Dubai, 22nd February, 2017: Alpen Capital, an investment banking advisory firm, announced the publication of its report on the GCC Food Industry. The report presents the state of the food industry while covering demand-supply dynamics across various food categories in the GCC nations. The report also covers the recent trends, growth drivers, and challenges in the industry, along with the sector outlook until 2021. The report profiles some of the prominent food companies in the region, while highlighting their financial and valuation metrics.
“We expect the GCC Food industry to grow at a sustainable pace. This growth is primarily attributable to factors such as growing population, higher per capita income, and a vibrant tourism market, changing dietary habits and preferences, and increasing penetration of organised retail. Government as well as private sector investments are being channelled towards augmenting the domestic food production capacity and supply, even as securing food sources in other resource-rich countries remains a key priority”, says Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited
“Despite significant headwinds due to fall in oil prices, drop in infrastructure projects, job losses and attendant retail spend, the GCC Food Industry is forecasted to grow in the coming years. Food security remains a key priority for the GCC countries as the reliance on heavy imports continue owing to limited arable land, hot and arid climate, and fresh water shortage. We see several government initiatives aimed not only at enhancing domestic productivity, but also at investing in farmlands overseas to mitigate the risk. Despite this key challenge, the sector remains on the radar of investors who are looking at opportunities to enter the region or a specific country in the GCC to take advantage of what the sector has to offer. This has not only attracted new players to the market but also led to significant consolidation in the segment and we expect this trend to continue”, says Mahboob Murshed, Managing Director, Alpen Capital (ME) Limited
According to Alpen Capital, Food consumption in the GCC is expected to expand at a CAGR of 4.2% from an estimated 48.1 million MT in 2016 to 59.2 million MT in 2021. This growth is primarily attributable to increase in the consumer base coupled with a higher per capita income, as the GCC economies stage a sustained economic recovery from the recent downturn.
Respective share of most of the food categories in the overall consumption are anticipated to remain broadly unchanged through 2021 with cereals as the most consumed food category in the region.
Saudi Arabia and the UAE are likely to remain the major food consumption centres during the forecast period. The country-wise share in total GCC food consumption is anticipated to remain largely unchanged until 2021.
During the forecast period, food consumption in Saudi Arabia is expected to grow at an annualised average rate of 4.2% to 37.7 million MT and that in the UAE is projected to grow by 4.4% to 10.1 million MT. The expected growth rates largely mirror the population and GDP projections for the countries.
The GCC population is expected to witness an addition of 6.5 million individuals between 2016 and 2021. The growing consumer base will continue to act as the chief contributor to the growth in food consumption in the region. A growing proportion of working couples has led to an increase in demand for packaged foods and ready meals.
Economic growth in the GCC is expected to gradually gather momentum in line with stability in the oil prices and expansion of the non-oil sectors. Subsequently, GDP per capita in the region is projected to expand annually by 3.7% between 2016 and 2020, a strong indicator of increasing food consumption.
The increasing influx of tourists into the GCC, will also play a role in the growth of food consumption. Additionally, seasonal events such as Ramadan, shopping festivals, and food festivals will continue to boost food consumption in the region.
Increasing penetration of organised retail formats such as hypermarkets and supermarkets is likely to support the region's demand for packaged, healthy, and processed foods.
To strengthen food security and build a sustainable supply, the GCC countries are looking at ways to boost the domestic produce. Such developments, if fruitful, are likely to augment the scale of the food sector and reduce import dependency.
Hot and arid climatic conditions, limited arable land, and inadequate water resources in the GCC have resulted in a high dependency on food imports. This has exposed the regional economies to global food price fluctuations and geopolitical tensions. While efforts are being made to secure food supply by investing in farmlands abroad, establishing strong trade pacts, and boosting domestic produce, any disruptions pose a threat to the region's food security.
Regional governments' measures such as reduction in subsidy spend and public wages, tightening of liquidity and a subdued job market, are likely to affect consumer spending power and profitability of domestic food producers.
Inadequate number of warehouses and cold storages as well as shortage of transportation infrastructure in the GCC region has resulted in food wastage. With increasing quantity of food imports, the need for setting up a robust logistics infrastructure is being felt across the region.
Rising sales of packaged foods: Sale of packaged foods continues to rise amidst the busy working-class people in the GCC, who account for nearly half of the population.
Emerging Private labels: In light of the increasing demand for packaged foods, grocery retailers are expanding their product portfolio and distribution network by introducing more packaged products under private labels, as they are more profitable and attract customers due to low price points.
Growing demand for healthy and organic foods: As people in the region become health conscious due to rising incidence of lifestyle diseases, demand for healthy and organic foods is on a rise.
An advancing food processing segment: The number of food processing units in the GCC is increasing, with rising imports and re-export potential. While Saudi Arabia and the UAE have already established themselves as the food processing hubs, their regional counterparts are also gradually catching up.
Rise of digital technologies: From influencing consumer tastes to changing the way food products are sold, served or manufactured, digital technologies are reshaping the food value chain. Online shopping is gathering steam in the GCC, particularly in the UAE, as signalled by the proliferation of several online grocery and food delivery platforms. In addition to using technology to track customer preferences and monitor market trends, manufacturers are also resorting to modern technologies for optimising processes, reducing waste, managing costs, and improving logistics in order to enhance their overall production efficiency.
Food trucks – an emerging distribution channel: Operation of food trucks is also increasing in the GCC, with the opening of a new dedicated food truck park in the UAE and announcements by the regulators in Abu Dhabi and Qatar to grant licenses for operations. Increasing presence of food trucks in the region is likely to stimulate demand for speciality / gourmet food products.
Expanding halal food market: While global demand for halal food is growing, the sector faces structural and operational challenges due to lack of a unified global halal standard. Dubai has remained at the forefront of creating a global halal international accreditation network, which is likely to strengthen its position as a key global trading hub for halal food.
Popularity of International cuisines: Presence of people from various nationalities has carved a large market for international foods in the region. While multiple culinary options are available, the Japanese cuisine has been gaining popularity.
Mergers and Acquisitions (M&A) Activities
M&A activity in the sector has remained fairly buoyant with multiple deals being concluded in the past two years with Saudi Arabia and UAE attracting most transactions. This is owing to a host of factors including growing food demand due to rising populations and increasing tourist inflows, and growing significance of food security etc. With key trends expected to sustain, the M&A space will remain vibrant in the future.
Financial Performance of food companies in the region
The GCC Food sector is primarily dominated by three companies - Savola Group, Almarai Co., and Kuwait Food Co. We have analysed the financial performance of a selected set of 22 listed food companies in the GCC for the report. The combined revenue of these 22 food companies in the GCC grew at an average of 3.1% in the last two years. The dairy and processed & frozen foods segments outperformed the overall industry, having registered an average revenue growth of ~5% during the period. The agri and agri-processing segment accounted for the largest share in the food industry by revenue.
Although economic activity dampened in the last couple of years, corrective measures being undertaken to mitigate the adverse impact, complemented with a gradual stability in oil prices, are charting a path for sustainable and balanced growth in the GCC. The expected improvement in the job market and consumer spending, coupled with an expanding consumer base, will support the growth of the region's food sector.