The fmcg (fast-moving consumer goods) industry is mainly made up relatively low value and high volume food, drink, toiletries, over-the-counter drugs and other consumables. Within that, the beverage sector plays a big part, particularly in our climate. The industry constitutes a mix of carbonated and non-carbonated ready-to-drink sodas, juices, nutritional and sports drinks, water, tea, coffee and dairy products.
The industry is alive and kicking in this region with a number of manufacturers producing for local and export use. It is an industry that requires high levels of investment and perpetual innovation in order to stay relevant in a changing marketplace. New technologies, regulations and changing dietary preferences, are a constant source of change in the industry.
Dubai Refreshments is one of the oldest companies in the UAE. Formed in 1959, it secured a licence to manufacture, bottle and distribute all PepsiCo products in the northern Emirates. With 2017 sales of AED1b and 1,100 employees, it produces three out of the top four beverages in the region, such as Mountain Dew, Pepsi and 7Up. Other brands in the portfolio include Lipton Iced Tea and Aquafina Water.
A publicly quoted company on the DFM and led by CEO Tarek El Sakka since 2008, it has invested AED650m in a new facility in Dubai Investment Park. “We will be one of the leading private sector companies in the region in solar power generation. We are currently installing over 11,000 solar panels on 50,000 square meters of roof, to produce up to 40% of our energy consumption needs.
On my recent visit, I was particularly impressed to see this state-of-the-art facility that has an excellent environmental policy, where waste water for example is re-used for irrigating their own gardens and truck-wash.
The Business Model
Its customer base is made up of small independent stores, supermarkets of all sizes, convenience and gas stores, hotels, airlines and fast-food restaurants. “To service such a wide array of customer types puts pressure on our production capabilities. We need to have an extensive range of pack sizes in all of our products, and our supply chain has to cater for small and large deliveries. However, customer service is our priority and we have adapted well over the last 60 years” said Tarek. “New excise duties, VAT and geo-political challenges have obviously had an impact lately, but we are proud of our new facility and we invested in it for the long term” he added.
As a licensed partner of PepsiCo, Dubai Refreshments imports the concentrate directly from PepsiCo. It is a secret formula that is imported from PepsiCo’s concentrate manufacturing facility in Ireland. It and the other PepsiCo products are then processed here locally in a strict blending process, in the new facility in Dubai. The company appears to me to have a very strong customer focus. The team has given great consideration to all touch-points in the customer journey, from placing orders and all the way through the supply chain.
The Business Challenge
Because the world around us is changing at an exponential rate, so too are our suppliers, competitors, our own employees and our customers. Globalisation makes it easier for your customers to explore other options to yours and the barriers to entry for new competitors are coming down all the time. And for many of us, technology enables our competitors and new entrants to take big leaps at lower cost than in the past.
In the FMCG world, margins are under pressure and retailers are constantly exploring ways to reduce cost and maximize margin. That might be with new pack sizes, improved inventory management and changes to supply-chain. Consequently, the choice for organisations like Dubai Refreshments is to disrupt, or wait to be disrupted. It is through innovation that it will continue to compete and be relevant.
What would the world be like if the great innovators never existed? Imagine if Thomas Edison’s light bulb never glowed, or if Alexander Graham Bell’s telephone didn’t ring. If Charles Babbage, the inventor of the first computer went in a different direction, what would Steve Jobs have done? But it’s not just technology that has benefitted from innovation. We have also benefitted from innovation in processes, systems, packaging, culture, business models, routes to market, and more.
The bottom line is that for each one of us to remain relevant in our chosen market, we have to be willing to continually update ourselves, possibly even re-invent ourselves – and innovate. You too may have a business model that has worked for many years with varying levels of success. But in a new world, what worked in the past is no guarantee of success in the future. To enable innovation in your organisation requires a fresh look at your culture.
What does it take to enable safe innovation?
1. Stop the blame–culture
I often meet organisations with a so-called ‘blame culture’, where it is safer to keep your head down than to risk failure and try new things. For such organisations where it’s not safe to fail, there is no innovation. People fear that they will be targeted for getting it wrong.
For one company that I’m familiar with, key executives don’t sleep the night before big meetings. They dread and fear the wrath of a bullying boss who exposes them for failing with a new product or for trying something new. Clearly, that is shocking. That culture impedes growth and the organisation loses out in the long run.
2. Encourage innovation
Leaders ought to encourage creativity and innovation, then reward and recognise outcomes. But they should make it very clear in advance, what the criteria for success are.
3. Make it safe to fail – but don’t accept incompetence
It’s totally appropriate and reasonable for leaders to encourage innovation. But it’s not realistic for the innovators to be sloppy and wasteful. They should be called out on that. As with all things in life, there is a need for balance here.
4. Don’t turn a blind eye to failure
Don’t turn a blind eye to failure when significant cost goes down the drain. Acknowledge too the opportunity cost, the risk of wasting time and the poor morale that results from failure.
5. Innovate with structure
Lack of structure can lead to too much subjectivity and not enough objectivity. The innovators should apply rigorous project management or ‘design thinking’ methodologies to their concepts. Such plans should include scenario planning, cause and effect analyses, time limits risk analysis, and a business case.
Whether it’s a success or a failure, discuss it openly and learn from it. Even when applying rigour as described here, not every idea will work out as expected. But the project is not a failure if learning is extrapolated, logged and communicated. That will prevent a recurrence.
Innovation is essential for every organisation in every industry. And your culture needs to support an environment where it is encouraged, but not in a reckless or sloppy way. I’m a big fan of collaboration and inclusion especially when it is safe and appropriate to do so. But be careful, collaboration without honesty and structure can lead to poor consensus. And poor consensus should not be an excuse for bad judgment. One person has to make a decision and be accountable at the end of the day.
Dubai Refreshments has a culture that is both encouraging and supportive of innovation. In the fast-moving beverage industry, ‘culture eats and drinks strategy for breakfast’.