Hot sector comes in from the cold

Demand for convenient meals is driving frozen food sales across the GCC.

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By  Roger Field Published  June 1, 2006

|~||~||~|Despite a climate that often makes food storage difficult, countries in the Middle East have been slower in responding to frozen foods than their Western counterparts. But with a growing expatriate population and a trend towards dual income families, frozen foods are increasingly fulfilling a need for quick and convenient meals in the Middle East. And this trend is certainly demonstrated in sales of frozen foods across the GCC, with many industry insiders putting sales growth of some frozen food categories at about 10% a year. But growth rates vary widely between different food categories and geographical markets. For example, A.K. Srikanth, group marketing manager at Al Kabeer, a Dubai-based frozen food company that markets products including frozen meat, processed foods, and fruit and vegetables, said the past few years have seen particularly strong growth. “Growth in the industry is about 8% to 10% but our firm has been growing higher that that,” he said. “It is a healthy growth for a mature market segment. Our company has grown by 15%. There have been a few product launches but then growth is coming out of existing products as well.” The company’s biggest selling product is mutton-cubes. “In meat, fillets are the biggest product,” he said. “In vegetables, we’re doing very well on green peas, sweet corn is a big one. We also have a range of seafood, shrimps which do quite well.” He added that most categories within the frozen food sector are performing strongly, with the exception of whole chicken and chicken parts, which are suffering amid fears of bird flu. Despite this, added-value chicken products, such as chicken nuggets are performing strongly, he said. This is in-line with a trend towards processed foods and ready meals, which are experiencing particularly strong sales growth. “Whole chicken and chicken parts have taken a beating because of bird flu,” Srikanth said. “For us, this category has fallen by about 12%, but we are not really heavily involved in whole chicken and chicken parts, we’re more into value-added chicken so the volumes we’re talking about are not much. "It can only be due to bird flu because there are no other problems with supply or price or anything like that," he added. "This is equally bad across the GCC. Value-added chicken, such as breaded fillets, has fared better. Chicken nuggets, chicken popcorn and other such items have not shown any decline.” This is a trend that Arif Ahmed, Americana Meats regional country manager for the UAE, Qatar, Bahrain and Oman is also familiar with. Indeed, he said that Americana Meat’s added-value frozen chicken products have experienced no drop in sales. “Nothing has been affected here,” he said. “As far as my value-added chicken products are concerned, sales have been strong and growing month-on-month – the trend has been going upward.” Srikanth also sites bird flu as a possible reason for an upturn in frozen vegetarian meals, which have seen significant sales increases in some markets. “Vegetarian products, particularly ready meals, have shown quite a spurt,” he said. “That’s a very regional thing. Vegetarian meals tend to do very well in Dubai, Bahrain and Oman, but not in Saudi Arabia,” he added. Sales growth in most categories varies according to country. Qatar and the UAE have shown the highest growth for Al Kabeer, while KSA, Bahrain and Kuwait have experienced more moderate growth. Growth in Oman has been sluggish, according to Srikanth. “Taken as a total volume Saudi Arabia is the biggest market but per capita, the UAE is the largest market. Saudi Arabia accounts for about 40% of sales and the UAE about 28%. Last year’s fastest growth was seen in Qatar, although this is from a very small base,” he said. Srikanth thinks various factors are driving the overall growth in the industry. “In the UAE, it’s becoming important for both family members to go to work owing to the escalating costs. If you have two family members working then you go into a lot more convenience foods,” he said. “This pattern is seen across the GCC with the exception of Saudi Arabia.” While Saudi Arabia is Al Kabeer’s biggest market, it is not growing as rapidly as other countries such as the UAE. This is partly because the market is already mature in KSA. Looking forward, Srikanth thinks frozen processed foods such as ready meals aimed at health conscious consumers will sell particularly well. “I think we’ll see a trend of calorie conscious foods, especially in markets such as Dubai and Abu Dhabi,” he said. “People will want to buy low calorie food so the industry might have to diversify and get into convenience health foods.” But he does not think the high levels of growth seen in the past few years will continue, mainly because as the market matures, growth levels will begin to stabilise. “It will have to steady out in one way or the other. We’ll probably still see about 5% to 6% growth over the next two years. We’ll see a lot of the growth coming from Qatar and Dubai but I don’t think much will change in Oman or Saudi Arabia,” he said. Mohammad Shariq, marketing manager at Global Food Industries, a UAE-based frozen foods company that produces brands including Al Areesh, said that the company has seen strong sales growth in Saudi Arabia as well as the UAE. Sales of products including beef, vegetables and fish have been growing by about 18% to 20%, he said. “There is very good growth