Bahrain has slipped into third position behind the UAE and Qatar in the regional Food & Drink Business Environment Ratings table for Q110. Despite a small population (no more than 1mn), even by regional standards, Bahrain’s business environment remains the Gulf region’s best, with its regulatory environment scoring 8 out 10 from BMI. Although regional investors seeking explosive long-term volume growth will continue to look to Saudi Arabia, Egypt and possibly Iran, our forecast that soft drinks value sales in Bahrain will increase 49.9% to BHD47.9mn (US$127.4mn) through to 2014 could tempt Gulf producers aiming to diversify coverage of their higher value products.

The same industry demand triggers apply in Bahrain as in the wider Gulf region. The country’s harsh climate and the absence of a notable alcoholic drinks industry gives the soft drinks industry a level of dominance that is almost unique to the Middle East region. Although the structural development of the industry does not favour the carbonates category (value growth is expected to be weaker than in the bottled water and fruit juice categories during our forecast period), volume and product development opportunities for the market-leading brands of PepsiCo and the improving Coca-Cola have not been completely extinguished, particularly when considering the growing market for zero-calorie carbonates.

It is the bottled water and fruit juice categories that the report believes will drive the wider industry over our forecast period, as product development investment by the market leaders ties in to the evolution in the tastes and preferences of consumers. On the bottled water front, the rising popularity of bulk water is likely to play an increasingly important role in driving volume growth, while further product segmentation by domestic and regional market leaders is likely to lead the fruit juice category. Not to be completely outshined, functional drinks demand will continue to grow promisingly over the forecast period, in our view, on the back of increasing health consciousness.

Although the Bahraini market arguably lacks the premiumisation potential of the UAE, Kuwait or Qatar, or the volume potential of Saudi Arabia (and Iran and Egypt too, if we look beyond the Gulf), the relative quality of Bahrain’s business environment and the soft drinks industry’s upbeat outlook should ensure that it continues to pull in its fair share investment from existing players and regional firms looking to increase their revenue catchment areas.