One year of Gaza war and impact of Pakistani ‘boycott’ of Israeli products

There is a story about a fire and a sparrow. A fire had broken out, and a little sparrow wanted to help. She flew to a pond, filled her beak with a single drop of water, and returned. Flying as close as she dared, she released the drop onto the flames. Then she went back for another, repeating the process again and again. The fire was not affected.

A crow, perched nearby, observing her efforts, asked, “Why are you bothering with a single drop of water when you know it will make no difference?” The sparrow answered, “To satisfy my conscience”.

Pakistan’s boycott movement in solidarity with Palestine is similar to the sparrow’s efforts. It has no bearing whatsoever on Israel’s actions in Palestine or elsewhere. But the people boycotting Israeli products are being motivated by their conscience, regardless of the negligible economic impact.

Over the last year, Israeli bombardment of Gaza has claimed the lives of more than 41,000 civilians. It has now been a year since the October 7 attacks, which reignited the Boycott, Divest, Sanctions (BDS) movement, although its roots run much deeper.

The BDS movement is no more a new phenomenon than Israeli atrocities in Palestine. Boycott of brands linked with Israel or the US’s support for Israel is over two decades old.

In the 2000s, some US companies reported a drop in sales of between 25 per cent and 40pc, according to a report by The Guardian. The targets were the usual suspects of McDonald’s, Burger King, Coca-Cola and Pepsi, among others. Back then, student protesters in Egypt torched a KFC outlet and another outlet in Lebanon was bombed.

Then too, local cola manufacturers prospered in various countries. Back in 2003, factories in Iran making Zam Zam Cola struggled to keep up with demand for their sweeter version of Pepsi and Coca-Cola.

In the UAE, sales of the local Star Cola soared. Over the last year in Pakistan, the carbonated beverages industry has seen the most traction on the ground among domestic alternatives for boycotted products.

Boycott and cola wars

“Earlier, about 90pc of the market share in restaurants belonged to Coca-Cola and Pepsi. But now the lion’s share is with the local brands, possibly more than 90pc,” says Salman Aleem, Secretary General of All Pakistan Restaurant Association.

Admitting that supply chain issues persist, he notes that customers are demanding local cola brands, prompting eateries across the country to comply with their requests. Other than Cola Next and Pakola, Quice has also increased market share, he says. Local brands are increasing capacity to comply with rising demand, he adds.

But has the share of local companies truly increased? Has the boycott impacted the parent company? Local producers have kept mum about the increase in market share or investments in capacity.

A Reuters report quotes Krave Mart founder Kassim Shroff, saying that local cola rivals have increased in popularity, becoming about 12pc of the soft drinks category from 2.5pc earlier.

However, the boycott of Pepsi and Coca-Cola as American-origin products is selective. Beyond carbonated beverages, Pepsico also owns Aquafina Cheetos, Doritos, Kurkure and Lay’s, which have not come under fire as much.

Globally, Coca-Cola’s net revenue in 2023 was $45.8 billion and PepsiCo’s net revenue was $91.5bn. In 2023, 1.4 billion litres of fizzy beverages were consumed in Pakistan, a market of Rs303 billion, according to Euromonitor.

This translates to roughly $1 billion in sales of carbonated beverages. Thus, Pakistan’s entire carbonated beverage sector amounts to 0.7pc of Pepsi and Coca-Cola’s combined sales last year, which is barely even a rounding error.

Euromonitor data indicates that 2023 was the first year since 2009 that the sales of carbonated beverages dipped down instead of increasing. Off-trade volume (sales of beverages not immediately consumed on premises such as in the case of restaurants) fell by 3.7pc in 2023 because of consumers feeling the financial pinch.

Coca-Cola in Pakistan comes under Turkish Coca-Cola İçecek A.Ş. Its half-year report states that Pakistan posted better volume in the second quarter of the year than in the previous four quarters.

That is not to say Coca-Cola’s volumes in Pakistan are growing, but the decrease in volume is slowing. In the second quarter, sales volume was down by 5pc compared to the 23pc decline year-on-year in the first quarter of the year. The company attributes this partly to a better macroeconomic environment, though it is possible that sales are improving as the support of the BDS movement wanes.

Coca-Cola and Pepsi had a combined market share of over 80pc in 2023, according to Euromonitor. Lahore-based Gourmet Food, which mainly distributes in smaller cities, was the largest local player with a 1.7pc market share, followed by the 0.5pc share of Mezan Beverages, which owns Cola Next. Given the disparity in market share, increasing capacity at a level to compete with the beverage giants is not the work of a year.

Furthermore, boycotting Coca-Cola and Pepsi is not as simple as demanding Cola Next at a restaurant. Both companies have embedded themselves heavily in the fabric of the country. Coca-Cola sponsors Coke Studio, and PepsiCo offers sports sponsorship — it is the shirt sponsor of the Pakistan Cricket Team and is endorsed by national celebrities such as Babar Azam. One would imagine that boycotting cricket over its performance is a stronger reason than boycotting it because Pepsis funds cricket kits.

Franchise fare

Among fast food chains, the heat seems to have mostly fallen on McDonald’s, followed by KFC in Pakistan. Globally, McDonald’s has been impacted, with its 2023 annual report stating that the fast food chain expects the impact to last as long as the war. According to an October X post, McDonald’s Israel had given 100,000 free meals to Israeli forces worth 5 million shekels ($1.3 million). The Chicago-headquartered McDonald’s Corporation distanced itself from the move. It also bought back all of its Israeli restaurants after global sales slumped due to a boycott of the brand.

