Dubai: Despite recent decreases in the cost of sugar, one local soft drinks manufacturer says the commodity is still expensive enough to justify last year's 50 per cent price increase.
Dubai Refreshments, which is also the sole distributor of PepsiCo products across the UAE except in the emirate of Abu Dhabi, more than doubled its net profits last year after raising the price of a can of Pepsi from Dh1 to Dh1.50 in January 2010.
Tarek Al Sakka, general manager of Dubai Refreshments, believes current spot sugar prices are misleading in terms of their impact on company balance sheets. Analysts are predicting that sugar supplies are set to vastly outpace demand this year.
Price doubled
"We do not buy at spot prices; we do not play the market. We buy sugar all year round and the average price has more than doubled in the last three years," Al Sakka said.
"We are in a different situation from speculators in that we are buying large quantities every day. The price of sugar historically was $300 (Dh1,100) per tonne but today we are paying around $600 per tonne. At one point prices spiked to $800 per tonne before coming back down slightly," he added.
In January 2011, the Ministry of Economy announced that soft drink prices were to rise 50 per cent. As a result, Dubai Refreshments Company increased the price of a can of Pepsi from Dh1 to Dh1.50 citing the rising cost of commodities such as tin, sugar and plastic. Coca-Cola also raised the price of its products in the UAE for the first time in more than 20 years,
Al Takka says the price increase led to a contraction in the company's local business, which was offset by an increase in exports. The company made a full-year net profit of Dh132.1 million for 2011, up from Dh64.7 million in 2010. Sales revenue stood at Dh986.9 million against Dh779.2 million in the year-before period.
"It was a large increase and we tried to delay it as much as we could; we eventually put the price up one year after everyone else in the GCC. In the end, we had to because of the sugar and metal markets. The increase improved our margins but we lost some volumes," Al Takka said.
Market contraction
"Our market share has stayed more or less stable but the total market contracted. Certain segments were more impacted than others while some sectors continued to grow including hotels and tourism," he said.
"Most of our funds are allocated to strategic investments including our new factory in Dubai Investments Park. We have appointed a contractor for the new facility and mobilisation work has begun; we expect it will be completed in around 12-14 months."
