How UAE Excise Tax Is Changing Consumer Behavior: A Market Analysis

Excise tax in the UAE has significantly reshaped consumer purchasing habits and business strategies since its introduction in 2017. The tax, which applies to tobacco, vaping products, energy drinks, carbonated drinks, and sweetened beverages, was implemented to reduce the consumption of harmful products while generating government revenue.

As prices for excise goods have increased by 50% to 100%, consumer behavior has shifted, with people becoming more selective in their purchases, switching to healthier alternatives, or reducing consumption altogether. Businesses, in response, have had to adapt their pricing models, product offerings, and marketing strategies to maintain demand.

Understanding how excise tax is influencing the UAE market can help businesses stay ahead of consumer trends, refine their sales strategies, and optimize product pricing.

Consumers Are Spending More Selectively on Excise Goods

The introduction of excise tax immediately led to higher retail prices for carbonated drinks, energy drinks, and tobacco products. As a result, many consumers began reassessing their spending habits, leading to more selective purchasing behaviors.

Instead of buying excise goods impulsively, consumers are now:

1. Comparing prices across different brands before making a purchase.
2. Opting for promotions and bulk deals to reduce per-unit costs.
3. Switching to lower-priced alternatives, especially for energy drinks and sweetened beverages.

Retailers have had to adjust their pricing and discount strategies to retain customer loyalty. Many supermarkets and convenience stores now offer value packs, bundle promotions, and loyalty rewards to offset the impact of higher excise tax costs.

For businesses, this means that price sensitivity is a key factor in maintaining sales volume. Offering strategic discounts or value deals can help retain customers who might otherwise stop purchasing excise goods altogether.

Health-Conscious Consumers Are Reducing Excise Product Consumption

A growing number of consumers in the UAE are cutting back on excise goods entirely, particularly when it comes to sugary drinks and vaping products. The excise tax has led many to reconsider their daily habits, with some people seeing the higher price as a reason to quit or reduce their intake.

Soft drinks and energy drinks have been the most affected by this trend, as consumers increasingly recognize the health risks associated with excessive sugar consumption. Many have opted for:

1. Water and natural juices instead of carbonated beverages.
2. Herbal teas and black coffee instead of energy drinks.
3. Nicotine patches or quitting programs instead of vaping products.

For businesses selling excise goods, this shift poses a challenge. However, it also presents an opportunity to introduce healthier alternatives, such as sugar-free beverages, herbal energy drinks, and nicotine-free vape options.

Adapting to consumer health trends can help businesses maintain relevance and continue growing sales, despite declining demand for traditional excise goods.

Brand Loyalty Is Declining as Consumers Explore Cheaper Alternatives

Before excise tax was introduced, many consumers stuck to their favorite brands, even if similar products were available at lower prices. However, with prices rising due to tax, brand loyalty has weakened, especially for products like soft drinks, energy drinks, and tobacco.

Consumers are now:

1. Exploring private-label and local brands that offer similar products at lower prices.
2. Switching to budget-friendly alternatives, particularly in supermarkets and hypermarkets.
3. Looking for promotional discounts and special offers before making a purchase.

This shift has forced major brands to rethink their pricing strategies and marketing efforts. Some companies have introduced smaller packaging sizes at lower prices, while others have launched limited-time promotions to prevent customers from switching to competitors.

For businesses in the excise goods market, the key takeaway is that price positioning matters more than ever. Companies that fail to adjust pricing strategies or offer better value options risk losing market share to competitors who cater to price-sensitive consumers.

Excise Tax Has Increased Demand for Sugar-Free and Healthier Alternatives

One of the biggest changes in consumer behavior has been the growing demand for sugar-free, low-calorie, and healthier beverage options. Since the 50% tax on carbonated and sweetened drinks made regular sodas and juices more expensive, many consumers have actively started looking for better alternatives.

Retailers and beverage companies have responded by:

1. Expanding sugar-free product lines to offer more choices.
2. Highlighting “healthier” versions of drinks in marketing campaigns.
3. Positioning low-calorie beverages as premium products for health-conscious consumers.

Businesses that fail to adapt to this shift may see declining sales in excise product categories. Companies that quickly introduce healthier alternatives and clearly market their benefits will capture a growing segment of consumers willing to pay for better choices.

Retailers and Restaurants Have Changed Their Pricing and Sales Strategies

Retailers, supermarkets, and restaurants have adjusted their pricing structures to manage the impact of excise tax on excise goods. Many businesses have found that consumers are more price-sensitive than before, leading them to implement new strategies to keep demand steady.

