Hungry for business

With some 300 companies exhibiting at Dubai's Gulfood exhibition in March, RNME looks at the latest trends in the GCC's food sector.

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By  Roger Field Published  February 7, 2006

|~||~||~|In recent years, the Middle East has become one of the most important food and drink markets in the world. The region is home to more than 237 million consumers with a GNP in excess of US $1.4 trillion, while residents of the UAE and other Gulf states spend US $9.5 billion annually on foods consumed outside their homes. Furthermore, the sector is also set to increase, with the UAE foodservice market predicted to grow by 11% a year during 2005 and 2006, according to the latest UAE research from analysts BIS Shrapnel. Similar levels of growth also exist for food sales from retail outlets, including grocery stores and supermarkets. For example, overall food sales in KSA for the year-to-date 2005 increased by 9.3%, from about US $2.6 billion to US $2.8 billion, according to market researchers ACNielsen. For Hubert Lobo, a retail analyst at ACNielsen’s Sharjah, UAE office, much of the growth in the Middle East’s food sector can be attributed a few factors: a rising population with an increasing disposable income, high oil prices keeping the economy buoyant, and a shift in the nature of grocery sales, particularly the rise of hypermarkets in Saudi Arabia. “The main thing driving the food growth is the growth in the top end of the trade in the past three years,” he told RNME. “If you go back prior to the three year period, the concept of hypermarkets didn’t exist in Saudi Arabia.” Indeed, the grocery retail sector in Saudi Arabia started to change significantly in the mid-1990’s, when Giant, a local company owned by Al Muhaideb Group, started to open stores in Saudi Arabia, mainly in the eastern region of the country. “Growth of the Giant group has just come in the last five years,” Lobo said. The expansion was at an average of one and a half stores a year.” He added that the company’s expansion has been more rapid in the past five years and Giant now has about 15 stores in Saudi Arabia. Another supermarket group, Geant, which is owned by the Geant Casino Group, opened its first franchise-operated store in Riyadh in April 2004. French company Carrefour, opened its first store in Saudi Arabia in November 2004. “It’s the gradual transition of the trade from unorganised to organised that’s driving the growth of the food market in Saudi Arabia,” Lobo said. He added that this trend is set to continue, with Carrefour, which already has three supermarkets in Saudi Arabia, planning to open 18 more stores in the next few years. Geant, which has four stores in Saudi Arabia, is also likely to open more new stores in the next few years, according to Lobo. Another supermarket group, Azizia-Panda, a division of the Savola Group, is also active in the Saudi Arabia and “does not want to be left behind,” Lobo added. “They have also joined the bandwagon of hypermarkets,” he said. The increase in the supermarket and hypermarket sector, in Saudi Arabia and across the GCC, leads to an increase in food sales and the amount of money spent on food, largely because they are helping transform the shopping experience into a more pleasant activity, according to Lobo. “Prior to the opening of these supermarkets, the large Saudi Arabian families with large disposable incomes used to buy their monthly requirements from the wholesaler or the semi wholesaler, which is not a very pleasant experience,” he said. “Now with the good shopping environment, pleasing ambiance that they have in the hypermarkets, people want to visit these stores more and more often.” Furthermore, Lobo predicts that by the year 2010, the total top-end contribution of supermarkets and hypermarkets to the Saudi Arabian grocery trade will increase to 47%, from its current level of 32%. “Everybody is moving toward the top end of trade,” he said. “In the UAE and Kuwait you will find similar trends. The top end of the trade is increasing and the total basket itself expanding.” He added that these trends are being driven mainly by tourism and a large western expatriate community in the UAE, and because of high oil prices in Kuwait. Foodservice trends: UAE While the rise of supermarkets across the Middle East is playing an important role in increasing food sales, the foodservice sector is also changing significantly and driving much of the region’s overall food and drink sales. Indeed, the value of food and non-alcoholic beverages purchased by the UAE foodservice sector is valued at US $1.43 billion in wholesale prices, while in consumer values, the UAE foodservice market is worth US $4.36 billion, according to Australian analyst BIS Shrapnel’s report, Foodservice in the Middle East - the United Arab Emirates, 2005–2006. Andrew Penfold, the report’s author, added that the UAE has an unusually large foodservice market for a country of its size, due mainly to its rapidly growing population and Dubai’s role as a centre for business and tourism. Furthermore, three quarters of the UAE’s population are non-nationals, with a large percentage of this segment being male bachelors who are more disposed to buying ready-to-eat meals. The BIS Shrapnel survey also indicates that Asian food is the most popular of all foods in the UAE and is growing the fastest. Lebanese food also remains popular, and coffee chains are showing strong growth. The report states that the four largest product groups purchased by foodservice operators are meat, poultry and fish, which account for just over 30%; beverages which account for 18%. Dairy products, meanwhile, accounted for about 13% of sales, as did rice bread, pasta and cereal. The fastest growing product types in the foodservice industry are poultry, lamb and mutton, fresh fruit and vegetables, processed meat and poultry and milk, according to BIS Shrapnel, which conducted interviews with distributors in the UAE to get the results. The report also noted the increasing popularity of low fat versions of products, Asian sauces and ingredients, bakery products, coffee and speciality cheeses. Foodservice trends: Saudi Arabia The value of food and non-alcoholic drinks purchased by the Saudi Arabian foodservice sector is valued at about US $3.6 billion in wholesale prices, and the total value of spending in Saudi Arabia’s foodservice industry is projected to reach US $4.21 billion in wholesale prices by 2006, according to BIS Shrapnel’s study, Foodservice in the Middle East - Saudi Arabia, 2005–2006. Market trends identified during the research phase of the report indicate there has been a strong increase in coffee consumption, in Saudi Arabia, while Middle Eastern food is the fastest growing food category, and quick service restaurants continue to grow in popularity. Local manufacturers are also performing strongly, according to Penfold, and in certain categories have a significant share of the market. Locally owned companies also have a strong market position across all sectors of food, including manufacturing, distribution and foodservice outlets. The fastest growing product types in the foodservice industry are coffee, poultry, lamb and mutton, beef and veal, rice, bakery products, French fries, pasta and olive oil, according to BIS Shrapnel. The value of food ingredients and non-alcoholic drinks purchased by the industry in 2004 is estimated at US $3.6 billion, with the meat, poultry and fish category accounting for 34% of expenditure, beverages 17%, fruit and vegetables 14% and dairy products 13%. ||**||

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