MANAMA: Reflecting upon a thriving food and beverages industry in the GCC, the total size of the market is expected to reach $28 billion by 2020, Al Masah Capital Limited, the region’s leading name in investments and market analysis, released its special review report on the GCC food services sector.
Food services sector has surfaced as one of the most promising sectors in the GCC and has been rapidly growing over the past decade on the back of a flourishing economy, booming tourism, favourable demographics, rising urbanization and a sturdy rise in per capita income. The sector appeals to consumers across a broad income and cultural spectrum, including locals, expatriates and visiting tourists from all over the world. Over the past decade, this demand has been well supported by the entry of several international fast food, casual dining and health food restaurants in the region.
As per Euromonitor International, UAE ranked amongst the top 20 countries in the world in the food service markets worldwide in 2015, and grew around 56.3% at current prices between 2010 and 2015. Consumer food services in the UAE reached AED 52,399 million (USD 14,266 million) in 2015 from AED 33,534 million (USD 9,130 million) in 2010, growing at 9.3% CAGR during the period. Saudi Arabia and the UAE, home to nearly 77% of the overall GCC population in 2015, were the largest food consumption centres. The per capita food consumption in the region averaged at 851.9 kg in 2012, with Kuwait recording the highest levels, followed by Saudi Arabia and the UAE.
Major changes in work and life styles as well as changes in the consumption patterns have led to increase in frequency of people eating outside their homes. Additionally, rising obesity rates and related lifestyle diseases coupled with growing health awareness and a developing taste for a westernized diet, introduced by the increasing expatriate population, are bringing about a change in the region’s dietary habits, creating demand for organic and international foods. In-line with the healthy eating trend, food service operators are increasing their focus on locally sourced ingredients and are continuously developing innovative set-ups to make the art of food eating experience more appealing. Fast food or Quick Service Restaurants (QSR) remained the largest segment, accounting for 58.2% (USD 11.7 billion) of the GCC food services market in 2015, followed by Full Service Restaurant (FSR) with 31.5% market share (USD 6.3 billion), and Café & Bakery segment with 10.3% share (USD 2.1 billion).
With the growing cultural diversity and greater recognition and preference for branded products, international chains perceive tremendous growth potential in this region.
International chains continue to partner with regional players to understand the local business conditions and consumer trends, while it helps the local partners to offer global standard services. In addition to the rising population and tourism industry in GCC, the rise of social media and technology driven applications continue to build hearty expectations for the sector, helping push the food service sector further. Chained and specialist coffee shops are growing in popularity and exhibited strong growth during the last 3 years, a CAGR of 4.5%.
Detailing industry laterals, the report mentioned fast food segment as largest in the market accounting for 58% of the total USD 20.1 billion GCC foodservice market. It is dominated by international brands, largely due to their affordability, the sheer volume of outlets across the region, and heavy advertisement. Major industry trends like online ordering, casual dining, food trucks, kiosks and changing consumer palates are further fuelling demand for fast food options in the region. On the other hand, casual dining registered mass appeal and interest in western-styled coffee culture in terms of Café and Bakery has been trending upwards in the GCC, especially amongst the younger demographic.
Despite growing population, the continued GDP growth in the region has led to higher personal income levels, supporting the market for foodservice providers. Over the last decade, the GCC’s per capita income grew at 3.4% CAGR, highlighting the region’s rising affluence levels. This in turn has drawn international as well as local F&B providers to establish and expand their presence in the region. Most of the GCC nations have also been developing their tourism industry as part of their economic diversification strategy, which has helped drive demand for the foodservice sector, particularly in Saudi Arabia and the UAE.
However, despite an ostensibly bright future, shortage of skilled staff, high real estate and manpower costs, and inadequate supply chain infrastructure are some of the key roadblocks that have plagued the industry’s development over the years. High dependence on food imports, high rentals and occupancy costs and increase in competition has resulted in a tough environment where only the absolute professional and disciplined will flourish.
Concluding on the Private Equity Deals in the F&B industry, the report mentioned that PE activity in food services market gained momentum in the recent years, with 15 deals struck in the region since 2013 as compared to a total of 21 deals clocked between 2006-2016. Owing to the burgeoning growth in the GCC food service sector, several investors have turned their focus towards the industry to bolster their strengths by building onto established core brands. A total of 26 M&A deals took place in the GCC’s food service sector during 2010-2016, of which 13 deals took place since the beginning of 2015.
With one of the highest standards of living and largest proportion of expatriates in the world, coupled with an increasing number of incoming tourists, international food options and robust growth prospects, the GCC boasts of a thriving Food and Beverage industry creating ample demand for food service options to suit a myriad of tastes.