Cheese sector spreads in Middle East

Cheese sales in the Middle East are soaring as a growing population looks for convenience and nutrition in their food.

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By  Roger Field Published  December 11, 2006

|~|Cheese-pic-web-200.jpg|~||~|While cheese has a long reputation as a popular food in the region, partly owing to its durability in hot weather compared with milk, it is now being rediscovered by a growing population keen to buy the food more for its convenience and nutritional value. Most companies involved with the production or sale of cheese products in the region are experiencing at least double-digit growth. For example, Jalal Essudeen, product group manager for foods at KSA-based dairy producer Almarai, one of the region’s biggest dairies, said the company has experienced growth of up 60% in some categories in the past six to eight months. While Essudeen attributes some of this growth to the boycott of Danish goods earlier in the year, which led to increased consumption of local produce, this pattern of growth was already under way. “If you look at the period before all this started, we were still growing at a phenomenal rate. This year in some categories we are experiencing growth rates of up to 80%, but previously this has been 40% and 45%. Jarred cheese, the biggest processed cheese category in the region, is seeing almost 60% growth,” he said. Furthermore, while the market for cheese is growing across the GCC and the Middle East, there is plenty of potential left because the region still has relatively low cheese consumption per capita, compared with Europe, and Essudeen thinks the consumption per capita will increase further as companies introduce more value-added products. “In France, per capita consumption is around 22 kg, while we are around 6 kg in the region. If you take the biggest market in the region, which is Saudi Arabia, consumption is even lower, there is a tremendous opportunity for growth here.” Essudeen attributes this growth to the nutritional benefits of cheese, indulgence and convenience. “This category is mainly driven by the families, mothers and housewives who are concerned about their family’s well being,” he said. In line with this, Almarai recently launched lower cholesterol cheese in jars in KSA. “There is a growing segment of consumers in the region who are looking for products that fit their trendy modern lifestyle –they are more health conscious and they are more fashionable,” Essudeen said. The demand for convenience food in the cheese sector is evident from the popularity of processed cheese slices business. Almarai has experienced growth of about 100% in its low fat slices in the past year. In a bid to tap this growth, Almarai is investing heavily in its cheese and dairy production and marketing, although recent growth has been so strong that it has overtaken the company’s projected demand calculations. Indeed, the company commissioned a new cheese plant at the end of 2005, which was supposed to last until 2014, although Almarai is already considering opening a new cheese plant. While Almarai does face competition in the cheese sector from multinationals such as Kraft and Arla, the company is benefiting from a trend of people moving towards local products in the Middle East, according to Essudeen. He added that Al Marai also has strong distribution networks and a solid knowledge of the local market. This has helped the company build a strong lead in some cheese categories in KSA, such as jarred cheese, for which Almarai enjoys a leading 34% market share. Essudeen thinks this lead in KSA bodes well for the company. “Once you have the leadership in Saudi, you have leadership in the GCC. In this context, Almarai is already a leading brand is some categories in Saudi Arabia and Kuwait and it’s growing fast in the rest of the markets as well,” he said. He added that the company has found the cream cheese category more difficult to crack, although it has been increasing its market share. In terms of markets in the region, KSA has the fastest growing market, while its consumption per capita is on the lower side. Oman meanwhile has the lowest consumption per capita in the region. There are also other challenges for locally owned companies such as Almarai. Indeed, multinational companies, which dominate the overall cheese sector in the region, have a greater technical know-how and resources for R&D and marketing than many regional companies. A further challenge is that consumption of cheese, although growing rapidly, is still relatively low in the region compared with western countries. “You need to figure out a way to increase that as the consumer gets more sophisticated,” Essudeen said. “We have been investing quite heavily in TV recently and in all types of medium – newspapers, out door, radio, everything.” But while multinational companies may benefit from vast resources, they also face challenges. For example, Kraft Foods, one of the biggest players in the Middle East cheese sector, has until recently been importing all of its products from plants outside the Middle East, putting it at a disadvantage to some local companies. This has changed in the past month however, with the opening of a factory in Bahrain, which will produce processed cheese and Tang, a powdered orange drink. The company markets a range of its cheese brands in the region, including Philadelphia cream cheese, processed cheese slices, cream cheese in jars, and cheddar cheese in cans and tubs. Patrick Satamian, managing director, Kraft Foods in the GCC is optimistic that the new plant in Bahrain will be a huge benefit to Kraft in the Middle East, allowing it to compete on a more even footing with rivals such as Almarai and Arla that already produce locally. “With that comes a lot of advantages – you are closer to consumers, your customers and you can get products to the market faster and fresher,” he said. “These are the reasons why we’ve decided to come here and open up factories in this part of the world,” he added. Kraft is opening the new factory mainly in response to