Growth formula for an infant sector

With overall growth of about 8%, the region’s baby food sector is booming, but performance varies significantly between markets.

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By  Roger Field Published  October 4, 2006

|~|BabyNutricia200.jpg|~|Ewald van der Ven, MD, Nutricia Middle East: "Growth rates vary enormously between countries."|~|Producers of baby food in the Middle East and North Africa have much reason for optimism about their business in the region, and population growth is likely to be one of the main reasons. The MENA region’s population is expected to more than double by 2050 to reach 649 million people, with Saudi Arabia’s population alone expected to grow almost fourfold by 2050, from 24 million to 91 million people, according to statistics from the USA’s Population Resource Centre. But while a growing population does not necessarily guarantee a boom in the processed baby food sector, producers operating in the region also note that parent’s buying habits are changing, with a move towards processed foods, as convenience becomes important, particularly in households where both parents are working. Gerber Middle East and Africa is perhaps the nest known name in the region’s baby food sector and is present in the entire Middle East, Libya and Egypt. The company, which has its regional base in Dubai, also has responsibility for Malta, Cyprus, Greece and Turkey. The company is experiencing big growth across the region, although this varies from country to country, according to Gilbert Aboumourad, general manager of Gerber for the Middle East and Africa. “We are market leaders in pretty much all of our countries,” he said. “The lowest market share we have is something like 38% or 39%. In Saudi Arabia, we have something like 74%-75%,” he said. “In the Egypt market we are seeing growth of about 35% to 40% year-on-year. In the UAE, our sales have been increasing by about 25%. This year, we had sales increases of about 60%.” Aboumourad said that in Saudi Arabia during the past couple of years, sales of the company’s products have grown by about 15% and 20%, and this comes after a few years of stagnation. Aboumourad attributes some this increase more to economic growth than population growth. “Our category is used by people whenever an economy gets developed and you start seeing double income houses. That’s when our category tends to develop as well,” he said. He added that the baby food sector has changed significantly in recent years, with increased competition and greater awareness among consumers forcing producers to engage their consumer more actively. “Our growth is pretty much inspired by our own activities,” Aboumourad said. “What we’ve done is re-vitalise our brand. We looked at our product, we’ve completely changed our product over the past two years, and brought it in line with modern European and US standards. We took out all the sugars, starches, and put a good pure product inside the jar. We also changed its labeling and started a PR campaign. We’ve also been investing behind the brand and as a result we’ve seen some pretty good growth,” he added. At the moment, Gerber’s product range consists of jars and juices. The company has 80-gram jars aimed at four-month old to six-month old babies. These are single ingredient items, such as pure apple sauce. The company also has a 30-gram range of foods, which consists of fruits, vegetables, meals and desserts, and 175 ml juices. The company also has a poultry-based variety of foods, including chicken and turkey with vegetables, which have been available for about two years. Gerber previously had lamb and beef products on the market, which it is now reformulating for a re-launch in the region shortly. “The fresh fruit category, which is 80 grams, has seen immense growth,” Aboumourad said. “We used to offer it in 130 gram jars but then we took out the sugar and starch and just put in a pure product. This was based on research we had done with consumers,” he added. Competition has not changed significantly in recent years, according to Aboumourad. “It’s all pretty much the same players as a few years back. You have Heinz and they have something like four different brands,” he said. “I would welcome competitors coming in because that would only help the category. It would be good to see more competition in the category because it is developing, and this type of growth is sustainable and the base could get a lot larger.” In terms of challenges in the sector, Aboumourad said he thinks business could benefit from a more uniform regulatory environment in the region. “I think the regulatory environment needs to be consolidated across the area,” he said. “I think it doesn’t make sense for a small country like Bahrain to have a different regulatory environment than a big country like Saudi Arabia or Kuwait.” He added that the retail trade is also becoming more difficult as power shifts to retailers. “Retailers have an immense amount of power and they really do make it difficult with regards to the various listing fees and how much you’re spending on the real estate aspect of retailing,” he said. “Again, the retail environment is good in the sense that it is organised and you have these few big players and a lot of very organised smaller players but it is expensive, so that’s a concern.” Looking forward, Aboumourad is optimistic about the sector, and thinks growth for 2006 will surpass that of 2005. “Growth rates for this year could be surpassed next year,” he said. “We’re very optimistic.” Ewald van der Ven, managing director of Nutricia Middle East & Africa, which is owned by the Netherland’s Numico group, said the company’s baby foods product range can be split into infant milk formula and other infant and toddler foods. The company’s main baby food business is in infant milk formula, which accounts for about 70% of the business in the Middle East. Nutricia’s known brands in the region are Milupa Aptamil and Bebelac. The foods side of the business is largely involved with products like cereals, biscuits, drinks and rusks. Milupa is present in more baby food segments than any other company in the MENA region. Within the infant milk formula, Nutricia also has speciality lines, such as specialised milk formulas for lactose intolerant babies and hyper allergenic formulas for prevention of allergies. Nutricia does not yet market jarred baby foods in the Middle East and Africa region, although it is considering introducing these products in the next couple of years. Nutricia is seeing a significant increase in sales of its milk formula in the Middle East and Africa