In Malaysia, the local franchise (owned by Saudi firm Lonhorn Pte Ltd), sued the Malaysia BDS group for $1.3m, citing “false and defamatory statements” that it said had hurt its business. This prompted the Palestinian BDS National Committee, the largest Palestinian coalition that leads the global BDS movement, to endorse the worldwide boycott campaigns targeting McDonald’s. Thus, McDonald’s has been among those most affected.

The fast-food giant uses a franchise system, which means individual operators are licensed to run outlets and employ staff. This system applies to Pakistan. McDonald’s in Pakistan has taken a more proactive approach than its BDS-targeted brethren in that the homepage of its local website has a pop-up addressing concerns. It explains that it is completely owned and operated by a local company, SIZA Foods. The pop-up also explains that it has contributed to the Edhi Foundation for relief work in Gaza.

SIZA Foods belongs to the Lakhani group. Associated brands under the Lakahni banner are Colgate Palmolive, Century Insurance, Century Paper & Board and Cyber Internet, among others, indicating that McDonald’s is embedded in one of the biggest local conglomerates.

KFC has also found its way to boycott lists. KFC and Pizza Hut internationally are owned by YUM! brands which has invested in Israeli-based startups. Globally, KFC is among those brands that have been hit the hardest, with 108 of its 600 outlets closing down in Malaysia earlier this year.

In Pakistan, the KFC franchise is owned by the Cupola group and Pizza Hut is by the conglomerate Maaks International, which also owns Burger King. KFC has over 128 outlets and employs about 9,000 people (including riders). The Cupola group educates 7,000 impoverished Pakistani students annually and has been for about a decade while also employing the deaf.

Local brands like Kebabjees have arguably expanded in the space created. However, sources say that the growth rate of restaurants has been affected more by macroeconomic conditions than by the BDS movement.

FMCGs and silver linings

Let’s do an exercise. Think of a soap. What is the first name that comes to your mind? Lux? Palmolive? Lifebouy? Unilever’s Lifebuoy is as international a brand as, say, Dove or TRESemme, but it is perceived to be local.

Foreign FMCG companies operating in Pakistan have a large local presence in terms of employment and manufacturing. Take a look at any recruitment drive of P&G or Unilever at universities; students flock to apply because it boosts their careers.

In the consumer space, multinationals have a dominant share. Take ice cream, for example; FrieslandCampina Engro’s Omore and Unilever’s Walls have about 80pc market share, says CEO of the Pakistan Business Council Ehsan Malik.

In the home and personal care businesses, P&G, Reckitt Benckiser, Unilever, and Colgate-Palmolive have dominant shares. Brand recall of international products is higher because of Pakistani’s aspirational values, says Mr Malik. “The brand values are so strong and our people are aspirational in nature, so they like buying stuff that is globally recognised.”

Talking about the boycott movement, Amir Paracha, CEO of Unilever said in an interview earlier this year that almost every foreign company in Pakistan has been affected, particularly in the FMCG sector. Explaining the gradation of impact, he said the food sector has been hit the hardest, followed by soft drinks and consumer non-durables.

However, the impact has been limited, with the company benefitting from volumetric growth. “We have been here for seven decades, we are almost a local company that manufactures domestically,” he added.

Market sources say more people have shifted to local products because of the macroeconomic conditions than the BDS movement. For example, the demand for L’Oreal products has decreased while local alternatives, known as ‘dupes’, have increased, says one online retailer. In the local beauty segment, brands such as Conatural have built their reputations and demand, despite being comparable in price.

Similarly, shampoo brand Meclay London (and it is ironic that a local brand is named ‘London’ and enjoyed a boost during the boycott movement) has seen an increase in demand, with people buying it in bulk. With a packaging similar to Sunsilk, its sales increase was partly because of the country’s high inflation rates.

Influencers initially refused to endorse products associated with the boycott, such as Unilever or L’Oreal, because they were afraid of the backlash. Slowly, however, they started promoting such products again because they, too, have a living to make, and there are not a lot of local brands available.

A stronger, more sustained push for local alternatives has stemmed from the dollar volatility and import constraints in the recent past. For instance, the tomato puree for Knorr sauces, previously imported from China, is now sourced domestically. Similarly, sachet machines that were once imported are now purchased from local engineering firms. Diversifying into corn, rice company Matco is using maize to manufacture previously imported inputs for the industrial sector.

Products with direct or indirect ties to Israel are embedded in our day-to-day lives. Much of this article was written with the help of the search engine Google — Google and Amazon signed Project Nimbus in 2021, which aims to provide cloud computing infrastructure, artificial intelligence (AI) and other technology services to the Israeli government and its military.

Microsoft Word was used to type this article using a Hewlett-Packard laptop powered by Intel. Intel, Microsoft, and Hewlett-Packard are among the many tech companies that have research and development facilities in Israel.

Indeed, the traction of the BDS movement is through social media, largely routed through Meta apps such as Instagram, WhatsApp and Facebook. Meta has been repeatedly accused of censorship, be it curtailing content critical of Israel or stifling pro-Palestine voices.

The BDS movement is a complex dilemma where boycotting can result in a disadvantage, be it through lost work opportunities through Israeli company Fiverr or be it through the impact of MNCs in Pakistan, which provide employment and are among the largest tax contributors to the economy. In many cases, Pakistan’s share of sales is less than a rounding error and has no impact on the actions of Israel or its allies.

However, if the intention is to voice opposition to Israel with whatever tools we can muster, then by all means, we can take the route of the little sparrow.

Header image is AI-generated.