rapid growth in the market. Satamian said the cheese sector is experiencing growth close to double-digit figures each year, although the level of growth varies significantly between categories and geographical markets. Saudi Arabia is the biggest market for the products. “For some categories it accounts for 60% of the sales, some categories up to 70%. You have the UAE and Kuwait next. All the markets are growing by high single digits to double digit,” he said. Health and wellness products are growing particularly rapidly, according to Satamian. “That is a big trend in Europe and the US that and is starting to emerge here, although it is at the very beginning,” he said. “People are also looking for convenience – products that are easier to open, carry, and use.” He added that much of the growth is being driven by population growth. In some categories, Kraft is the leading player, while in others it ranks between second and fourth place. “The Middle East is one of those areas where, unlike parts of Eastern Europe, we have been established for a long time, 50 years,” Satamian said. “Some of the products are really icons. Canned processed cheese seen as traditional in KSA.” Kraft is promoting the benefits of its cheese products, such as the calcium content, which helps children to grow up healthier and stronger. The company is using promotions and TV commercials, which are adapted to local markets. “We know that in this part of the world, the mother and the family are very important features, unlike some other parts of the world where people are more independent and there is less focus on the family,” Satamian said. The company works with various distributors in the region, usually one exclusive distributor for each country. But despite now having its own factory in the region and the rapid growth in the market, there remain some challenges for companies such as Kraft. For example, Satamian points to infrastructure and staffing as two key challenges. “In a country like Saudi Arabia, it is becoming more difficult for them [multinational companies] to operate. Because of the boom and the success, middle management is difficult to recruit and retain. Most of the multinationals are facing these problems,” he said. Rabig Gaoui, product manager for Arla’s Three Cows brand of Feta, shredded, and canned cheese, points to shredded mozzarella as a particularly high growth category. He attributes this partly to the increasing demand of convenience food. “You know with the time pressure these days and this is part of the changing social habits, consumers do not have time to cook,” he said. “All the categories that have this convenience have a high growth and mozzarella shredded is one of them.” In the UAE, Arla has a 38% market share for shredded mozzarella and a 32% market share for feta bricks. Three Cows is market leader in each of the categories it is available in, across all of the Middle East, according to Gaoui. While the boycott of Danish goods was a major blow to Arla earlier in the year, the Three Cows brand has already returned to its position before the boycott. In line with a growing demand for convenience products, Arla has recently launched Puck Spreadable and Feta Spreadable, which can be used for sandwiches or dips. Gaoui agrees with Almarai’s Essudeen that one of the main challenges in the sector, for white cheese at least, is to make the category less traditional and more innovative. For this reason, his objective is for each of the brands to be the leader in their category. “We do that by being more innovative, by adapting our products to the local demand,” he said. “White cheese is perceived as traditional and the way forward for the category is adding innovation that could give progress. If consumers are tempted to one category, they will be leaving another. White cheese is not an active category and we are trying to make it active in order to maintain growth,” Gaoui said, referring to Puck Spreadable cheese. He added that the response to the product, which is now available in the UAE and Oman and in Lebanon has been good. While a desire for healthy and convenient foods are key reasons for growth of the sector, Egypt-based Seclam, which produces pasteurised milk, yogurt, feta cheese, Edam cheese, triangular and square portions, also cites another important reason for rapid expansion. The company has been increasing its exports of cheese in the MENA region by about 100% in the past couple of years and has also benefited from changes to subsidies that had been made to dairy producers in Europe, according to Alaa El Wakil, international sales manager at Seclam, which is part of Al Mansour Manufacturing & Distribution Co, an Egyptian holding company. “We’re doing a lot of sales. In the Middle East, since the subsidies have been lifted in Europe,” he said. “It’s becoming very expensive to import cheese from Europe, so if we do offer something instead of the European companies, we can now do well in the Middle East, especially with no customs payments between the Arab world.” El Wakil added that Seclam also exports to countries including Madagascar, Kenya and Mauritius without having to pay customs. This has contributed to significant growth from Seclam’s factories, some of which have doubled and tripled production in the past two years. The ongoing violence in Iraq has also increased demand at the company. El Wakil estimates that more than 30% of the Egyptian cheese is exported to Iraq. “The processed triangular portion cheese in particular goes to Iraq. Since they have no electricity, it’s the only alternative they have. It lasts in the heat and it doesn’t need to go in the fridge all the time.” He added that if and when Iraq stabilises, the country is likely to start producing more cheese itself, and so will reduce as an export market. Seclam has been increasing its exports of cheese by 100% annually and is trying to tap markets in the Gulf, Saudi Arabia, and North African countries such as Libya. Aside from Iraq, El Wakil also points to Syria and Oman as strong markets.||**||

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