Some of the most common adjustments include:

1. Offering bundle deals or bulk discounts on carbonated and energy drinks.
2. Shifting promotional efforts to non-excise products, such as flavored water or fresh juices.
3. Absorbing part of the tax cost for restaurant meals that include excise beverages.

For restaurants and cafés, replacing excise drinks with premium non-taxable alternatives has also become a way to maintain profitability. Many have started featuring fresh juice options, specialty teas, and organic sodas to attract customers who want healthier beverages at a similar price point.

Businesses that quickly adapt to changing consumer expectations will have an advantage in retaining customers and maximizing sales despite excise tax challenges.

E-Commerce and Online Sales of Excise Goods Have Increased

While many consumers are cutting back on excise products, others have turned to online platforms to find better prices and discounts. The rise of e-commerce in the UAE has made it easier for consumers to compare prices, shop for bulk deals, and order from international sellers offering lower tax-inclusive pricing.

Online retailers have responded by:

1. Offering subscription-based discounts on excise products, especially for tobacco and vaping items.
2. Running exclusive promotions for online buyers, providing better deals than in physical stores.
3. Allowing bulk purchasing with lower per-unit costs, making it more affordable for consumers.

For excise product businesses, having a strong online presence and competitive pricing strategy is now essential. Companies that fail to optimize their digital sales channels may lose market share to e-commerce platforms and international sellers offering better prices and convenience.

How Excise Tax Is Influencing Brand Marketing and Advertising Strategies

As consumer behavior shifts due to excise tax, brands selling taxed products have modified their marketing strategies to maintain relevance and sustain sales. With higher prices making excise goods less attractive, businesses have had to rethink their messaging, promotions, and overall positioning to appeal to a more selective audience.

Many brands have responded by focusing on value, health benefits, and premium positioning rather than just price. This shift can be seen in several key marketing trends:

1. Rebranding Excise Products as Premium Offerings

Instead of presenting excise goods as everyday consumer products, many brands have repositioned them as premium lifestyle choices. This strategy helps justify higher prices while targeting consumers who value quality and exclusivity over affordability.

For example, some energy drink companies now highlight “natural energy sources” and “sugar-free formulations”, promoting their products as superior alternatives to traditional soft drinks. Similarly, premium tobacco brands have adopted luxury packaging and exclusive product lines to appeal to high-income consumers who are less affected by price increases.

Businesses that sell excise goods should invest in strong brand storytelling, emphasizing product uniqueness and added benefits to retain consumer interest despite rising costs.

2. Shifting Advertising Towards Health-Conscious Messaging

With many consumers moving away from excise products due to health concerns, brands have started modifying their messaging to focus on balanced consumption, reduced sugar, and alternative ingredients.

For example, soft drink brands are now promoting low-calorie and naturally flavored options, while vaping companies highlight nicotine-free and plant-based alternatives. Energy drink brands have also begun incorporating functional health claims, such as enhanced hydration and organic ingredients, to differentiate themselves from traditional sugary beverages.

Marketing campaigns that emphasize healthier formulations, natural ingredients, and wellness benefits are proving to be more effective in retaining customers who might otherwise leave the excise goods category altogether.

3. Investing in Digital Marketing and Social Media Campaigns

Traditional in-store promotions are less effective in driving excise product sales than they used to be. With consumers becoming more selective, brands are investing heavily in digital marketing, influencer partnerships, and social media engagement to create direct connections with their audience.

Online promotions now focus on:

1. Exclusive digital discounts for e-commerce buyers.
2. Influencer partnerships to showcase lifestyle benefits of excise goods.
3. Interactive content, such as quizzes and giveaways, to maintain brand engagement.

Brands that effectively leverage digital marketing strategies will be better positioned to retain customer interest and build long-term brand loyalty despite tax-related price increases.

Consumer Preferences Are Driving Innovation in the Excise Market

The impact of excise tax has not just changed how consumers buy products—it has also influenced how businesses develop new offerings. Companies that have quickly adapted to changing consumer expectations have remained competitive, while those that have failed to innovate are losing market share.

1. Introduction of New Sugar-Free and Alternative Beverage Categories

One of the most significant changes in the excise market is the rise of sugar-free, naturally sweetened, and functional beverages. As more consumers reduce their intake of traditional sodas and energy drinks, beverage companies have responded by launching:

1. Stevia-based and naturally sweetened drinks as healthier soda alternatives.
2. Caffeine-infused sparkling water to replace energy drinks.
3. Probiotic and vitamin-enriched beverages that promote wellness.