region, although the rate of increases varies from country-to-country and between different products. “Milk as a category in the region is growing by about 12%, but the growing-up milk, for 12-months and above, is growing fastest, by about 20%,” Van der Ven said. “Growth rates vary enormously between countries. After milks, the next biggest category is cereals, which account for the bulk of the remainder of business.” Nutricia believes breast feeding is best for babies, but in cases where that is not possible, Nutricia has specific milks for infants and toddlers of different age groups. These are from new born to six months old, and from six months to 12-months. Milks for toddlers of 12 months old and above are growing particularly rapidly. Van der Ven thinks this could be because parents now have a greater knowledge of the nutritional needs of children of that age group. But while the rate of growth varies between countries and categories, it is clear that the overall market is growing, and Van der Ven attributes this largely to population growth, particularly in the UAE. A change in people’s lifestyles is also creating a greater demand for ready-made baby foods, Van der Ven said. In terms of regional growth in the baby food category across the MENA region, the UAE, Kuwait, Saudi Arabia, as well as smaller countries like Oman, Bahrain, Qatar are all performing strongly. “It’s all quite similar,” Van der Ven said. “The UAE is a country that is obviously far more exposed to a multicultural environment where you have many different nationalities and a rapidly growing population but all of the countries are developing.” He added that Saudi Arabia is the biggest market for Nutricia in the Middle East. In the next few weeks, Nutricia will launch it’s existing range of Aptamil and Bebelac milk formulas with an upgraded and unique composition of prebiotics that strengthen the infant’s immune system and cut the risk of infection. This range, which is already developed and patented will be launched across the Middle East and globally. Knal Dhawan, Heinz’s marketing manager for the Middle East, Africa, Iran, Pakistan and Egypt estimates that the overall baby food category in the region is growing by about 2% to 5% depending on the sub-segment, although in some categories, the company is seeing growth of about 8%. Dhawan said the baby food category can be braodly split into dry food, wet foods, which includes fruit in jars, juices, vegetables and formulas. Some 60% of Heinz’s baby food business in the region is in the biscuits and rusks category, followed by wet foods, although the company is not present in the infant formula sector in the region. He added that in dry baby foods there are also cereals as well as rusks and biscuits, although for Heinz, cereals as a category is not growing as significantly as the dry baby foods segment. The category in the Middle East is definitely growing, although this varies significantly between categories and countries, according to Dhawan. Kuwait is performing particularly well. Overall growth in Saudi Arabia is about 2% to 3%, although wet baby food and biscuits are far stronger, with growth of more than 10%. Growth of cereals is much lower at about 2% to 3%. The reason for this is that cereals already have a far greater market penetration, whereas rusks and wet baby foods have a relatively low penetration in Saudi Arabia at the moment. “I personally believe there is most potential in those segments,” Dhawan said. “There are a lot of mothers who are not convinced that these foods give the right nutrition so the wet baby foods have huge potential for penetration. In the whole of Saudi Arabia for example, the penetration of the rusks category and the wet baby foods category is not more than 12% or 13%. Cereals have a penetration of about 80% in Saudi Arabian house-holds, so the growing segments are the wet baby foods, with the fruits and vegetables as well as the biscuits.” In terms of the wet and dry baby foods in the Middle East, Heinz is probably the second biggest player across the baby food segment, excluding milk, Dhawan said. “We are number one when it comes to the rusks and biscuits segment for example and then we are number two, across the Middle East. In Bahrain, we are number one in wet baby foods.” But while biscuits have a huge potential in Saudi Arabia because of their low market penetration, this does not in itself guarantee strong growth. This is largely because with the base being so small – at about 1% – it is difficult to encourage people to try the products. “It’s difficult to invest in advertising for the category because trying to persuade households to use products they have never used before is difficult,” Dhawan said. “It’s a task in itself to change peoples’ minds. It is a question of bringing in these products and putting them across to the consumer in the right way.” Heinz recently launched a new range of products under its ‘Farleys 100%’ banner. This range includes products that are pure fruit, juice, and vegetables. Most of the equivalent products on the market contain only 50% fruit, juice or vegetables, Dhawan said. He added that the company is planning to launch some meat and poultry-based wet baby foods in the near future. But it is not just multinational companies that have their eyes on the Middle East. For example, two UK companies are planning to launch Halal certified meat and poultry-based baby foods in the region. Mumtaz, which is based in Bradford, UK, launched its halal baby foods almost three months ago, and has ambitious plans for the Middle East market. Another, company, Gem Foods, based in Coventry, UK, is also looking to start distributing its meat-based Halal baby food in the region. Rab Nawaz, director of Mumtaz Foods said the response to the company’s Halal baby foods has been “absolutely fabulous”. He added that the company is looking for distributors for the Middle East and has also been talking to buyers for Spinneys supermarkets in the UAE. Mumtaz already has labels for its baby foods in French, Arabic and English. Mumtaz has received enquires about its baby food from countries including Malaysia, Pakistan, Bangladesh, as well as Europe and the USA. Interest in the products is because of a lack of Halal meat and poultry baby foods in many markets, according to Nawaz. “We found there was a big niche in the Muslim world for the baby food,” he said. “Anaemia was a big problem because babies weren’t getting enough proteins and meats and everything else. We looked at the diet because…mothers were feeding babies a lot of non-meat foods.” ||**||

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