, returned to normal dining out habits, supporting on-trade sales of non alcoholic beer. Nonetheless, concerns about exposure to the COVID-19 virus in public settings and the significant economic impact of measures introduced to limit the spread of COVID-19, as well as the hike in VAT, are likely to continue to deter many consumers from visiting foodservice outlets in the early part of the forecast period.
Carlsberg’s dominant position may not be the defining feature of the competitive environment in alcoholic drinks in Saudi Arabia much longer. The sheer size of the country’s population and the first signs of cultural openness seen before the COVID-19 pandemic, allowing for regular parties and celebrations involving large numbers of people enjoying music in mixed company, raise the likelihood that new brands will be tempted to enter the market.
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