Consumers now demand more than just a sugar rush—they want beverages that offer health benefits without excessive calories or artificial ingredients. Brands that introduce functional, better-for-you drinks will attract health-conscious consumers who are still willing to pay a premium for quality beverages.

2. Innovation in Tobacco and Vaping Products

The excise tax on tobacco and vaping products has led to a wave of product innovation, as brands look for ways to retain customers while complying with regulations. Many companies have introduced:

1. Nicotine-free vaping products, targeting consumers who enjoy the habit but want to avoid tobacco-related health risks.
2. Organic tobacco alternatives, marketed as a more natural and premium smoking experience.
3. Compact and discreet smoking accessories, making products easier to carry while maintaining exclusivity.

By focusing on alternative ingredients, cleaner formulations, and convenience, brands in the excise goods category can continue to attract consumers despite higher taxes.

3. Limited-Edition and Seasonal Products to Maintain Excitement

Many brands are now using limited-time releases to maintain customer interest and justify higher prices. The idea is to create exclusivity and demand, making consumers more likely to purchase excise goods despite the cost increase.

For example, soft drink and energy drink companies have launched:

1. Seasonal flavors available for a limited time to encourage impulse buying.
2. Special collaborations with celebrities or influencers, creating unique packaging and branding.
3. Gifting options and collector’s editions, appealing to niche audiences.

Consumers are more likely to pay extra for exclusive products, helping brands offset the impact of excise tax through premium pricing strategies.

How Businesses Can Adapt to Long-Term Excise Tax Trends

The changes brought by excise tax are not temporary—consumer behavior has permanently shifted, and businesses must adapt to survive in the new market landscape. Companies that fail to respond to these changes risk losing relevance, sales, and market share.

1. Strengthen Supply Chain Efficiency to Reduce Cost Impact

One of the biggest challenges of excise tax is rising costs—not just for consumers, but for businesses as well. To maintain profitability, companies must optimize their supply chains and find ways to reduce operational expenses without sacrificing quality.

This can include:

1. Sourcing alternative ingredients that allow for tax-exempt product variations.
2. Improving logistics and distribution networks to cut costs and improve efficiency.
3. Negotiating better supplier agreements to offset excise tax costs.

By improving operational efficiency, businesses can maintain competitive pricing without compromising profit margins.

2. Offer Subscription-Based and Loyalty Programs to Retain Customers

With consumers becoming more selective about their purchases, businesses need to provide long-term incentives to maintain loyalty. Many companies are now introducing subscription-based pricing models or exclusive membership discounts for excise goods.

For example:

1. Monthly beverage subscription boxes offering better value for frequent buyers.
2. Exclusive VIP pricing for repeat customers, ensuring they continue purchasing despite higher taxes.
3. Loyalty programs with cashback or redeemable points, making it more rewarding for consumers to stick to one brand.

By creating incentive-driven pricing models, businesses can reduce customer churn and encourage repeat purchases despite excise tax-driven price increases.

3. Educate Consumers on Product Value and Brand Differentiation

Consumers are more price-sensitive and brand-conscious than ever. To justify higher costs, businesses must clearly communicate the value of their products and explain why they are worth the premium price.

This means:

1. Highlighting quality ingredients and unique formulations.
2. Providing transparent sourcing and sustainability commitments.
3. Using customer testimonials and influencer endorsements to reinforce brand credibility.

When customers understand the value of what they’re buying, they are more likely to remain loyal despite price increases.

Final Thoughts: Businesses Must Adapt to Changing Consumer Behavior

The UAE excise tax has fundamentally reshaped how consumers interact with taxable products. With higher prices driving changes in buying habits, businesses must adapt their strategies to meet new consumer demands and preferences.

To stay competitive in an excise-taxed market, businesses must:

1. Reevaluate pricing and promotional strategies to attract price-sensitive consumers.
2. Introduce healthier product alternatives to cater to changing health trends.
3. Strengthen brand loyalty through value-driven offers and personalized promotions.
4. Expand online sales and e-commerce strategies to capture digital shoppers.

For businesses navigating excise tax compliance, pricing strategies, and market adaptation, Protax Advisors provides expert tax and financial consulting services.

Book a free consultation today and let Protax Advisors help you optimize your business strategy while ensuring full compliance with UAE excise tax laws.