The value of food and non-alcoholic beverages purchased by the Saudi Arabian foodservice sector is currently valued at SR13.6 billion (US$3.6 billion) in wholesale prices. In consumer values, the Saudi foodservice market is worth a massive SR39.6 billion (US$10.6 billion). Following the solid growth gains expected during 2005, the total value of spending in Saudi Arabia’s foodservice industry is projected to equal SR15.8 billion (in wholesale prices) by 2006, according to a study by foodservice and economic research company BIS Shrapnel: Foodservice in the Middle East - Saudi Arabia, 2005–2006.
BIS Shrapnel is an Australian-based industry and economic forecasting firm with over 20 years experience in analysing the foodservice industry world-wide. This is the second study the company has undertaken in Saudi Arabia, having also previously completed foodservice analyses of the United Arab Emirates, Egypt, Kuwait, Bahrain, Qatar and Oman. Since completing the previous foodservice study for Saudi Arabia, the country has gone through a period of significant growth and development. BIS Shrapnel believes that suppliers who can provide very competitively priced products, with reasonably-good quality and have their products well represented in the distributor channels will realise extraordinary growth in the next few years.
The Saudi foodservice sector is conservatively forecast to grow by 7.6 per cent per annum over 2005 and 2006. The primary drivers are strong population growth, modernising consumer habits, domestic tourism and a buoyant economy.
Report author, Mr Andrew Penfold explains that the Saudi foodservice industry is highly fragmented, (with over 50,000 outlets) and current distribution channels are complex and inefficient. While this is a factor common to foodservice markets in developing countries, the Saudi Arabian example has a higher than average density of small ‘street’ outlets. This makes a sound and widely spread distribution network particularly important to the success of individual operators.
The cultural, social and religious profile of Saudi Arabia impacts the practicalities of operating in this market, according to Mr Penfold. Religious laws affect food consumption and also create fluctuations in demand throughout the year due to religious festivals. Most channels of the Saudi food industry are characterised by a high sensitivity to price, which has implications for distributors and retailers. Further, Saudi Arabia has a high percentage of young people amongst its population (under 30s account for 70 per cent of the population), who generally spend more on dining out. A large proportion of low paid foreign workers (many of whom are bachelors) show a high reliance on the foodservice industry, with this segment also boosting the catering sub-sector, as many workers are provided with meals as part of their employment.
Market trends identified during the field research indicate there has been a strong increase in coffee consumption, Middle Eastern cuisine is the fastest growing cuisine choice, quick service restaurants continue to grow in popularity (with locally owned chains expanding the fastest), and takeaway and home delivery is growing in importance.
Research shows that local manufacturers have been growing strongly, and in certain categories have a significant share of the market. Locally owned Saudi companies have a very strong market position across all sectors of food, including manufacturing, distribution and foodservice outlets. There is also a high degree of vertical integration and cross-ownership amongst Saudi companies.
On an expenditure basis, the largest foodservice channel is the ‘street channel’ — the small cheap eateries — with 26 per cent market share. This is followed by restaurants, quick service restaurants (QSRs), education and hotels. These five channels account for 80 per cent of the total market.
Based on interviews carried out by BIS Shrapnel with distributors in Saudi Arabia, the fastest growing product types in the foodservice industry are coffee, poultry, lamb/mutton, beef/veal, rice, bakery products, French fries, pasta and olive oil. The value of food ingredients and non-alcoholic beverages purchased by the industry in 2004 is estimated at SR13.6 billion, with the meat, poultry and fish category accounting for 34 per cent of expenditure, beverages 17 per cent, fruit and vegetables 14 per cent and dairy products 13 per cent.
Survey respondents were also questioned regarding methods of ordering. The most popular method identified was via visiting sales representatives, and faxing the supplier — both with a 27 per cent response rate. The most important factors in choosing a supplier were given as product quality, closely followed by price or value for money, and customer service.
The highest growth and best overall prospects for food and beverage suppliers will be in the commercial channels who serve lower priced meals, such as street outlets and QSRs. The commercial sector is projected to grow by 8.4 per cent per annum over 2005 and 2006, with the institutional sector forecast to achieve 4.8 per cent per annum growth during the same period.
The main factor restricting the expansion of foodservice in Saudi Arabia is income levels. The low to current moderate average income level restricts expenditure per household on eating out. A significant change in income levels would drive a major acceleration in foodservice consumption across all parts of the population. Nevertheless, Saudi Arabia is still a substantial market, boosted in particular by the large contingent of foreign workers and growing tourism. BIS Shrapnel is forecasting moderate to high growth in the sector over the coming two years, with a projected annual average of 7.6 per cent. However, this conservative estimate may well be surpassed.
