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Growing appetite

June 2010
Buoyed by growing populations and rising incomes, food firms are focusing on the Gulf, reports Alex Malouf from Riyadh.
While many sectors may have suffered recently due to the global downturn, one industry that has bucked the trend is the region's food business. Buoyed by a rapidly growing population and rising incomes, food firms, both local and global, are focusing in on the Gulf.

The largest market by population, Saudi Arabia's food giants have looked to benefit from the economic downturn by either partnering or acquiring rivals or companies that may complement their product portfolio.

The largest dairy producer in the region, Almarai , made several agreements during the past 12 months - one with Egyptian dairy and juice manufacturer, International Company for Agricultural Industrialization Projects (Beeaty), and another with Jordanian drinks firm, Taibah's Investment and Advanced Food Company.

According to Almarai these acquisitions are designed to help diversify its revenue sources. The company says that it plans to boost its investment budget to $1.6 billion up until 2013.

The Savola Group , owners of the Panda supermarket chain, has also been pursuing inorganic growth. Following its chief executive's comments that the current global financial crisis could have positive implications for its operations through new acquisition opportunities, the Savola Group bought the Geant franchise from the Fawaz Al Hokair Group.

The purchase of Geant has given the Savola Group a dominant position in Saudi Arabia's food retail market with stores nationwide.

The drive to develop a local food sector and manufacturing facilities has picked up pace over the last decade. GCC states import some 90 per cent of their food. In the UAE alone, food expenditure in 2009 reached $6.78 billion, according to Business Monitor International.

Investments in the Gulf's food sector have peaked recently due in part to the region's desire to become more self-sufficient. Largely dependent on imports, Saudi Arabia has taken a giant leap in terms of food processing and vegetable, dairy and poultry production.

New Zealand-based dairy firm Fonterra recently finalised the purchase of the remaining 51 per cent stake in Saudi New Zealand Milk Products with former joint-venture partner Saudia Dairy and Foodstuff Company. Amr Farghal, MD of Fonterra in Middle East and Asia and Commonwealth of Independent States, said the acquisition, worth around $32 million, is a major step forward for Fonterra's strategy in Saudi Arabia and the wider GCC.

"We have great confidence in the stability and growth of the GCC economies, and see tremendous opportunity for our business in this region. With rising demand for high-quality dairy products, this acquisition secures our manufacturing capacity requirements for the future and helps us bring more world class ingredients and innovative new products to the Middle East region," Farghal said.

Saudi Arabia itself has announced plans to increase the number of industrial areas in the country from 14 to 24.

Meanwhile, the UAE government is actively encouraging more food manufacturing plants to be set up there and has invested $1.4 billion in the industry. Today there are around 150 food processing plants in operation in the UAE, according to the Dubai World Trade Center.

Another trend is the increased demand for prepared and packaged foods. Changing and busy lifestyles as well as aggressive marketing from food companies have created a demand for convenience foods.

With about 70 per cent of Saudis in their teens, and their preference for Western-style foods, international fast food chains such as KFC, Pizza Inn, Burger King, McDonald's, Pizza Hut, Dominos, and local chains such as Herfy, Al-Baik, Al-Tazaj, Dajen and Kudu are continuing to expand.

Other chains, most notably from recession-struck America, are actively scouting locations in the Middle East. With the recession crimping sales in the America-based chains, brands are looking overseas for growth.

"There are a lot of markets that these companies want to tap," said Sanford C. Bernstein analyst Sara Senatore.

For the CEO of US-diner Wendy's/Arby's, the opportunities are further afield.

"If you look at long-term growth potential," Roland Smith said, "not to focus significantly on the international opportunity would be a big miss."

The company says a franchise partner in the Middle East is aggressively opening stores. Dubai's first dual-branded Wendy's/Arby's restaurant was set to open this summer.

Many of the region's food brands are also looking to tap into export markets, particularly the demand for halal food. Increasing demand for halal products from 1.8 billion Muslims around the world, as well as some non-Muslims, is fuelling the halal food industry to generate between $632 billion and $2.1 trillion annually, according to the Kuala Lumpur-based periodical the Halal Journal.

One of the UAE's leading halal brands, Al Islami, has publicly stated its intention to drive growth from expansion both inside and outside the Middle East.

"Al Islami expects a significant growth in its profits and we are confident that we have the right people and infrastructure in place to realise this ambition," chief executive officer Saleh Abdullah Lootah said last year.

"With demand for halal food soaring worldwide, we look forward to consolidating our penetration into the new markets with the experienced teams who have in-depth knowledge of the FMCG market," he said.

© Gulf Marketing Review 2010