Saudi consumers unaffected by oil sector contraction
Although the outlook for the Saudi economy in the next 18 months is relatively bullish, a sudden and persistent downturn in the price of oil would represent a key downside risk to our growth forecasts.
Saudi consumer outlook remains bullish, with an uptick in private consumption and a regionally enviable demographic profile continuing to spur growth, the Saudi Arabia Food & Drink Report Q4 2013 said.
Although a contraction in the oil sector has affected real GDP growth, the consumer continues to be buoyed by gains made in the non-hydrocarbon sector as well as by high governmental expenditure. We forecast private consumption to grow by 6.0 percent in 2013, revised up from 5.0 percent previously, and expect the retail sector to remain bright over the medium term, boosted by rising disposable incomes and increasing urbanization.
The report said 2013 food consumption growth in local currency jumped 9.8 percent, while compound annual growth rate (CAGR) to 2017 would rise by 8.9 percent.
It added that confectionery value sales growth in 2013 in local currency increased 8.6 percent, while CAGR to 2017 would increase by 7.4 percent Moreover, 2013 mass grocery retail sales growth in local currency surged 11.7 percent, and CAGR to 2017 would grow by 10.5 percent.
Almarai has been one of the Gulf region’s fastest growing food and drink companies for a number of years now, with its very strong dairy business in its home market providing a foundation for growth. That said, it has taken some positive steps towards diversifying, both in terms of geography and business categories, spending a reported $1 billion on diversification since 2007. Almarai has recently reported a 15.8 percent year-on-year increase in sales to SR5.3 billion ($1.4 billion) for the six months to June 30 2013.
Tim Hortons Looks To Saudi Arabia For Growth: Coffee and doughnut specialist Tim Hortons, Canada’s largest restaurant chain, has announced impressive expansion plans for Saudi Arabia. Complementing its wider Gulf Cooperation Council operations started in 2011, the company plans to establish up to 100 multiformat outlets over the next five years with regional partner Apparel FCZO.
Although our outlook for the Saudi economy in the next 18 months is relatively bullish, a sudden and persistent downturn in the price of oil would represent a key downside risk to our growth forecasts, and cannot be ruled out given the uncertain state of the world economy. The government would most likely scale back oil production to keep prices supported, while a deterioration in Saudi Arabia’s fiscal and current account position could force a cutback in government spending. However, the government remains buffered by the size of its reserves and could likely keep expenditure elevated for some time, limiting the immediate impact on the economy
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