After Iraq, Cola Wars Heat Up


A year ago, Tawfiq Mathlouti, a Tunisian-born French businessman, called the Zam-Zam Cola offices in Tehran, Iran, wanting to represent the alternative Iranian soft drink in France. The Zam-Zam brand had become an emblem for the antiglobalization movement in the Middle East, and Mathlouti hoped to export Zam-Zam's image and make drinking it a political statement in France, too. Zam-Zam Cola turned him down.

That only motivated Mathlouti to create his own Paris-based company, dubbed Mecca Cola. With $27,400 (25,000 euros) in his pocket and a cola recipe he found on the Internet, Mathlouti coined this slogan: Don't drink stupid, drink with commitment." It's meant as a slam against industry giants Coca-Cola (KO) and Pepsi (PEP), which dominate the European market. Coke alone sells 4 billion cases annually in Europe and the Middle East. Combined, Pepsi and Coca-Cola own 60% of the Western European soft-drink market, and 90% of the market in the Middle East and North Africa.

"TRANSFERRING WEALTH." Despite the quick U.S. victory in Iraq, anti-American sentiment still runs high in the Arab world. And Mathlouti isn't the only entrepreneur hoping that a surge in decades-long disaffection with the U.S. will turn business away from American multinationals to the benefit of their own startups. Says Abdul Hamid Ibrahim, spokesman for Qibla Cola, another so-called ethical cola company: "We're similar in our philosophy [to Mecca-Cola]: It's a choice of transferring wealth." Muslim Up is another recent startup that offers a cola alternative.

Mecca-Cola doesn't intend to just sell soft drinks. In a marketing twist, it promises to give 20% of its net profits to charities. Half of that will go to Palestinian nongovernmental organizations and the other half to European charities. But U.S. Attorney General John Ashcroft and Homeland Security Secretary Tom Ridge needn't worry. This recipient list is transparent, the company swears, and European governments haven't raised any alarms about these charities fronting terrorist groups.

So far, Mathlouti is doing pretty well. In the first four months, Mecca Cola sold 4 million of its Coca-Cola look-alike 1.5-liter bottles, and an additional 14 million are on order.

SWEDEN TO TURKEY. The "buy Muslim" alternative started in 1954 with the creation of Zam-Zam Cola but was truly established only when the Islamic government in Iran banned Pepsi in 1979. These days, Zam-Zam is on store shelves throughout the Middle East. These latest entrepreneurs hope to tap the same solidarity in local Muslim communities across Europe as well as throughout the Middle East.

Qibla Cola was launched in Britain only in February. The name is an Arabic word for the direction in which Muslims pray -- facing toward Kaaba, the house of Allah, in Mecca. In its first month, it produced 500,000 bottles and estimates that monthly demand will be 1 million bottles in Britain alone. Qibla's red and white bottles are being introduced in Scandinavia, with Turkey, Pakistan, and Egypt next.

Qibla plans to use profits from those markets to help such associations as Islamic Aid, a member of Britain's Charities Commission, a government body. Mecca-Cola has respected its promise to donate to charity by paying for the hospitalization of a Palestinian journalist last month.

BETTER IMAGE. Muslim Up was created in late February, just behind Qibla, by three Frenchman who play up their Tunisian origins to give a better, more successful image of the Muslim community of France. Already, some 500,000 bottles have been produced. The soft drink is made in France and exported to Britain, Germany, Belgium, and Italy, but the founders hope eventually to produce Muslim Up in the Middle East.

Should Coca-Cola and Pepsi worry? Not in the minds of most analysts. The upstarts' potential sales growth is limited because they haven't gained space on the big supermarket chains' shelves because their directors are afraid of provoking discord between the Muslim and non-Muslim communities. And Europeans are notoriously reluctant to take part in product boycotts, so ethical cola is primarily sold in mom-and-pop stores in mostly immigrant neighborhoods.

Besides, Mecca-Cola and the upstarts are too small to put much of a dent in the American multinationals' profits. "In the short term, these products will make a killing," declares Philippe Kaas, retail analyst at Paris-based OC&C Consultants. "But then you come back to the basics of success, which will make them fall flat on their face."

QUESTION OF TASTE. Indeed, once the excitement of political clash fizzles away, consumers probably will buy the colas that taste best -- a competition Coca-Cola and Pepsi are likely to win. Though the ethical colas cost as much as the big brands, they don't do well in taste matchups. In a blind test by London's Guardian newspaper, Pepsi got the best score -- a 6, while Coke rated a 5. Qibla Cola came in last with a 1. People complained that it wasn't sweet enough and had a "metallic" taste.

In any case, Leon Stelmach of British consulting firm Canadean speculates that "if the market gets too big, a company like Coke will buy them up, just as it happened in India with Thumbs Up," an imitator now owned by Coke that's still sold in India.

Kaas doesn't see the new companies making it that far, however. "There are so many skills embedded in the multinational corporations, while the others are built on weak [foundations]," he says. Without the expertise of cola recipes and the time to develop sound marketing strategies, he adds, these companies are standing on publicity alone, not on viable entrepreneurship skills.

While ethical colas might soon see their sales lose some fizz, for now they're making a splash. By Nassim Majidi and Christina Passariello in Paris


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