in Saudi Arabia. We have been in that market for some time, but we are becoming a bit more active there now,” Shariq added. The UAE is Global Food Industries’ key market, followed by KSA. The company also performs strongly in Kuwait, Qatar, Bahrain and Oman, Shariq said. While the company has experienced a cooling in the rate of sales growth of its chicken products owing to bird flu, Sahriq said he is optimistic about the overall future of the frozen foods sector – including chicken. “Given the time constraints that everyone has, particularly in the UAE, and fairly strong population growth, the frozen convenience food sector is likely to perform well. In Saudi Arabia there is a lot of economic growth, and growth figures look good for the next two or three years.” Poultry power Ali Oden of Radwa, a UAE company that produces chicken, lamb, beef and vegetables, said the main reason for growth of the frozen foods sector in the UAE is the rapid population increase. Despite problems caused by bird flu, Oden said poultry is the fastest growing sector for Radwa in the frozen food caregory – in the UAE at least. This may be partly because Radwa’s chicken is from Saudi Arabia, corn-fed, and for the higher end of the market. Radwa also produces chicken parts and added-value items such as chicken nuggets, frankfurters and marinated chicken, sales of which are less likely to be affected by bird flu. Oden also point to the relatively low cost of chicken compared with meat as a reason for its success. “The price for meat compared to chicken is high,” he said. “Growth of the frozen chicken market is about 10% to 15% and the consumption for chicken in Dubai is around 70% to 80%, compared with 10% for seafood and 10% for meat.” Radwa sells its products mainly to supermarket groups across the UAE including the cooperatives, Carrefour, Geant, and Al Maya Group. It also sells to restaurants, cafés, hotels, and ship chandlers. While food manufacturers claim that growth in the frozen food sector across the Middle East is about 10%, estimates for Saudi Arabia alone are significantly less, according to Euromonitor International, a London-based market research organisation. “For frozen processed food products as a whole, we recorded about 5% value and volume increase in 2005,” said Utku Tansel, research analyst, for Turkey and Saudi Arabia, at Euromonitor International. This level of growth is being driven mainly by a change in peoples’ eating habits in Saudi Arabia, according to Tansel. “This move towards a Westernised lifestyle is affecting everything, including eating habits,” he said. But efficient and extensive distribution channels are also playing an important part in the sector’s growth. “For frozen processed food, distribution is vital,” Tansel said. “If you have a freezer, you can have frozen foods. If you don’t, you can’t sell it. So if the supermarket doesn’t have a freezer or there is no distribution system, you can’t expect a dynamic market in this sector. However, in Saudi Arabia, the distribution is well developed.” In Saudi Arabia, frozen processed food is made up of a number of sub-sectors, the biggest of which are red meat and poultry. Red meat has a market share of about 40% of value share and poultry is about 30%. “The main reason for this is that these are the traditional products and the ingredients of family dishes, so people buy these products,” Tansel said. Another sub-sector is fish and seafood. This is not as big as red meat or poultry, although it is gaining share. The main driving force for this sub-sector is diversification, according to Tansel. “There are about 15 different processed seafood products such as fish burgers, fish fingers and fish stakes,” he said, adding that people buy these products mainly for the convenience. The main driving force behind the frozen vegetables sector is improved per-capita income and living standards, according to Euromonitor International. Pricing is important in this category, so competitive prices help bring these products within reach of a wider consumer base. Green peas remain the most popular type of frozen processed vegetable. Two of the biggest companies operating in the sector are also investing heavily in advertising, and this is also helping drive the market for frozen foods, according to Tansel. “There are two companies that spend a lot on advertising and they are Americana and Hawani. This helps to create brand awareness among consumers,” he said. The frozen foods sector across the GCC is largely dominated by local players, and one of the reasons for this is that the majority of the meat sold in the region needs to be Halal. “People trust local companies more than multinationals on the sensitive issues so that explains the dominance of local companies in frozen processed food,” Tansel added. A.K. Srikanth, of Al Kabeer, added that there are also numerous barriers to entry for companies outside the Middle East. “It’s difficult, the entry barriers in the frozen food market are quite high because you need to have a cold chain,” he said. “The supply chain is difficult to make, there’s a lot of infrastructure required. You need cold stores, refrigerated vans to carry through. “We don’t see too many players entering this because there are already a lot of players in it. The shelf space more or less remains the same or grows at much smaller rates than the market grows. For a new entrant, from the West or anywhere, it is difficult.” He added that it is also tough for new players to get their products listed in the supermarkets. ||**||

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